SECURITIES
          AND
          EXCHANGE COMMISSION
 WASHINGTON,
          D.C. 20549
 FORM
              10-QSB
 [X]
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                  EXCHANGE ACT OF 1934
 For
                    the quarterly period ended June 30, 2005
 OR
 [
                        ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE
                        ACT OF 1934
 For
                        the transition period from to
 Commission
                          File No. 000-32429
 GOLDSPRING,
                            INC.
 (Exact
                            name of small business issuer as specified in its
                            charter)
 FLORIDA
                                    7389
                                    65-0955118(State
                                        or
                                        other jurisdiction of
                                    (Primary
                                        Standard Industrial
                                    (I.R.S.
                                        Employerincorporation
                                        or organization)
                                    Classification
                                        Code Number)
                                    Identification
                                        No.)
  P.O.
                              Box 1118
 Virginia
                              City, NV 89440
 (775)
                              847-5272
 (Address,
                              including zip code, and telephone number,
 including
                              area code, of registrant's principal executive
                              offices)
  Check
                                whether the issuer (1) has filed all reports required
                                to be filed
                                by Section 13 or 15(d) of the Exchange Act during
                                the preceding 12 months (or
                                for such shorter period that the issuer was required
                                to file such reports), and
                                (2)has been subject to such filing requirements for
                                the past 90
                                days.
  Yes
                                [x] No [ ]
  Check
                                  if there is no disclosure of delinquent filers
                                  in response to Item
                                  405 of Regulation S-B contained in this form, and
                                  no disclosure will be
                                  contained, to the best of the issuer's knowledge,
                                  in definitive proxy or
                                  information statements incorporated by reference
                                  in Part III of this Form 10-QSB
                                  or any amendment to this Form 10-QSB [ ]
  State
                                      the number of shares outstanding of each of
                                      the issuer's classes of
                                      common equity, as of the last practicable date:
                                      250,201,992 shares of Common
                                      Stock, $0.000666 Par Value, as of June 30,
                                      2005.
 TABLE
                                              OF CONTENTS
 PART
                                                  I - FINANCIAL INFORMATION
 ITEM
                                                            1.
                                                          
                                                          UNAUDITED
                                                            FINANCIAL STATEMENTS
                                                          
                                                          F-1Consolidated
                                                            Balance Sheet as of June
                                                            30, 2005
                                                            (Unaudited)
                                                          
                                                          F-1Consolidated
                                                            Statements of Operations
                                                            for the three month
                                                            periods ended
                                                            June 30, 2005 and 2004
                                                            (Unaudited)
                                                          
                                                          F-3Consolidated
                                                            Statements of Operations
                                                            for the six month
                                                            periods ended
                                                            June 30, 2005 and 2004
                                                            (Unaudited)
                                                          
                                                          F-4Consolidated
                                                            Statements of Cash Flows
                                                            for the periods ended
                                                            June
                                                            30, 2005 and 2004 (Unaudited)
                                                          
                                                          F-5Notes
                                                            to
                                                            Financial Statements
                                                          
                                                          F-7-8ITEM
                                                            2.MANAGEMENT'S
                                                            DISCUSSION AND ANALYSIS
                                                            OR PLAN OF OPERATIONS
                                                          
                                                          1ITEM
                                                            3.CONTROLS
                                                            AND
                                                            PROCEDURES
                                                          
                                                          6PART
                                                              II -OTHER
                                                              INFORMATIONITEM
                                                            1.LEGAL
                                                            PROCEEDINGSITEM
                                                            2.UNREGISTERED
                                                            SALES OF EQUITY SECURITIES
                                                            AND USE OF PROCEEDS
                                                          
                                                          10ITEM
                                                            3.DEFAULTS
                                                            UPON
                                                            SENIOR SECURITIES
                                                          
                                                          10ITEM
                                                            4SUBMISSION
                                                            OF
                                                            MATTERS TO A VOTE OF
                                                            SECURITY HOLDERS
                                                          
                                                          11ITEM
                                                            5.OTHER
                                                            INFORMATION
                                                          
                                                          11ITEM
                                                            6EXHIBITS
                                                            AND
                                                            REPORTS ON FORM 8-K
                                                          
                                                          11SIGNATURES
                                                          
                                                          13
 
 
 **Statement
                                                      Regarding Forward-Looking
                                                      Statements**
  *The
                                                        statements contained in this
                                                        report on Form 10-QSB that
                                                        are not
                                                        purely historical are forward-looking
                                                        statements within the meaning
                                                        of
                                                        applicable securities laws.
                                                        Forward-looking statements
                                                        include statements
                                                        regarding our “expectations,”“anticipation,”“intentions,”“beliefs,” or
“strategies” regarding the future. Forward
                                                        looking statements also include
                                                        statements regarding fluctuations
                                                        in the price of gold or certain
                                                        other
                                                        commodities, (such as silver,
                                                        copper, diesel fuel, and
                                                        electricity); changes in
                                                        national and local government
                                                        legislation, taxation, controls,
                                                        regulations and
                                                        political or economic changes
                                                        in the United States or other
                                                        countries in which
                                                        we may carry on business
                                                        in the future; business opportunities
                                                        that may be
                                                        presented to or pursued by
                                                        us; our ability to integrate
                                                        acquisitions
                                                        successfully; operating or
                                                        technical difficulties in
                                                        connection with exploration
                                                        or mining activities; the
                                                        speculative nature of gold
                                                        exploration, including
                                                        risks of diminishing quantities
                                                        or grades of reserves; and
                                                        contests over our
                                                        title to properties. All
                                                        forward-looking statements
                                                        included in this report are
                                                        based on information available
                                                        to us as of the filing date
                                                        of this report, and
                                                        we assume no obligation to
                                                        update any such forward-looking
                                                        statements. Our
                                                        actual results could differ
                                                        materially from the forward-looking
                                                        statements.
                                                        Among the factors that could
                                                        cause actual results to differ
                                                        materially are the
                                                        factors discussed in Item
                                                        1, “Business - Risk Factors” in our Form 10-KSB for
                                                        the year ended December 31,
                                                        2004.*
 **PART
                                                                  I - FINANCIAL INFORMATION**
 **ITEM
                                                                    1 - FINANCIAL
                                                                    STATEMENTS**
 **GOLDSPRING,
                                                                        INC.**
 **UNAUDITED
                                                                        CONDENSED
                                                                        CONSOLIDATED
                                                                        BALANCE
                                                                        SHEET**
 June
                                                                                30,
                                                                                2005
                                                                              (Unaudited)
                                                                            
                                                                            
                                                                            As
                                                                                Restated
                                                                              December
                                                                                31,
                                                                              2004**ASSETS**CURRENT
                                                                                ASSETS:Cash
                                                                                and
                                                                                cash
                                                                                equivalents
                                                                            
                                                                            $
                                                                            46,295
                                                                            
                                                                            $
                                                                            1,951,802Prepaid
                                                                                expenses
                                                                                and
                                                                                other
                                                                                current
                                                                                assets
                                                                            
                                                                            
                                                                            144,501
                                                                            
                                                                            
                                                                            149,796Finished
                                                                                goods
                                                                                inventory
                                                                            
                                                                            
                                                                            228,286
                                                                            
                                                                            
                                                                            288,687Inventory
                                                                            
                                                                            
                                                                            32,964
                                                                            
                                                                            
                                                                            -TOTAL
                                                                                CURRENT
                                                                                ASSETS
                                                                            
                                                                            
                                                                            452,046
                                                                            
                                                                            
                                                                            2,390,285PLANT,
                                                                                EQUIPMENT,
                                                                                MINE
                                                                                DEVELOPMENT,
                                                                                AND
                                                                                MINERAL
                                                                                PROPERTIES,
                                                                                NET:Mineral
                                                                                properties
                                                                            
                                                                            
                                                                            1,258,833
                                                                            
                                                                            
                                                                            1,291,580Plant,
                                                                                Equipment,
                                                                                Mine
                                                                                Development
                                                                            
                                                                            
                                                                            1,451,369
                                                                            
                                                                            
                                                                            1,379,614Plant,
                                                                                Equipment,
                                                                                Mine
                                                                                Development,
                                                                                and
                                                                                Mineral
                                                                                Properties
                                                                            
                                                                            
                                                                            2,710,202
                                                                            
                                                                            
                                                                            2,671,194Accumulated
                                                                                depreciation
                                                                            
                                                                            
                                                                            (376,521
                                                                            )
                                                                            
                                                                            (219,834
                                                                            )TOTAL
                                                                                PROPERTY
                                                                                AND
                                                                                EQUIPMENT
                                                                            
                                                                            
                                                                            2,333,681
                                                                            
                                                                            
                                                                            2,451,360OTHER
                                                                                ASSETS:Reclamation
                                                                                deposit
                                                                            
                                                                            
                                                                            377,169
                                                                            
                                                                            
                                                                            377,169Equipment
                                                                                purchase
                                                                                deposit
                                                                            
                                                                            
                                                                            100,000
                                                                            
                                                                            
                                                                            110,000TOTAL
                                                                                OTHER
                                                                                ASSETS
                                                                            
                                                                            
                                                                            477,169
                                                                            
                                                                            
                                                                            487,169TOTAL
                                                                                ASSETS
                                                                            
                                                                            $
                                                                            3,262,896
                                                                            
                                                                            
                                                                            5,328,814CURRENT
                                                                                LIABILITIESAccounts
                                                                                Payable
                                                                            
                                                                            $
                                                                            1,661,371
                                                                            
                                                                            $
                                                                            589,800Accrued
                                                                                Expenses
                                                                            
                                                                            
                                                                            1,911,845
                                                                            
                                                                            
                                                                            792,883Short-Term
                                                                                Lease
                                                                                Obligations
                                                                            
                                                                            
                                                                            34,772
                                                                            
                                                                            
                                                                            34,517Current
                                                                                portion
                                                                                of
                                                                                long-term
                                                                                debt
                                                                            
                                                                            
                                                                            14,564,684
                                                                            
                                                                            
                                                                            11,521,776TOTAL
                                                                                CURRENT
                                                                                LIABILITIES
                                                                            
                                                                            
                                                                            18,172,672
                                                                            
                                                                            
                                                                            12,938,976LONG-TERM
                                                                                DEBT
                                                                                AND
                                                                                OTHER
                                                                                LONG-TERM
                                                                                LIABILITIESLong-term
                                                                                debt,
                                                                                net
                                                                                of
                                                                                current
                                                                                portion
                                                                            
                                                                            
                                                                            38,859
                                                                            
                                                                            
                                                                            243,858Long-term
                                                                                Lease
                                                                                obligation,
                                                                                net
                                                                                of
                                                                                current
                                                                                portion
                                                                            
                                                                            
                                                                            97,102
                                                                            
                                                                            
                                                                            119,152Long-term
                                                                                Reclamation
                                                                                liability
                                                                            
                                                                            
                                                                            553,190
                                                                            
                                                                            
                                                                            553,190TOTAL
                                                                                LONG-TERM
                                                                                DEBT
                                                                                AND
                                                                                OTHER
                                                                                LONG-TERM
                                                                                LIABILITIES
                                                                            
                                                                            
                                                                            689,151
                                                                            
                                                                            
                                                                            916,200TOTAL
                                                                                LIABILITIES
                                                                            
                                                                            $
                                                                            18,861,823
                                                                            
                                                                            $
                                                                            13,855,176SHAREHOLDERS'
                                                                                DEFICITCommon
                                                                                stock,
                                                                                $.000666
                                                                                par
                                                                                value,
                                                                                500,000,000shares
                                                                                authorized
                                                                                ,
                                                                                250,201,922
                                                                                shares
                                                                                issued
                                                                                and
                                                                                outstanding
                                                                            
                                                                            $
                                                                            166,635
                                                                            
                                                                            $
                                                                            113,966Treasury
                                                                                Stock
                                                                            
                                                                            
                                                                            (67
                                                                            )
                                                                            
                                                                            (67
                                                                            )Additional
                                                                                paid-in
                                                                                capital
                                                                                (See
                                                                                Note
                                                                                C)
                                                                            
                                                                            
                                                                            3,013,208
                                                                            
                                                                            
                                                                            3,574,272Accumulated
                                                                                deficit
                                                                                -
                                                                                Prior
                                                                                years
                                                                            
                                                                            
                                                                            (12,214,532
                                                                            )
                                                                            
                                                                            (2,601,741
                                                                            )Accumulated
                                                                                deficit
                                                                                -
                                                                                Current
                                                                                year
                                                                            
                                                                            
                                                                            (6,564,170
                                                                            )
                                                                            
                                                                            (9,612,792
                                                                            )TOTAL
                                                                                SHAREHOLDERS’
                                                                                DEFICIENCY
                                                                            
                                                                            
                                                                            (15,598,926
                                                                            )
                                                                            
                                                                            (8,526,362
                                                                            )TOTAL
                                                                                LIABILITIES
                                                                                AND
                                                                                SHAREHOLDERS’
                                                                                DEFICIENCY
                                                                            
                                                                            $
                                                                            3,262,896
                                                                            
                                                                            $
                                                                            5,328,814
   The
                                                                  accompanying
                                                                  notes are an integral
                                                                  part of these financial
                                                                  statements
  F-1
  **GOLDSPRING,
                                                                    INC.**
 **UNAUDITED
                                                                    CONDENSED CONSOLIDATED
                                                                    STATEMENTS OF
                                                                    OPERATIONS**
 **For
                                                                    the three month
                                                                    periods ended
                                                                    June
                                                                    30,**
 **2005**
                                                                          
                                                                          
                                                                          **2004**(Unaudited)
                                                                          
                                                                          
                                                                          (Unaudited)REVENUE
                                                                              FROM
                                                                              GOLD
                                                                              SALES
                                                                          
                                                                          $
                                                                          691,861
                                                                          
                                                                          $
                                                                          -COSTS
                                                                              AND
                                                                              EXPENSESCosts
                                                                              Applicable
                                                                              to
                                                                              sales
                                                                              (exclusive
                                                                              of
                                                                              depreciation,
                                                                              and
                                                                              amortization
                                                                              shown
                                                                              separately
                                                                              below)Depletion,
                                                                              depreciation
                                                                              and
                                                                              amortization
                                                                          
                                                                          
                                                                          104,042
                                                                          
                                                                          
                                                                          -Reclamation,
                                                                              Exploration
                                                                              and
                                                                              Test
                                                                              Mining
                                                                              Expenses
                                                                          
                                                                          
                                                                          1,541,290
                                                                          
                                                                          
                                                                          1,401,856General
                                                                              and
                                                                              administrative
                                                                          
                                                                          
                                                                          234,281
                                                                          
                                                                          
                                                                          304,580Other
                                                                          
                                                                          
                                                                          174,196
                                                                          
                                                                          
                                                                          15,096TOTAL
                                                                              COSTS
                                                                              AND
                                                                              EXPENSES
                                                                          
                                                                          
                                                                          2,053,809
                                                                          
                                                                          
                                                                          1,721,532OTHER
                                                                              INCOME
                                                                              (EXPENSE)Gain
                                                                              on
                                                                              derivative
                                                                              instruments,
                                                                              net
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          395,150Other
                                                                              (See
                                                                              Note
                                                                              B)
                                                                          
                                                                          
                                                                          (985,835
                                                                          )
                                                                          
                                                                          (42,180
                                                                          )Interest
                                                                              expense
                                                                          
                                                                          
                                                                          (468,623
                                                                          )
                                                                          
                                                                          -Interest
                                                                              income
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          12,178(1,454,458
                                                                          )
                                                                          
                                                                          365,148NET
                                                                              LOSS
                                                                          
                                                                          
                                                                          (2,816,406
                                                                          )
                                                                          
                                                                          (1,356,384
                                                                          )Net
                                                                              loss
                                                                              per
                                                                              common
                                                                              share
                                                                              - basic
                                                                          
                                                                          $
                                                                          (0.012
                                                                          )
                                                                          $
                                                                          (0.007
                                                                          )Basic
                                                                              weighted
                                                                              average
                                                                              common
                                                                              shares
                                                                              outstanding
                                                                          
                                                                          
                                                                          243,982,021
                                                                          
                                                                          
                                                                          193,326,278
 The
                                                                    accompanying
                                                                    notes are an
                                                                    integral part
                                                                    of these financial
                                                                    statements
 
 F-2
 **GOLDSPRING,
                                                                      INC.**
 **UNAUDITED
                                                                      CONDENSED CONSOLIDATED
                                                                      STATEMENTS
                                                                      OF
                                                                      OPERATIONS**
 **For
                                                                      the six month
                                                                      periods ended
                                                                      June
                                                                      30,**
 **2005**
                                                                          
                                                                          
                                                                          **2004**(Unaudited)
                                                                          
                                                                          
                                                                          (Unaudited)REVENUE
                                                                              FROM
                                                                              GOLD
                                                                              SALES
                                                                          
                                                                          $
                                                                          1,203,951
                                                                          
                                                                          $
                                                                          -COSTS
                                                                              AND
                                                                              EXPENSESCosts
                                                                              Applicable
                                                                              to
                                                                              sales
                                                                              (exclusive
                                                                              of
                                                                              depreciation,
                                                                              and
                                                                              amortization
                                                                              shown
                                                                              separately
                                                                              below)
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          -Depletion,
                                                                              depreciation
                                                                              and
                                                                              amortization
                                                                          
                                                                          
                                                                          189,434
                                                                          
                                                                          
                                                                          -Reclamation,
                                                                              Exploration
                                                                              and
                                                                              Test
                                                                              Mining
                                                                              Expenses
                                                                          
                                                                          
                                                                          2,811,380
                                                                          
                                                                          
                                                                          3,115,950General
                                                                              and
                                                                              administrative
                                                                          
                                                                          
                                                                          518,535
                                                                          
                                                                          
                                                                          578,443Consulting
                                                                              and
                                                                              professional
                                                                              services
                                                                          
                                                                          
                                                                          678,464
                                                                          
                                                                          
                                                                          145,979TOTAL
                                                                              COSTS
                                                                              AND
                                                                              EXPENSES
                                                                          
                                                                          
                                                                          4,197,813
                                                                          
                                                                          
                                                                          3,840,372OTHER
                                                                              INCOME
                                                                              (EXPENSE)Gain
                                                                              on
                                                                              derivative
                                                                              instruments,
                                                                              net
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          395,150Other
                                                                              (See
                                                                              Note
                                                                              B)
                                                                          
                                                                          
                                                                          (2,860,468
                                                                          )
                                                                          
                                                                          (42,180
                                                                          )Interest
                                                                              expense
                                                                          
                                                                          
                                                                          (723,862
                                                                          )
                                                                          
                                                                          -Interest
                                                                              income
                                                                          
                                                                          
                                                                          13,526
                                                                          
                                                                          
                                                                          12,636(3,570,804
                                                                          )
                                                                          
                                                                          365,606NET
                                                                              LOSS
                                                                          
                                                                          
                                                                          (6,564,170
                                                                          )
                                                                          
                                                                          (3,474,766
                                                                          )Net
                                                                              loss
                                                                              per
                                                                              common
                                                                              share
                                                                              - basic
                                                                          
                                                                          $
                                                                          (0.031
                                                                          )
                                                                          $
                                                                          (0.019
                                                                          )Basic
                                                                              weighted
                                                                              average
                                                                              common
                                                                              shares
                                                                              outstanding
                                                                          
                                                                          
                                                                          208,705,670
                                                                          
                                                                          
                                                                          184,291,427
  The
                                                                        accompanying
                                                                        notes are
                                                                        an integral
                                                                        part of these
                                                                        financial
                                                                        statements
 
 F-3
   **GOLDSPRING,
                                                                          INC.**
 **UNAUDITED
                                                                        CONDENSED
                                                                        CONSOLIDATED
                                                                        STATEMENTS
                                                                        OF CASH
                                                                        FLOWS**
  For
                                                                        the six month
                                                                        periods ended
                                                                        June 30,
 
 **2005**
                                                                              
                                                                              
                                                                              **2004**(Unaudited)
                                                                              
                                                                              
                                                                              (Unaudited)Cash
                                                                                  flows
                                                                                  from
                                                                                  operating
                                                                                  activities:Net
                                                                                  loss
                                                                              
                                                                              $
                                                                              (6,564,170
                                                                              )
                                                                              $
                                                                              (3,474,766
                                                                              )Adjustments
                                                                                  to
                                                                                  reconcile
                                                                                  net
                                                                                  loss
                                                                                  to
                                                                                  net
                                                                                  cashused
                                                                                  in
                                                                                  operating
                                                                                  activities:Depreciation,
                                                                                  depletion,
                                                                                  and
                                                                                  amortization
                                                                              
                                                                              
                                                                              189,434
                                                                              
                                                                              
                                                                              -Liquidated
                                                                                  damages
                                                                                  from
                                                                                  November
                                                                                  2004
                                                                                  restructuring
                                                                                  converted
                                                                                  into
                                                                                  common
                                                                                  stock
                                                                              
                                                                              
                                                                              1,776,104
                                                                              
                                                                              
                                                                              -Consulting
                                                                                  services
                                                                                  provided
                                                                                  in
                                                                                  exchange
                                                                                  for
                                                                                  common
                                                                                  stock
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              42,000Accrued
                                                                                  Loss
                                                                                  on
                                                                                  Sale
                                                                                  of
                                                                                  Gold
                                                                                  Investment
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              42,180(Increase)
                                                                                  Decrease
                                                                                  in
                                                                                  operating
                                                                                  assets:Finished
                                                                                  goods
                                                                                  inventory
                                                                              
                                                                              
                                                                              60,401
                                                                              
                                                                              
                                                                              (106,689
                                                                              )Inventory
                                                                              
                                                                              
                                                                              (32,964
                                                                              )
                                                                              
                                                                              -Prepaid
                                                                                  and
                                                                                  other
                                                                                  current
                                                                                  assets
                                                                              
                                                                              
                                                                              5,295
                                                                              
                                                                              
                                                                              (70,841
                                                                              )Other
                                                                                  assets
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              235,609Increase
                                                                                  (decrease)
                                                                                  in
                                                                                  operating
                                                                                  liabilities:Accounts
                                                                                  payable
                                                                              
                                                                              
                                                                              1,071,571
                                                                              
                                                                              
                                                                              375,097Accrued
                                                                                  expenses
                                                                              
                                                                              
                                                                              1,118,960
                                                                              
                                                                              
                                                                              191,904Other
                                                                              
                                                                              
                                                                              268,250
                                                                              
                                                                              
                                                                              -Total
                                                                                  Adjustments
                                                                                  to
                                                                                  Reconcile
                                                                                  Net
                                                                                  Loss
                                                                                  Used
                                                                                  in
                                                                                  Operating
                                                                                  Activities
                                                                              
                                                                              
                                                                              4,917,318
                                                                              
                                                                              
                                                                              709,260Net
                                                                                  cash
                                                                                  used
                                                                                  in
                                                                                  operating
                                                                                  activities
                                                                              
                                                                              
                                                                              (1,646,852
                                                                              )
                                                                              
                                                                              (2,765,506
                                                                              )Investing
                                                                                  activities:Investment
                                                                                  in
                                                                                  Gold
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              (1,016,700
                                                                              )Equipment
                                                                                  deposit
                                                                              
                                                                              
                                                                              10,000
                                                                              
                                                                              
                                                                              -Acquisition
                                                                                  of
                                                                                  plant,
                                                                                  equipment
                                                                                  and
                                                                                  mineral
                                                                                  properties
                                                                              
                                                                              
                                                                              (71,754
                                                                              )
                                                                              
                                                                              (39,111
                                                                              )Net
                                                                                  cash
                                                                                  used
                                                                                  in
                                                                                  investing
                                                                                  activities
                                                                              
                                                                              
                                                                              (81,754
                                                                              )
                                                                              
                                                                              (1,055,811
                                                                              )Financing
                                                                                  activities:Net
                                                                                  Proceeds
                                                                                  from
                                                                                  Issuance
                                                                                  of
                                                                                  Stock
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              332,500Proceeds
                                                                                  from
                                                                                  March
                                                                                  2004
                                                                                  financing,
                                                                                  net
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              9,150,000Purchase
                                                                                  and
                                                                                  Cancellation
                                                                                  of
                                                                                  Company’s
                                                                                  Stock
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              (150,000
                                                                              )Purchase
                                                                                  of
                                                                                  Company’s
                                                                                  Stock
                                                                                  and
                                                                                  Recorded
                                                                                  to
                                                                                  Treasury
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              (75,000
                                                                              )Conversion
                                                                                  of
                                                                                  debt
                                                                                  into
                                                                                  Company’s
                                                                                  common
                                                                                  shares
                                                                              
                                                                              
                                                                              460,267
                                                                              
                                                                              
                                                                              -Principal
                                                                                  payment
                                                                                  Note
                                                                                  Payable
                                                                              
                                                                              
                                                                              (176,901
                                                                              )
                                                                              
                                                                              (200,000
                                                                              )Net
                                                                                  Cash
                                                                                  flows
                                                                                  provided
                                                                                  by
                                                                                  financing
                                                                                  activities
                                                                              
                                                                              
                                                                              283,366
                                                                              
                                                                              
                                                                              9,057,500Net
                                                                                  Increase
                                                                                  (Decrease)
                                                                                  in
                                                                                  cash
                                                                              
                                                                              
                                                                              (1,905,507
                                                                              )
                                                                              
                                                                              5,236,183Cash
                                                                                  -
                                                                                  beginning
                                                                                  of
                                                                                  period
                                                                              
                                                                              
                                                                              1,951,802
                                                                              
                                                                              
                                                                              364,138Cash
                                                                                  -
                                                                                  end
                                                                                  of
                                                                                  period
                                                                              
                                                                              $
                                                                              46,295
                                                                              
                                                                              $
                                                                              5,600,321Cash
                                                                                paid
                                                                                during
                                                                                the
                                                                                period for
                                                                                interest
                                                                              
                                                                              $
                                                                              5,000
                                                                              
                                                                              $
                                                                              0Cash
                                                                                paid
                                                                                during
                                                                                the
                                                                                period for
                                                                                income
                                                                                taxes
                                                                              
                                                                              $
                                                                              0
                                                                              
                                                                              $
                                                                              0Supplemental
                                                                                  disclosures
                                                                                  of
                                                                                  non-cash
                                                                                  investing
                                                                                  and
                                                                                  financing
                                                                                  activities:Issuance
                                                                                  of
                                                                                  notes
                                                                                  for
                                                                                  liquidated
                                                                                  damages
                                                                                  for
                                                                                  failure
                                                                                  to
                                                                                  deliver
                                                                                  shares
                                                                              
                                                                              $
                                                                              403,175
                                                                              
                                                                              $
                                                                              -Issuance
                                                                                  of
                                                                                  notes
                                                                                  for
                                                                                  mandatory
                                                                                  redemption
                                                                                  payment
                                                                                  plus
                                                                                  accrued
                                                                                  interest
                                                                              
                                                                              $
                                                                              6,885,184
                                                                              
                                                                              $
                                                                              -Purchase
                                                                                  and
                                                                                  cancellation
                                                                                  of
                                                                                  common
                                                                                  stock
                                                                                  in
                                                                                  connection
                                                                                  with
                                                                                  mandatory
                                                                                  redemption
                                                                                  payment
                                                                              
                                                                              $
                                                                              6,801,975
                                                                              
                                                                              $
                                                                              -
 The
                                                                            accompanying
                                                                            notes
                                                                            are an
                                                                            integral
                                                                            part
                                                                            of these
                                                                            financial
                                                                            statements
  F-4
 
 GOLDSPRING,
                                                                            INC.
 NOTES
                                                                            TO FINANCIAL
                                                                            STATEMENTS
 June
                                                                            30, 2005
                                                                            AND 2004
  **NOTE
                                                                                A
                                                                                -
                                                                                SUMMARY
                                                                                OF
                                                                                SIGNIFICANT
                                                                                ACCOUNTING
                                                                                POLICIES/
                                                                                OVERVIEW**
  **Forward-Looking
                                                                                  Statements**
  The
                                                                                    following
                                                                                    discussion
                                                                                    contains,
                                                                                    in
                                                                                    addition
                                                                                    to
                                                                                    historical
                                                                                    information,
                                                                                    forward-looking
                                                                                    statements
                                                                                    regarding
                                                                                    GoldSpring,
                                                                                    Inc.
                                                                                    (“we,”
                                                                                    the
                                                                                    "Company,"
                                                                                    or
                                                                                    "GSPG"),
                                                                                    that
                                                                                    involve
                                                                                    risks
                                                                                    and
                                                                                    uncertainties.
                                                                                    Our
                                                                                    actual
                                                                                    results
                                                                                    could
                                                                                    differ
                                                                                    materially.
                                                                                    For
                                                                                    this
                                                                                    purpose,
                                                                                    any
                                                                                    statements
                                                                                    contained
                                                                                    in
                                                                                    this
                                                                                    Report
                                                                                    that
                                                                                    are
                                                                                    not
                                                                                    statements
                                                                                    of
                                                                                    historical
                                                                                    fact
                                                                                    may
                                                                                    be
                                                                                    deemed
                                                                                    to
                                                                                    be
                                                                                    forward-looking
                                                                                    statements.
                                                                                    Without
                                                                                    limiting
                                                                                    the
                                                                                    generality
                                                                                    of
                                                                                    the
                                                                                    foregoing,
                                                                                    words
                                                                                    such
                                                                                    as
                                                                                    "may,"
                                                                                    "will,"
                                                                                    "expect,"
                                                                                    "believe,"
                                                                                    "anticipate,"
                                                                                    "intend,"
                                                                                    "could,"
                                                                                    "estimate,"
                                                                                    or
                                                                                    "continue"
                                                                                    or
                                                                                    the
                                                                                    negative
                                                                                    or
                                                                                    other
                                                                                    variations
                                                                                    thereof
                                                                                    or
                                                                                    comparable
                                                                                    terminology
                                                                                    are
                                                                                    intended
                                                                                    to
                                                                                    identify
                                                                                    forward-looking
                                                                                    statements.
                                                                                    Factors
                                                                                    that
                                                                                    could
                                                                                    cause
                                                                                    or
                                                                                    contribute
                                                                                    to
                                                                                    such
                                                                                    differences
                                                                                    include
                                                                                    possible
                                                                                    need
                                                                                    for
                                                                                    additional
                                                                                    financing;
                                                                                    dependence
                                                                                    on
                                                                                    management;
                                                                                    government
                                                                                    regulation;
                                                                                    and
                                                                                    other
                                                                                    factors
                                                                                    discussed
                                                                                    in
                                                                                    this
                                                                                    report
                                                                                    and
                                                                                    the
                                                                                    Company's
                                                                                    other
                                                                                    filings
                                                                                    with
                                                                                    the
                                                                                    Securities
                                                                                    and
                                                                                    Exchange
                                                                                    Commission.
  **Basis
                                                                                      of
                                                                                      Presentation**
  The
                                                                                        accompanying
                                                                                        unaudited
                                                                                        condensed
                                                                                        financial
                                                                                        statements
                                                                                        have
                                                                                        been
                                                                                        prepared
                                                                                        in
                                                                                        accordance
                                                                                        with
                                                                                        generally
                                                                                        accepted
                                                                                        accounting
                                                                                        principles
                                                                                        for
                                                                                        interim
                                                                                        financial
                                                                                        information
                                                                                        and
                                                                                        with
                                                                                        the
                                                                                        instructions
                                                                                        to
                                                                                        Form
                                                                                        10-QSB
                                                                                        and
                                                                                        Article
                                                                                        10
                                                                                        of
                                                                                        Regulation
                                                                                        S-B.
                                                                                        Accordingly,
                                                                                        they
                                                                                        do
                                                                                        not
                                                                                        include
                                                                                        all
                                                                                        of
                                                                                        the
                                                                                        information
                                                                                        and
                                                                                        footnotes
                                                                                        required
                                                                                        by
                                                                                        generally
                                                                                        accepted
                                                                                        accounting
                                                                                        principles
                                                                                        for
                                                                                        complete
                                                                                        financial
                                                                                        statements.
                                                                                        In
                                                                                        our
                                                                                        opinion,
                                                                                        all
                                                                                        adjustments
                                                                                        (consisting
                                                                                        of
                                                                                        normal
                                                                                        recurring
                                                                                        accruals)
                                                                                        considered
                                                                                        necessary
                                                                                        for
                                                                                        a
                                                                                        fair
                                                                                        presentation
                                                                                        have
                                                                                        been
                                                                                        included.
                                                                                        Operating
                                                                                        results
                                                                                        for
                                                                                        the
                                                                                        three-month
                                                                                        period
                                                                                        ended
                                                                                        June
                                                                                        30,
                                                                                        2005
                                                                                        are
                                                                                        not
                                                                                        necessarily
                                                                                        indicative
                                                                                        of
                                                                                        the
                                                                                        results
                                                                                        that
                                                                                        may
                                                                                        be
                                                                                        expected
                                                                                        for
                                                                                        the
                                                                                        year
                                                                                        ending
                                                                                        December
                                                                                        31,
                                                                                        2005.
                                                                                        For
                                                                                        further
                                                                                        information,
                                                                                        refer
                                                                                        to
                                                                                        the
                                                                                        financial
                                                                                        statements
                                                                                        and
                                                                                        footnotes
                                                                                        thereto
                                                                                        included
                                                                                        in
                                                                                        our
                                                                                        Form
                                                                                        10-KSB
                                                                                        Report
                                                                                        for
                                                                                        the
                                                                                        fiscal
                                                                                        year
                                                                                        ended
                                                                                        December
                                                                                        31,
                                                                                        2004.
  **NOTE
                                                                                            B
                                                                                            -LIQUIDATED
                                                                                            DAMAGES**
  For
                                                                                              the
                                                                                              first
                                                                                              half
                                                                                              of
                                                                                              2005
                                                                                              (ended
                                                                                              June
                                                                                              30,
                                                                                              2005),
                                                                                              we
                                                                                              recorded
                                                                                              liquidated
                                                                                              damages
                                                                                              expenses
                                                                                              due
                                                                                              to
                                                                                              investors
                                                                                              of
                                                                                              our
                                                                                              March
                                                                                              2004
                                                                                              offering
                                                                                              and
                                                                                              subsequent
                                                                                              November
                                                                                              30,
                                                                                              2004
                                                                                              restructuring
                                                                                              as
                                                                                              follows:
  Liquidated
                                                                                                        damages
                                                                                                        relating
                                                                                                        to:November
                                                                                                        30,
                                                                                                        2004
                                                                                                        Non-Registration
                                                                                                        Provisions
                                                                                                    
                                                                                                    $
                                                                                                    2,761,939Failure
                                                                                                        to
                                                                                                        timely
                                                                                                        deliver
                                                                                                        shares
                                                                                                        upon
                                                                                                        notice
                                                                                                        of
                                                                                                        converting
                                                                                                        note
                                                                                                        holders
                                                                                                    
                                                                                                    
                                                                                                    98,529$
                                                                                                    2,860,468
  *Non-Registration
                                                                                              Provisions*
  Our
                                                                                              November
                                                                                              2004
                                                                                              subscription
                                                                                              agreement
                                                                                              required
                                                                                              us
                                                                                              to
                                                                                              file
                                                                                              a
                                                                                              registration
                                                                                              statement
                                                                                              with
                                                                                              the
                                                                                              Securities
                                                                                              and
                                                                                              Exchange
                                                                                              Commission
                                                                                              no
                                                                                              later
                                                                                              than
                                                                                              December
                                                                                              30,
                                                                                              2004
                                                                                              and
                                                                                              to
                                                                                              cause
                                                                                              the
                                                                                              registration
                                                                                              statement
                                                                                              to
                                                                                              be
                                                                                              declared
                                                                                              effective
                                                                                              no
                                                                                              later
                                                                                              than
                                                                                              February
                                                                                              14,
                                                                                              2005.
                                                                                              Our
                                                                                              former
                                                                                              Chief
                                                                                              Executive
                                                                                              Officer
                                                                                              withdrew
                                                                                              our
                                                                                              pending
                                                                                              registration
                                                                                              statement
                                                                                              and
                                                                                              did
                                                                                              not
                                                                                              submit
                                                                                              a
                                                                                              new
                                                                                              registration
                                                                                              statement
                                                                                              during
                                                                                              the
                                                                                              period
                                                                                              of
                                                                                              his
                                                                                              purported
                                                                                              control
                                                                                              of
                                                                                              our
                                                                                              company.
                                                                                              His
                                                                                              failure
                                                                                              to
                                                                                              submit
                                                                                              the
                                                                                              registration
                                                                                              statement
                                                                                              to
                                                                                              the
                                                                                              SEC
                                                                                              by
                                                                                              December
                                                                                              30,
                                                                                              2004
                                                                                              triggered
                                                                                              liquidated
                                                                                              damages
                                                                                              to
                                                                                              accrue
                                                                                              under
                                                                                              the
                                                                                              November
                                                                                              2004
                                                                                              subscription
                                                                                              agreement.
                                                                                              Accordingly,
                                                                                              at
                                                                                              December
                                                                                              31,
                                                                                              2004,
                                                                                              we
                                                                                              had
                                                                                              accrued
                                                                                              $222,013
                                                                                              of
                                                                                              liquidated
                                                                                              damages
                                                                                              relating
                                                                                              to
                                                                                              Non-Registration
                                                                                              Provisions.
                                                                                              The
                                                                                              liquidated
                                                                                              damages
                                                                                              continued
                                                                                              to
                                                                                              accrue
                                                                                              in
                                                                                              the
                                                                                              amount
                                                                                              of
                                                                                              $222,013
                                                                                              for
                                                                                              each
                                                                                              30-day
                                                                                              period
                                                                                              after
                                                                                              December
                                                                                              30,
                                                                                              2004
                                                                                              until
                                                                                              our
                                                                                              registration
                                                                                              statement
                                                                                              is
                                                                                              declared
                                                                                              effective.
                                                                                              Through
                                                                                              March
                                                                                              29,
                                                                                              2005,
                                                                                              the
                                                                                              accrued
                                                                                              liquidated
                                                                                              damages
                                                                                              totaled
                                                                                              $888,052.
                                                                                              The
                                                                                              Subscription
                                                                                              Agreement
                                                                                              requires
                                                                                              the
                                                                                              liquidated
                                                                                              damages
                                                                                              to
                                                                                              be
                                                                                              paid
                                                                                              in
                                                                                              cash
                                                                                              or
                                                                                              stock
                                                                                              issued
                                                                                              in
                                                                                              a
                                                                                              transaction
                                                                                              registered
                                                                                              under
                                                                                              the
                                                                                              Securities
                                                                                              Exchange
                                                                                              Act
                                                                                              of
                                                                                              1933,
                                                                                              as
                                                                                              amended
                                                                                              (the
                                                                                              "Act").
                                                                                              If
                                                                                              paid
                                                                                              in
                                                                                              stock,
                                                                                              we
                                                                                              must
                                                                                              issue
                                                                                              stock
                                                                                              in
                                                                                              the
                                                                                              amount
                                                                                              of
                                                                                              200%
                                                                                              of
                                                                                              the
                                                                                              cash
                                                                                              payment
                                                                                              amount.
                                                                                              In
                                                                                              lieu
                                                                                              of
                                                                                              stock
                                                                                              issued
                                                                                              in
                                                                                              a
                                                                                              registered
                                                                                              transaction,
                                                                                              we
                                                                                              negotiated
                                                                                              with
                                                                                              the
                                                                                              investors
                                                                                              to
                                                                                              issue
                                                                                              restricted
                                                                                              stock
                                                                                              at
                                                                                              a
                                                                                              discount
                                                                                              to
                                                                                              market
                                                                                              while
                                                                                              adhering
                                                                                              to
                                                                                              the
                                                                                              other
                                                                                              requirements
                                                                                              of
                                                                                              the
                                                                                              subscription
                                                                                              agreement.
                                                                                              This
                                                                                              settlement
                                                                                              resulted
                                                                                              in
                                                                                              the
                                                                                              issuance
                                                                                              of
                                                                                              59,203,918
                                                                                              shares
                                                                                              of
                                                                                              restricted
                                                                                              common
                                                                                              stock.
  F-5
  *Failure
                                                                                              to
                                                                                              Timely
                                                                                              Deliver
                                                                                              Conversion
                                                                                              Shares*
  On
                                                                                              December
                                                                                              20,
                                                                                              2004,
                                                                                              we
                                                                                              received
                                                                                              notice
                                                                                              from
                                                                                              holders
                                                                                              of
                                                                                              approximately
                                                                                              $500,000
                                                                                              of
                                                                                              convertible
                                                                                              notes
                                                                                              payable
                                                                                              of
                                                                                              their
                                                                                              intention
                                                                                              to
                                                                                              convert
                                                                                              into
                                                                                              shares
                                                                                              of
                                                                                              our
                                                                                              common
                                                                                              stock.
                                                                                              As
                                                                                              a
                                                                                              result,
                                                                                              we
                                                                                              recorded
                                                                                              the
                                                                                              issuance
                                                                                              of
                                                                                              4,243,791
                                                                                              shares
                                                                                              on
                                                                                              December
                                                                                              20,
                                                                                              2004.
                                                                                              We
                                                                                              were
                                                                                              required
                                                                                              to
                                                                                              deliver
                                                                                              certificates
                                                                                              representing
                                                                                              unrestricted,
                                                                                              stock
                                                                                              issued
                                                                                              in
                                                                                              a
                                                                                              registered
                                                                                              transaction within
                                                                                              three
                                                                                              business
                                                                                              days
                                                                                              of
                                                                                              our
                                                                                              receipt
                                                                                              of
                                                                                              the
                                                                                              notices
                                                                                              of
                                                                                              conversion
                                                                                              (the
“Delivery
                                                                                              Date”).
                                                                                              The
                                                                                              failure
                                                                                              to
                                                                                              deliver
                                                                                              the
                                                                                              shares
                                                                                              by
                                                                                              the
                                                                                              Delivery
                                                                                              Date
                                                                                              resulted
                                                                                              in
                                                                                              liquidated
                                                                                              damages
                                                                                              of
                                                                                              1%
                                                                                              of
                                                                                              the
                                                                                              Note
                                                                                              principal
                                                                                              amount
                                                                                              being
                                                                                              converted
                                                                                              per
                                                                                              business
                                                                                              day
                                                                                              after
                                                                                              the
                                                                                              Delivery
                                                                                              Date.
                                                                                              Our
                                                                                              former
                                                                                              Chief
                                                                                              Executive
                                                                                              Officer
                                                                                              did
                                                                                              not
                                                                                              deliver
                                                                                              the
                                                                                              stock
                                                                                              certificates
                                                                                              within
                                                                                              the
                                                                                              required
                                                                                              period.
                                                                                              On
                                                                                              March
                                                                                              18,
                                                                                              2005
                                                                                              we
                                                                                              delivered
                                                                                              the
                                                                                              certificates
                                                                                              representing
                                                                                              the
                                                                                              shares
                                                                                              of
                                                                                              common
                                                                                              stock
                                                                                              to
                                                                                              these
                                                                                              converting
                                                                                              note
                                                                                              holders.
                                                                                              The
                                                                                              84
                                                                                              -day
                                                                                              delay
                                                                                              in
                                                                                              delivering
                                                                                              the
                                                                                              shares
                                                                                              resulted
                                                                                              in
                                                                                              liquidated
                                                                                              damages
                                                                                              of
                                                                                              $403,175.
                                                                                              We
                                                                                              recognized
                                                                                              these
                                                                                              damages
                                                                                              during
                                                                                              the
                                                                                              fourth
                                                                                              quarter
                                                                                              of
                                                                                              2004
                                                                                              and
                                                                                              the
                                                                                              first
                                                                                              quarter
                                                                                              of
                                                                                              2005.
                                                                                              We
                                                                                              issued
                                                                                              convertible
                                                                                              notes
                                                                                              for
                                                                                              the
                                                                                              amount
                                                                                              of
                                                                                              liquidated
                                                                                              damages
                                                                                              due.
  **NOTE
                                                                                                C
                                                                                                -
                                                                                                MANDATORY
                                                                                                REDEMPTION
                                                                                                PAYMENT**
  Under
                                                                                                  the
                                                                                                  terms
                                                                                                  of
                                                                                                  the
                                                                                                  November
                                                                                                  2004
                                                                                                  subscription
                                                                                                  agreement,
                                                                                                  convertible
                                                                                                  note
                                                                                                  holders
                                                                                                  have
                                                                                                  the
                                                                                                  right
                                                                                                  to
                                                                                                  a
                                                                                                  mandatory
                                                                                                  redemption
                                                                                                  payment
                                                                                                  in
                                                                                                  the
                                                                                                  event
                                                                                                  we
                                                                                                  are
                                                                                                  prohibited
                                                                                                  or
                                                                                                  otherwise
                                                                                                  fail
                                                                                                  to
                                                                                                  deliver
                                                                                                  shares
                                                                                                  of
                                                                                                  our
                                                                                                  common
                                                                                                  stock
                                                                                                  to
                                                                                                  converting
                                                                                                  note
                                                                                                  holders.
                                                                                                  The
                                                                                                  mandatory
                                                                                                  redemption
                                                                                                  payment
                                                                                                  is
                                                                                                  calculated
                                                                                                  as
                                                                                                  an
                                                                                                  amount
                                                                                                  equal
                                                                                                  to
                                                                                                  the
                                                                                                  product
                                                                                                  of
                                                                                                  the
                                                                                                  number
                                                                                                  of
                                                                                                  shares
                                                                                                  of
                                                                                                  common
                                                                                                  stock
                                                                                                  otherwise
                                                                                                  deliverable
                                                                                                  upon
                                                                                                  conversion
                                                                                                  of
                                                                                                  the
                                                                                                  note’s
                                                                                                  principal
                                                                                                  and
                                                                                                  interest
                                                                                                  multiplied
                                                                                                  by
                                                                                                  the
                                                                                                  highest
                                                                                                  price
                                                                                                  of
                                                                                                  our
                                                                                                  common
                                                                                                  stock
                                                                                                  for
                                                                                                  the
                                                                                                  period
                                                                                                  beginning
                                                                                                  with
                                                                                                  the
                                                                                                  Deemed
                                                                                                  Conversion
                                                                                                  Date
                                                                                                  (the
                                                                                                  date
                                                                                                  the
                                                                                                  holder
                                                                                                  elects
                                                                                                  to
                                                                                                  convert
                                                                                                  the
                                                                                                  note)
                                                                                                  and
                                                                                                  ending
                                                                                                  with
                                                                                                  the
                                                                                                  payment
                                                                                                  date.
                                                                                                  On
                                                                                                  March
                                                                                                  7,
                                                                                                  2005,
                                                                                                  we
                                                                                                  received
                                                                                                  a
                                                                                                  mandatory
                                                                                                  redemption
                                                                                                  payment
                                                                                                  demand
                                                                                                  relating
                                                                                                  to
                                                                                                  our
                                                                                                  failure
                                                                                                  to
                                                                                                  deliver
                                                                                                  stock
                                                                                                  certificates
                                                                                                  representing
                                                                                                  29,573,803
                                                                                                  shares
                                                                                                  of
                                                                                                  our
                                                                                                  common
                                                                                                  stock.
                                                                                                  Under
                                                                                                  the
                                                                                                  mandatory
                                                                                                  redemption
                                                                                                  payment
                                                                                                  provisions
                                                                                                  of
                                                                                                  the
                                                                                                  November
                                                                                                  2004
                                                                                                  subscription
                                                                                                  agreement,
                                                                                                  we
                                                                                                  repurchased
                                                                                                  the
                                                                                                  29,573,803
                                                                                                  shares
                                                                                                  of
                                                                                                  common
                                                                                                  stock
                                                                                                  at
                                                                                                  $0.23
                                                                                                  per
                                                                                                  share,
                                                                                                  or
                                                                                                  $6,801,975.
                                                                                                  We
                                                                                                  issued
                                                                                                  a
                                                                                                  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.
  F-6
 **Item
                                                                                                    2.**  **Management’s
                                                                                                    Discussion
                                                                                                    and
                                                                                                    Analysis
                                                                                                    or
                                                                                                    Plan
                                                                                                    of
                                                                                                    Operations**
  The
                                                                                                      following
                                                                                                      discussion
                                                                                                      provides
                                                                                                      information
                                                                                                      that
                                                                                                      we
                                                                                                      believe
                                                                                                      is
                                                                                                      relevant
                                                                                                      to
                                                                                                      an
                                                                                                      assessment
                                                                                                      and
                                                                                                      understanding
                                                                                                      of
                                                                                                      the
                                                                                                      consolidated
                                                                                                      results
                                                                                                      of
                                                                                                      operations
                                                                                                      and
                                                                                                      financial
                                                                                                      condition
                                                                                                      of
                                                                                                      our
                                                                                                      company.
                                                                                                      It
                                                                                                      should
                                                                                                      be
                                                                                                      read
                                                                                                      in
                                                                                                      conjunction
                                                                                                      with
                                                                                                      the
                                                                                                      Consolidated
                                                                                                      Financial
                                                                                                      Statements
                                                                                                      and
                                                                                                      accompanying
                                                                                                      Notes.
 The
                                                                                                        following
                                                                                                        discussion
                                                                                                        addresses
                                                                                                        matters
                                                                                                        we
                                                                                                        consider
                                                                                                        important
                                                                                                        for
                                                                                                        an
                                                                                                        understanding
                                                                                                        of
                                                                                                        our
                                                                                                        financial
                                                                                                        condition
                                                                                                        and
                                                                                                        results
                                                                                                        of
                                                                                                        operations
                                                                                                        as
                                                                                                        of
                                                                                                        and
                                                                                                        for
                                                                                                        the
                                                                                                        quarter
                                                                                                        ended
                                                                                                        June
                                                                                                        30,
                                                                                                        2005,
                                                                                                        as
                                                                                                        well
                                                                                                        as
                                                                                                        our
                                                                                                        future
                                                                                                        results.
  ***Overview***
  We
                                                                                                          are
                                                                                                          a
                                                                                                          North
                                                                                                          American
                                                                                                          natural
                                                                                                          resource
                                                                                                          company
                                                                                                          whose
                                                                                                          objective
                                                                                                          is
                                                                                                          to
                                                                                                          achieve
                                                                                                          growth
                                                                                                          and
                                                                                                          profitability
                                                                                                          through
                                                                                                          enhancements
                                                                                                          at
                                                                                                          our
                                                                                                          active
                                                                                                          gold
                                                                                                          and
                                                                                                          silver-producing
                                                                                                          mine
                                                                                                          near
                                                                                                          Reno,
                                                                                                          Nevada
                                                                                                          and
                                                                                                          through
                                                                                                          the
                                                                                                          acquisition
                                                                                                          of
                                                                                                          additional
                                                                                                          mining
                                                                                                          projects
                                                                                                          that
                                                                                                          can
                                                                                                          be
                                                                                                          efficiently
                                                                                                          put
                                                                                                          into
                                                                                                          near-term
                                                                                                          operation
                                                                                                          and
                                                                                                          production.
                                                                                                          We
                                                                                                          currently
                                                                                                          own
                                                                                                          mineral
                                                                                                          property
                                                                                                          rights
                                                                                                          and
                                                                                                          conduct
                                                                                                          our
                                                                                                          primary
                                                                                                          mining
                                                                                                          operations
                                                                                                          in
                                                                                                          Storey
                                                                                                          County,
                                                                                                          Nevada,
                                                                                                          located
                                                                                                          about
                                                                                                          30
                                                                                                          miles
                                                                                                          southeast
                                                                                                          of
                                                                                                          Reno,
                                                                                                          Nevada.
                                                                                                          This
                                                                                                          operation
                                                                                                          consists
                                                                                                          of
                                                                                                          the
                                                                                                          Plum
                                                                                                          Mining
                                                                                                          facility.
                                                                                                          We
                                                                                                          also
                                                                                                          own
                                                                                                          mineral
                                                                                                          permits
                                                                                                          in
                                                                                                          Alberta,
                                                                                                          Canada.
                                                                                                          We
                                                                                                          have
                                                                                                          no
                                                                                                          active
                                                                                                          operations
                                                                                                          in
                                                                                                          Canada.
  Our
                                                                                                          current
                                                                                                          management
                                                                                                          team
                                                                                                          was
                                                                                                          reinstated
                                                                                                          in
                                                                                                          mid-February
                                                                                                          2005
                                                                                                          (see
                                                                                                          Part
                                                                                                          II,
                                                                                                          Item
                                                                                                          1
                                                                                                          -
                                                                                                          Legal
                                                                                                          Proceedings).
                                                                                                          One
                                                                                                          of
                                                                                                          current
                                                                                                          management's
                                                                                                          top
                                                                                                          priorities
                                                                                                          upon
                                                                                                          regaining
                                                                                                          control
                                                                                                          of
                                                                                                          the
                                                                                                          company
                                                                                                          was
                                                                                                          to
                                                                                                          improve
                                                                                                          efficiencies
                                                                                                          and
                                                                                                          increase
                                                                                                          production
                                                                                                          at
                                                                                                          our
                                                                                                          Plum
                                                                                                          Mine.
                                                                                                          To
                                                                                                          this
                                                                                                          end,
                                                                                                          we
                                                                                                          hired
                                                                                                          a
                                                                                                          new
                                                                                                          mine
                                                                                                          manager,
                                                                                                          who
                                                                                                          has
                                                                                                          significant
                                                                                                          experience
                                                                                                          in
                                                                                                          gold
                                                                                                          mining,
                                                                                                          primarily
                                                                                                          in
                                                                                                          and
                                                                                                          around
                                                                                                          the
                                                                                                          area
                                                                                                          of
                                                                                                          our
                                                                                                          current
                                                                                                          operation.
                                                                                                          We
                                                                                                          also
                                                                                                          implemented
                                                                                                          modifications
                                                                                                          to
                                                                                                          our
                                                                                                          plant,
                                                                                                          equipment,
                                                                                                          and
                                                                                                          operations
                                                                                                          during
                                                                                                          the
                                                                                                          first
                                                                                                          half
                                                                                                          of
                                                                                                          2005
                                                                                                          to
                                                                                                          address
                                                                                                          our
                                                                                                          past
                                                                                                          difficulties
                                                                                                          and
                                                                                                          increasing
                                                                                                          operating
                                                                                                          efficiency.
                                                                                                          In
                                                                                                          the
                                                                                                          spirit
                                                                                                          of
                                                                                                          maximizing
                                                                                                          overall
                                                                                                          operating
                                                                                                          performance
                                                                                                          and
                                                                                                          reducing
                                                                                                          costs,
                                                                                                          effective
                                                                                                          August
                                                                                                          1,
                                                                                                          2005,
                                                                                                          the
                                                                                                          Company
                                                                                                          has
                                                                                                          consolidated
                                                                                                          its
                                                                                                          corporate
                                                                                                          office
                                                                                                          with
                                                                                                          the
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          facility.
                                                                                                          The
                                                                                                          relocation
                                                                                                          will
                                                                                                          reduce
                                                                                                          costs
                                                                                                          and
                                                                                                          allow
                                                                                                          for
                                                                                                          more
                                                                                                          effective
                                                                                                          utilization
                                                                                                          of
                                                                                                          our
                                                                                                          resources,
                                                                                                          both
                                                                                                          human
                                                                                                          and
                                                                                                          capital.
                                                                                                          The
                                                                                                          new
                                                                                                          contact
                                                                                                          information
                                                                                                          for
                                                                                                          the
                                                                                                          corporate
                                                                                                          office
                                                                                                          and
                                                                                                          personnel
                                                                                                          is
                                                                                                          listed
                                                                                                          below.
  The
                                                                                                          new
                                                                                                          contact
                                                                                                          information
                                                                                                          for
                                                                                                          the
                                                                                                          corporate
                                                                                                          office,
                                                                                                          effective
                                                                                                          August
                                                                                                          1,
                                                                                                          2005,
                                                                                                          is:
  P.O.
                                                                                                          Box
                                                                                                          1118
 Virginia
                                                                                                          City,
                                                                                                          NV
                                                                                                          89440
 Tel
                                                                                                          775.847.5272
 Fax
                                                                                                          775.847.4762
 www.goldspring.us
  Additional
                                                                                                          Contact
                                                                                                          Information:
  Lisa
                                                                                                          Boksenbaum,
                                                                                                          Corporate
                                                                                                          and
                                                                                                          Investor
                                                                                                          Relations
 (480)
                                                                                                          203-0510
 E-mail:
                                                                                                          lisab@goldspring.us
  Robert
                                                                                                          Faber,
                                                                                                          President
                                                                                                          and
                                                                                                          CEO
 (480)
                                                                                                          603-5151
 E-mail:
                                                                                                          rfaber@goldspring.us
  We
                                                                                                          believe
                                                                                                          that
                                                                                                          many
                                                                                                          of
                                                                                                          the
                                                                                                          non-operating
                                                                                                          issues
                                                                                                          that
                                                                                                          have
                                                                                                          plagued
                                                                                                          our
                                                                                                          company
                                                                                                          since
                                                                                                          early-December
                                                                                                          2004
                                                                                                          are
                                                                                                          now
                                                                                                          being
                                                                                                          resolved.
                                                                                                          We
                                                                                                          are
                                                                                                          now
                                                                                                          focusing
                                                                                                          our
                                                                                                          efforts
                                                                                                          on
                                                                                                          achieving
                                                                                                          positive
                                                                                                          cash
                                                                                                          flow
                                                                                                          and
                                                                                                          increased
                                                                                                          production
                                                                                                          in
                                                                                                          2005.
                                                                                                          Our
                                                                                                          ability
                                                                                                          to
                                                                                                          maintain
                                                                                                          that
                                                                                                          focus
                                                                                                          will
                                                                                                          depend
                                                                                                          largely
                                                                                                          upon
                                                                                                          our
                                                                                                          relationships
                                                                                                          with
                                                                                                          a
                                                                                                          number
                                                                                                          of
                                                                                                          our
                                                                                                          investors
                                                                                                          that
                                                                                                          are
                                                                                                          now
                                                                                                          note
                                                                                                          holders
                                                                                                          as
                                                                                                          the
                                                                                                          result
                                                                                                          of
                                                                                                          our
                                                                                                          2004
                                                                                                          financial
                                                                                                          restructuring.
                                                                                                          Although
                                                                                                          this
                                                                                                          debt
                                                                                                          obligation
                                                                                                          is
                                                                                                          substantial,
                                                                                                          we
                                                                                                          believe
                                                                                                          that
                                                                                                          we
                                                                                                          will
                                                                                                          be
                                                                                                          able
                                                                                                          to
                                                                                                          reach
                                                                                                          an
                                                                                                          arrangement
                                                                                                          with
                                                                                                          our
                                                                                                          investors
                                                                                                          that
                                                                                                          will
                                                                                                          allow
                                                                                                          us
                                                                                                          to
                                                                                                          structure
                                                                                                          the
                                                                                                          repayments
                                                                                                          in
                                                                                                          a
                                                                                                          manageable
                                                                                                          fashion.
  During
                                                                                                          the
                                                                                                          first
                                                                                                          half
                                                                                                          of
                                                                                                          2005,
                                                                                                          we
                                                                                                          incurred
                                                                                                          approximately
                                                                                                          $2.8
                                                                                                          million
                                                                                                          of
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          and
                                                                                                          other
                                                                                                          expenses
                                                                                                          related
                                                                                                          to
                                                                                                          our
                                                                                                          obligations
                                                                                                          under
                                                                                                          the
                                                                                                          March
                                                                                                          2004
                                                                                                          and
                                                                                                          November
                                                                                                          2004
                                                                                                          subsription
                                                                                                          agreements. 
                                                                                                          The
                                                                                                          damages
                                                                                                          were
                                                                                                          compounded
                                                                                                          by
                                                                                                          the
                                                                                                          former
                                                                                                          Chief
                                                                                                          Executive
                                                                                                          Officer’s
                                                                                                          decision
                                                                                                          to
                                                                                                          withdraw
                                                                                                          the
                                                                                                          SEC
                                                                                                          registration
                                                                                                          statement
                                                                                                          and
                                                                                                          his
                                                                                                          failure
                                                                                                          to
                                                                                                          deliver
                                                                                                          common
                                                                                                          shares
                                                                                                          pursuant
                                                                                                          to
                                                                                                          the
                                                                                                          November
                                                                                                          2004
                                                                                                          restructuring
                                                                                                          agreement.
                                                                                                          We
                                                                                                          filed
                                                                                                          the
                                                                                                          SB-2
                                                                                                          registration
                                                                                                          statement
                                                                                                          in
                                                                                                          April
                                                                                                          of
                                                                                                          2005
                                                                                                          and
                                                                                                          have
                                                                                                          delivered
                                                                                                          the
                                                                                                          shares.
                                                                                                          We
                                                                                                          are
                                                                                                          now
                                                                                                          in
                                                                                                          the
                                                                                                          process
                                                                                                          of
                                                                                                          trying
                                                                                                          to
                                                                                                          get
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          declared
                                                                                                          effective
                                                                                                          by
                                                                                                          the
                                                                                                          SEC.
                                                                                                          Until
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          is
                                                                                                          declared
                                                                                                          effective,
                                                                                                          we
                                                                                                          continue
                                                                                                          to
                                                                                                          incur
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          under
                                                                                                          the
                                                                                                          November
                                                                                                          30,
                                                                                                          2004
                                                                                                          Subscription
                                                                                                          Agreement
                                                                                                          (See
                                                                                                          Recent
                                                                                                          Financing
                                                                                                          Events
                                                                                                          and
                                                                                                          Restructuring
                                                                                                          for
                                                                                                          additional
                                                                                                          information).
                                                                                                          Between
                                                                                                          April
                                                                                                          28,
                                                                                                          2005
                                                                                                          and
                                                                                                          June
                                                                                                          30,
                                                                                                          2005,
                                                                                                          the
                                                                                                          end
                                                                                                          of
                                                                                                          the
                                                                                                          period
                                                                                                          covered
                                                                                                          by
                                                                                                          this
                                                                                                          report,
                                                                                                          we
                                                                                                          incurred
                                                                                                          approximately
                                                                                                          $
                                                                                                          600,000
                                                                                                          in
                                                                                                          liquidated
                                                                                                          damages,
                                                                                                          and
                                                                                                          such
                                                                                                          damages
                                                                                                          continued
                                                                                                          to
                                                                                                          accrue
                                                                                                          after
                                                                                                          the
                                                                                                          end
                                                                                                          of
                                                                                                          such
                                                                                                          period.
                                                                                                          Pursuant
                                                                                                          to
                                                                                                          the
                                                                                                          terms
                                                                                                          of
                                                                                                          the
                                                                                                          Subscription
                                                                                                          Agreement,
                                                                                                          the
                                                                                                          damages
                                                                                                          may
                                                                                                          be
                                                                                                          paid
                                                                                                          in
                                                                                                          cash
                                                                                                          or
                                                                                                          in
                                                                                                          unrestricted
                                                                                                          common
                                                                                                          stock.
                                                                                                          If
                                                                                                          paid
                                                                                                          in
                                                                                                          stock,
                                                                                                          we
                                                                                                          are
                                                                                                          required
                                                                                                          to
                                                                                                          pay
                                                                                                          200%
                                                                                                          of
                                                                                                          the
                                                                                                          cash
                                                                                                          penalty,
                                                                                                          or
                                                                                                          approximately
                                                                                                          $1.2
                                                                                                          million.
                                                                                                          Because
                                                                                                          we
                                                                                                          do
                                                                                                          not
                                                                                                          have
                                                                                                          the
                                                                                                          cash
                                                                                                          or
                                                                                                          stock
                                                                                                          which
                                                                                                          was
                                                                                                          issued
                                                                                                          in
                                                                                                          a
                                                                                                          registered
                                                                                                          transaction
                                                                                                          to
                                                                                                          pay
                                                                                                          the
                                                                                                          liquidated
                                                                                                          damages,
                                                                                                          we
                                                                                                          have
                                                                                                          reached
                                                                                                          a
                                                                                                          settlement
                                                                                                          agreement
                                                                                                          with
                                                                                                          the
                                                                                                          investors
                                                                                                          to
                                                                                                          pay
                                                                                                          the
                                                                                                          $1.2
                                                                                                          million
                                                                                                          in
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          in
                                                                                                          restricted
                                                                                                          common
                                                                                                          stock
                                                                                                          valued
                                                                                                          at
                                                                                                          $0.03
                                                                                                          per
                                                                                                          share.
                                                                                                          We
                                                                                                          accrued
                                                                                                          $1.2
                                                                                                          million
                                                                                                          in
                                                                                                          the
                                                                                                          second
                                                                                                          quarter
                                                                                                          of
                                                                                                          2005
                                                                                                          to
                                                                                                          reflect
                                                                                                          this
                                                                                                          obligation.
                                                                                                          Pursuant
                                                                                                          to
                                                                                                          this
                                                                                                          settlement
                                                                                                          agreement,
                                                                                                          we
                                                                                                          will
                                                                                                          be
                                                                                                          issuing
                                                                                                          approximately
                                                                                                          40
                                                                                                          million
                                                                                                          shares
                                                                                                          of
                                                                                                          restricted
                                                                                                          common
                                                                                                          stock
                                                                                                          in
                                                                                                          the
                                                                                                          third
                                                                                                          quarter
                                                                                                          of
                                                                                                          2005.
  1
  The
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          operation
                                                                                                          showed
                                                                                                          material
                                                                                                          improvements
                                                                                                          in
                                                                                                          efficiency
                                                                                                          and
                                                                                                          production
                                                                                                          in
                                                                                                          the
                                                                                                          second
                                                                                                          quarter
                                                                                                          of
                                                                                                          2005.
                                                                                                          The
                                                                                                          crusher,
                                                                                                          which
                                                                                                          has
                                                                                                          been
                                                                                                          the
                                                                                                          primary
                                                                                                          source
                                                                                                          of
                                                                                                          setbacks
                                                                                                          in
                                                                                                          increasing
                                                                                                          production,
                                                                                                          received
                                                                                                          substantial
                                                                                                          mechanical
                                                                                                          improvements
                                                                                                          early
                                                                                                          in
                                                                                                          the
                                                                                                          quarter.
                                                                                                          Due
                                                                                                          to
                                                                                                          these
                                                                                                          improvements,
                                                                                                          we
                                                                                                          crushed
                                                                                                          144,000
                                                                                                          tons
                                                                                                          of
                                                                                                          mineralized
                                                                                                          material
                                                                                                          in
                                                                                                          the
                                                                                                          second
                                                                                                          quarter,
                                                                                                          representing
                                                                                                          an
                                                                                                          increase
                                                                                                          of
                                                                                                          141%
                                                                                                          from
                                                                                                          the
                                                                                                          first
                                                                                                          quarter
                                                                                                          2005.
                                                                                                          We
                                                                                                          are
                                                                                                          in
                                                                                                          the
                                                                                                          process
                                                                                                          of
                                                                                                          assembling
                                                                                                          our
                                                                                                          crushing
                                                                                                          circuit.
                                                                                                          Our
                                                                                                          third-party
                                                                                                          contractor
                                                                                                          has
                                                                                                          discontinued
                                                                                                          its
                                                                                                          crushing
                                                                                                          operations
                                                                                                          to
                                                                                                          allow
                                                                                                          for
                                                                                                          the
                                                                                                          set-up
                                                                                                          of
                                                                                                          our
                                                                                                          crushing
                                                                                                          equipment.
                                                                                                          We
                                                                                                          expect
                                                                                                          our
                                                                                                          crushing
                                                                                                          operations
                                                                                                          to
                                                                                                          commence
                                                                                                          in
                                                                                                          mid-August
                                                                                                          2005.
                                                                                                          This
                                                                                                          transition
                                                                                                          from
                                                                                                          a
                                                                                                          third-party
                                                                                                          crushing
                                                                                                          operator
                                                                                                          to
                                                                                                          an
                                                                                                          in-house
                                                                                                          operation
                                                                                                          will
                                                                                                          bring
                                                                                                          immediate
                                                                                                          cost
                                                                                                          savings
                                                                                                          and
                                                                                                          should
                                                                                                          allow
                                                                                                          us
                                                                                                          to
                                                                                                          reach
                                                                                                          our
                                                                                                          target
                                                                                                          of
                                                                                                          crushing
                                                                                                          60,000
                                                                                                          tons
                                                                                                          of
                                                                                                          material
                                                                                                          per
                                                                                                          month.
                                                                                                          We
                                                                                                          also
                                                                                                          made
                                                                                                          significant
                                                                                                          improvements
                                                                                                          to
                                                                                                          the
                                                                                                          Merrill
                                                                                                          Crowe
                                                                                                          processing
                                                                                                          plant
                                                                                                          during
                                                                                                          the
                                                                                                          second
                                                                                                          quarter.
                                                                                                          Through
                                                                                                          a
                                                                                                          change
                                                                                                          in
                                                                                                          pumps
                                                                                                          and
                                                                                                          the
                                                                                                          addition
                                                                                                          of
                                                                                                          a
                                                                                                          second
                                                                                                          clarifier,
                                                                                                          we
                                                                                                          increased
                                                                                                          capacity
                                                                                                          at
                                                                                                          the
                                                                                                          plant
                                                                                                          from
                                                                                                          100
                                                                                                          gallons
                                                                                                          per
                                                                                                          minute
                                                                                                          to
                                                                                                          300
                                                                                                          gallons
                                                                                                          per
                                                                                                          minute
                                                                                                          and
                                                                                                          we
                                                                                                          are
                                                                                                          now
                                                                                                          operating
                                                                                                          24
                                                                                                          hours
                                                                                                          per
                                                                                                          day,
                                                                                                          7
                                                                                                          days
                                                                                                          per
                                                                                                          week.
                                                                                                          We
                                                                                                          will
                                                                                                          continue
                                                                                                          to
                                                                                                          focus
                                                                                                          on
                                                                                                          improving
                                                                                                          efficiency
                                                                                                          at
                                                                                                          the
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          operation
                                                                                                          through
                                                                                                          the
                                                                                                          remainder
                                                                                                          of
                                                                                                          2005.
  The
                                                                                                          improvements
                                                                                                          at
                                                                                                          the
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          have
                                                                                                          resulted
                                                                                                          in
                                                                                                          a
                                                                                                          steady
                                                                                                          increase
                                                                                                          in
                                                                                                          gold
                                                                                                          production
                                                                                                          during
                                                                                                          the
                                                                                                          second
                                                                                                          quarter.
                                                                                                          We
                                                                                                          produced
                                                                                                          353
                                                                                                          ounces
                                                                                                          of
                                                                                                          gold
                                                                                                          in
                                                                                                          April,
                                                                                                          527
                                                                                                          ounces
                                                                                                          in
                                                                                                          May,
                                                                                                          1,126
                                                                                                          ounces
                                                                                                          in
                                                                                                          June,
                                                                                                          and
                                                                                                          we
                                                                                                          are
                                                                                                          ramping
                                                                                                          up
                                                                                                          to
                                                                                                          our
                                                                                                          target
                                                                                                          production
                                                                                                          of
                                                                                                          2,000
                                                                                                          ounces
                                                                                                          of
                                                                                                          gold
                                                                                                          per
                                                                                                          month.
                                                                                                          Our
                                                                                                          primary
                                                                                                          objectives
                                                                                                          in
                                                                                                          the
                                                                                                          third
                                                                                                          quarter
                                                                                                          of
                                                                                                          2005
                                                                                                          are
                                                                                                          to
                                                                                                          achieve
                                                                                                          positive
                                                                                                          cash-flow
                                                                                                          and
                                                                                                          to
                                                                                                          improve
                                                                                                          our
                                                                                                          overall
                                                                                                          mine
                                                                                                          operation.
  We
                                                                                                          continue
                                                                                                          to
                                                                                                          look
                                                                                                          for
                                                                                                          growth
                                                                                                          opportunities.
                                                                                                          This
                                                                                                          process
                                                                                                          consists
                                                                                                          of
                                                                                                          actively
                                                                                                          conducting
                                                                                                          exploration
                                                                                                          to
                                                                                                          identify
                                                                                                          additional
                                                                                                          mineralized
                                                                                                          material.
                                                                                                          The
                                                                                                          successful
                                                                                                          location
                                                                                                          of
                                                                                                          additional
                                                                                                          mineralized
                                                                                                          material
                                                                                                          on
                                                                                                          the
                                                                                                          existing
                                                                                                          property
                                                                                                          would
                                                                                                          allow
                                                                                                          us
                                                                                                          to
                                                                                                          expand
                                                                                                          the
                                                                                                          size
                                                                                                          and
                                                                                                          the
                                                                                                          lifespan
                                                                                                          of
                                                                                                          the
                                                                                                          Plum
                                                                                                          mining
                                                                                                          project,
                                                                                                          exclusive
                                                                                                          of
                                                                                                          new
                                                                                                          property
                                                                                                          acquisitions.
                                                                                                          It
                                                                                                          is
                                                                                                          our
                                                                                                          belief
                                                                                                          that
                                                                                                          we
                                                                                                          possess
                                                                                                          an
                                                                                                          advantage
                                                                                                          with
                                                                                                          our
                                                                                                          status
                                                                                                          as
                                                                                                          likely
                                                                                                          the
                                                                                                          only
                                                                                                          heap
                                                                                                          leach
                                                                                                          gold
                                                                                                          mining
                                                                                                          permit
                                                                                                          holder
                                                                                                          in
                                                                                                          the
                                                                                                          area.
                                                                                                          This
                                                                                                          permit
                                                                                                          is
                                                                                                          relatively
                                                                                                          difficult
                                                                                                          to
                                                                                                          obtain,
                                                                                                          and
                                                                                                          it
                                                                                                          is
                                                                                                          one
                                                                                                          that
                                                                                                          we
                                                                                                          can
                                                                                                          expand
                                                                                                          to
                                                                                                          include
                                                                                                          new
                                                                                                          areas
                                                                                                          in
                                                                                                          the
                                                                                                          event
                                                                                                          we
                                                                                                          locate
                                                                                                          and
                                                                                                          wish
                                                                                                          to
                                                                                                          process
                                                                                                          new
                                                                                                          deposits.
  We
                                                                                                          also
                                                                                                          seek
                                                                                                          growth
                                                                                                          through
                                                                                                          the
                                                                                                          acquisition
                                                                                                          of
                                                                                                          mining
                                                                                                          projects
                                                                                                          which
                                                                                                          have
                                                                                                          proven
                                                                                                          in-ground
                                                                                                          reserves,
                                                                                                          advanced
                                                                                                          permitting,
                                                                                                          and
                                                                                                          solid
                                                                                                          exploration
                                                                                                          potential.
                                                                                                          We
                                                                                                          seek
                                                                                                          to
                                                                                                          acquire
                                                                                                          proven
                                                                                                          projects
                                                                                                          whose
                                                                                                          business
                                                                                                          operations
                                                                                                          and
                                                                                                          business
                                                                                                          models
                                                                                                          make
                                                                                                          those
                                                                                                          projects
                                                                                                          economically
                                                                                                          feasible
                                                                                                          for
                                                                                                          a
                                                                                                          company
                                                                                                          of
                                                                                                          our
                                                                                                          size.
  In
                                                                                                          line
                                                                                                          with
                                                                                                          this
                                                                                                          strategy,
                                                                                                          on
                                                                                                          May
                                                                                                          4,
                                                                                                          2005,
                                                                                                          we
                                                                                                          announced
                                                                                                          that
                                                                                                          we
                                                                                                          executed
                                                                                                          a
                                                                                                          Letter
                                                                                                          of
                                                                                                          Intent
                                                                                                          to
                                                                                                          acquire
                                                                                                          the
                                                                                                          leases
                                                                                                          on
                                                                                                          three
                                                                                                          patented
                                                                                                          mineral
                                                                                                          claims
                                                                                                          from
                                                                                                          Comstock
                                                                                                          Gold,
                                                                                                          LLC.
                                                                                                          The
                                                                                                          Justice,
                                                                                                          Woodville,
                                                                                                          and
                                                                                                          Keystone
                                                                                                          claims
                                                                                                          are
                                                                                                          adjacent
                                                                                                          to
                                                                                                          our
                                                                                                          existing
                                                                                                          operation
                                                                                                          at
                                                                                                          the
                                                                                                          Plum
                                                                                                          Mine.
                                                                                                          The
                                                                                                          Letter
                                                                                                          of
                                                                                                          Intent
                                                                                                          is
                                                                                                          subject
                                                                                                          only
                                                                                                          to
                                                                                                          the
                                                                                                          successful
                                                                                                          completion
                                                                                                          of
                                                                                                          our
                                                                                                          due
                                                                                                          diligence
                                                                                                          and
                                                                                                          our
                                                                                                          board’s
                                                                                                          approval.
                                                                                                          We
                                                                                                          expect
                                                                                                          to
                                                                                                          complete
                                                                                                          our
                                                                                                          due
                                                                                                          diligence
                                                                                                          prior
                                                                                                          to
                                                                                                          September
                                                                                                          30,
                                                                                                          2005,
                                                                                                          after
                                                                                                          which
                                                                                                          time
                                                                                                          we
                                                                                                          plan
                                                                                                          to
                                                                                                          enter
                                                                                                          into
                                                                                                          a
                                                                                                          definitive
                                                                                                          purchase
                                                                                                          agreement.
                                                                                                          The
                                                                                                          proximity
                                                                                                          of
                                                                                                          these
                                                                                                          claims
                                                                                                          should
                                                                                                          allow
                                                                                                          us
                                                                                                          to
                                                                                                          develop
                                                                                                          the
                                                                                                          property
                                                                                                          in
                                                                                                          a
                                                                                                          cost-effective
                                                                                                          manner
                                                                                                          and
                                                                                                          likely
                                                                                                          increase
                                                                                                          the
                                                                                                          efficiency
                                                                                                          of
                                                                                                          our
                                                                                                          overall
                                                                                                          mining
                                                                                                          operation.
                                                                                                          This
                                                                                                          acquisition
                                                                                                          is
                                                                                                          important
                                                                                                          for
                                                                                                          our
                                                                                                          company
                                                                                                          for
                                                                                                          a
                                                                                                          number
                                                                                                          of
                                                                                                          other
                                                                                                          reasons
                                                                                                          as
                                                                                                          well.
                                                                                                          First,
                                                                                                          the
                                                                                                          claims
                                                                                                          will
                                                                                                          expand
                                                                                                          our
                                                                                                          mining
                                                                                                          property
                                                                                                          by
                                                                                                          40
                                                                                                          acres,
                                                                                                          increasing
                                                                                                          our
                                                                                                          mineralized
                                                                                                          material
                                                                                                          inventory
                                                                                                          by
                                                                                                          approximately
                                                                                                          33%.
                                                                                                          Second,
                                                                                                          the
                                                                                                          claims
                                                                                                          will
                                                                                                          contribute
                                                                                                          to
                                                                                                          the
                                                                                                          enhancement
                                                                                                          of
                                                                                                          overall
                                                                                                          mine
                                                                                                          extraction
                                                                                                          and
                                                                                                          waste
                                                                                                          disposal
                                                                                                          efficiencies.
                                                                                                          Third,
                                                                                                          these
                                                                                                          claims
                                                                                                          will
                                                                                                          enlarge
                                                                                                          our
                                                                                                          footprint
                                                                                                          in
                                                                                                          the
                                                                                                          Comstock
                                                                                                          Lode
                                                                                                          region
                                                                                                          and
                                                                                                          have
                                                                                                          the
                                                                                                          potential
                                                                                                          for
                                                                                                          expanding
                                                                                                          the
                                                                                                          life
                                                                                                          of
                                                                                                          our
                                                                                                          existing
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          operation.
                                                                                                          Finally,
                                                                                                          the
                                                                                                          addition
                                                                                                          of
                                                                                                          these
                                                                                                          properties
                                                                                                          will
                                                                                                          improve
                                                                                                          our
                                                                                                          geologic
                                                                                                          understanding
                                                                                                          of
                                                                                                          the
                                                                                                          entire
                                                                                                          physical
                                                                                                          area
                                                                                                          and
                                                                                                          its
                                                                                                          trends.
  ***Results
                                                                                                          of
                                                                                                          Operations
                                                                                                          and
                                                                                                          Operational
                                                                                                          Plan***
  Our
                                                                                                          Plum
                                                                                                          Mine,
                                                                                                          which
                                                                                                          is
                                                                                                          located
                                                                                                          in
                                                                                                          Storey
                                                                                                          County,
                                                                                                          Nevada,
                                                                                                          went
                                                                                                          into
                                                                                                          production
                                                                                                          in
                                                                                                          late
                                                                                                          third
                                                                                                          quarter
                                                                                                          2004.
                                                                                                          The
                                                                                                          region
                                                                                                          experienced
                                                                                                          record
                                                                                                          level
                                                                                                          snowfalls
                                                                                                          at
                                                                                                          approximately
                                                                                                          the
                                                                                                          same
                                                                                                          time,
                                                                                                          continuing
                                                                                                          through
                                                                                                          the
                                                                                                          winter
                                                                                                          of
                                                                                                          2004/2005.
                                                                                                          While
                                                                                                          the
                                                                                                          unusually
                                                                                                          heavy
                                                                                                          precipitation
                                                                                                          did
                                                                                                          not
                                                                                                          interfere
                                                                                                          with
                                                                                                          the
                                                                                                          overall
                                                                                                          recovery
                                                                                                          of
                                                                                                          mineralized
                                                                                                          material,
                                                                                                          it
                                                                                                          did
                                                                                                          impact
                                                                                                          our
                                                                                                          ability
                                                                                                          to
                                                                                                          mine
                                                                                                          and
                                                                                                          crush
                                                                                                          the
                                                                                                          mineralized
                                                                                                          material.
                                                                                                          As
                                                                                                          mentioned
                                                                                                          above,
                                                                                                          our
                                                                                                          mining
                                                                                                          operations
                                                                                                          essentially
                                                                                                          shut
                                                                                                          down
                                                                                                          in
                                                                                                          January
                                                                                                          2005
                                                                                                          due
                                                                                                          to
                                                                                                          a
                                                                                                          combination
                                                                                                          of
                                                                                                          harsh
                                                                                                          weather,
                                                                                                          equipment
                                                                                                          difficulties,
                                                                                                          and
                                                                                                          management
                                                                                                          disruption.
                                                                                                          Although
                                                                                                          mining
                                                                                                          operations
                                                                                                          resumed
                                                                                                          when
                                                                                                          the
                                                                                                          current
                                                                                                          management
                                                                                                          was
                                                                                                          reinstated
                                                                                                          in
                                                                                                          mid-February
                                                                                                          2005,
                                                                                                          the
                                                                                                          equipment
                                                                                                          difficulties
                                                                                                          continued
                                                                                                          throughout
                                                                                                          the
                                                                                                          first
                                                                                                          quarter.
                                                                                                          For
                                                                                                          example,
                                                                                                          between
                                                                                                          March
                                                                                                          15,
                                                                                                          2005
                                                                                                          and
                                                                                                          April
                                                                                                          1,
                                                                                                          2005,
                                                                                                          we
                                                                                                          had
                                                                                                          no
                                                                                                          crusher
                                                                                                          production
                                                                                                          due
                                                                                                          to
                                                                                                          inoperable
                                                                                                          equipment.
                                                                                                          We
                                                                                                          have
                                                                                                          since
                                                                                                          taken
                                                                                                          steps
                                                                                                          to
                                                                                                          remedy
                                                                                                          our
                                                                                                          equipment
                                                                                                          challenges,
                                                                                                          including
                                                                                                          replacing
                                                                                                          the
                                                                                                          cone
                                                                                                          and
                                                                                                          screen
                                                                                                          plant
                                                                                                          on
                                                                                                          the
                                                                                                          crusher.
                                                                                                          Due
                                                                                                          to
                                                                                                          these
                                                                                                          improvements,
                                                                                                          we
                                                                                                          crushed
                                                                                                          144,000
                                                                                                          tons
                                                                                                          of
                                                                                                          mineralized
                                                                                                          material
                                                                                                          in
                                                                                                          the
                                                                                                          second
                                                                                                          quarter,
                                                                                                          representing
                                                                                                          an
                                                                                                          increase
                                                                                                          of
                                                                                                          141%
                                                                                                          from
                                                                                                          the
                                                                                                          first
                                                                                                          quarter
                                                                                                          2005.
  2
  We
                                                                                                          have
                                                                                                          made
                                                                                                          several
                                                                                                          other
                                                                                                          improvements
                                                                                                          to
                                                                                                          our
                                                                                                          equipment
                                                                                                          and
                                                                                                          operations
                                                                                                          during
                                                                                                          the
                                                                                                          second
                                                                                                          quarter
                                                                                                          of
                                                                                                          2005
                                                                                                          to
                                                                                                          increase
                                                                                                          production
                                                                                                          and
                                                                                                          improve
                                                                                                          operating
                                                                                                          efficiency.
                                                                                                          On
                                                                                                          the
                                                                                                          operations
                                                                                                          side,
                                                                                                          we
                                                                                                          have
                                                                                                          added
                                                                                                          additional
                                                                                                          solution
                                                                                                          lines
                                                                                                          to
                                                                                                          the
                                                                                                          mineralized
                                                                                                          material
                                                                                                          on
                                                                                                          leach
                                                                                                          pad
                                                                                                          number
                                                                                                          two,
                                                                                                          adjusted
                                                                                                          the
                                                                                                          amount
                                                                                                          of
                                                                                                          cement
                                                                                                          used
                                                                                                          during
                                                                                                          the
                                                                                                          agglomeration
                                                                                                          phase
                                                                                                          of
                                                                                                          processing,
                                                                                                          and
                                                                                                          added
                                                                                                          an
                                                                                                          agglomeraid
                                                                                                          to
                                                                                                          our
                                                                                                          mineralized
                                                                                                          material.
                                                                                                          We
                                                                                                          believe
                                                                                                          these
                                                                                                          adjustments
                                                                                                          will
                                                                                                          increase
                                                                                                          recovery
                                                                                                          results
                                                                                                          and
                                                                                                          minimize
                                                                                                          problems
                                                                                                          with
                                                                                                          the
                                                                                                          crusher.
                                                                                                          We
                                                                                                          have
                                                                                                          also
                                                                                                          increased
                                                                                                          production
                                                                                                          capacity
                                                                                                          at
                                                                                                          our
                                                                                                          Merrill
                                                                                                          Crowe
                                                                                                          processing
                                                                                                          plant
                                                                                                          by
                                                                                                          adding
                                                                                                          a
                                                                                                          new
                                                                                                          clarifier,
                                                                                                          changing
                                                                                                          the
                                                                                                          pumps
                                                                                                          and
                                                                                                          raising
                                                                                                          the
                                                                                                          height
                                                                                                          of
                                                                                                          the
                                                                                                          vacuum
                                                                                                          tower.
                                                                                                          With
                                                                                                          these
                                                                                                          changes,
                                                                                                          we
                                                                                                          increased
                                                                                                          capacity
                                                                                                          at
                                                                                                          the
                                                                                                          plant
                                                                                                          from
                                                                                                          100
                                                                                                          gallons
                                                                                                          per
                                                                                                          minute
                                                                                                          to
                                                                                                          300
                                                                                                          gallons
                                                                                                          per
                                                                                                          minute
                                                                                                          and
                                                                                                          we
                                                                                                          are
                                                                                                          now
                                                                                                          operating
                                                                                                          24
                                                                                                          hours
                                                                                                          per
                                                                                                          day,
                                                                                                          7
                                                                                                          days
                                                                                                          per
                                                                                                          week.
                                                                                                          We
                                                                                                          believe
                                                                                                          the
                                                                                                          combination
                                                                                                          of
                                                                                                          the
                                                                                                          equipment
                                                                                                          modifications,
                                                                                                          operational
                                                                                                          improvements,
                                                                                                          and
                                                                                                          management
                                                                                                          changes
                                                                                                          made
                                                                                                          since
                                                                                                          late-February
                                                                                                          2005
                                                                                                          leaves
                                                                                                          us
                                                                                                          poised
                                                                                                          to
                                                                                                          reach
                                                                                                          our
                                                                                                          goals
                                                                                                          for
                                                                                                          2005.
  In
                                                                                                          the
                                                                                                          remainder
                                                                                                          of
                                                                                                          2005,
                                                                                                          we
                                                                                                          plan
                                                                                                          to
                                                                                                          focus
                                                                                                          the
                                                                                                          bulk
                                                                                                          of
                                                                                                          our
                                                                                                          efforts
                                                                                                          on
                                                                                                          achieving
                                                                                                          additional
                                                                                                          operational
                                                                                                          improvements
                                                                                                          in
                                                                                                          both
                                                                                                          production
                                                                                                          and
                                                                                                          efficiency
                                                                                                          at
                                                                                                          our
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          operation.
                                                                                                          We
                                                                                                          are
                                                                                                          continuing
                                                                                                          to
                                                                                                          pursue
                                                                                                          operational
                                                                                                          improvements
                                                                                                          through
                                                                                                          enhancements
                                                                                                          to
                                                                                                          our
                                                                                                          existing
                                                                                                          processes.
                                                                                                          These
                                                                                                          enhancements
                                                                                                          are
                                                                                                          expected
                                                                                                          to
                                                                                                          stem
                                                                                                          from
                                                                                                          increasing
                                                                                                          our
                                                                                                          volume
                                                                                                          of
                                                                                                          production
                                                                                                          combined
                                                                                                          with
                                                                                                          lowering
                                                                                                          the
                                                                                                          cost
                                                                                                          of
                                                                                                          our
                                                                                                          processes.
                                                                                                          Our
                                                                                                          objective
                                                                                                          for
                                                                                                          operational
                                                                                                          performance
                                                                                                          in
                                                                                                          2005
                                                                                                          is
                                                                                                          to
                                                                                                          establish
                                                                                                          a
                                                                                                          stable
                                                                                                          and
                                                                                                          predictable
                                                                                                          level
                                                                                                          of
                                                                                                          gold
                                                                                                          and
                                                                                                          silver
                                                                                                          production
                                                                                                          at
                                                                                                          the
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          resulting
                                                                                                          in
                                                                                                          profitability
                                                                                                          and
                                                                                                          positive
                                                                                                          cash
                                                                                                          flow.
  ***Placer
                                                                                                          Claims,
                                                                                                          Water
                                                                                                          Rights,
                                                                                                          and
                                                                                                          Mineral
                                                                                                          Permits***
  We
                                                                                                          originally
                                                                                                          became
                                                                                                          a
                                                                                                          mineral
                                                                                                          company
                                                                                                          through
                                                                                                          an
                                                                                                          acquisition
                                                                                                          of
                                                                                                          unpatented
                                                                                                          placer
                                                                                                          mineral
                                                                                                          claims
                                                                                                          and
                                                                                                          the
                                                                                                          Big
                                                                                                          Mike
                                                                                                          copper
                                                                                                          claims
                                                                                                          in
                                                                                                          June
                                                                                                          2003
                                                                                                          from
                                                                                                          Ecovery,
                                                                                                          Inc.
                                                                                                          The
                                                                                                          transaction
                                                                                                          had
                                                                                                          an
                                                                                                          effectuation
                                                                                                          date
                                                                                                          of
                                                                                                          March
                                                                                                          11,
                                                                                                          2003.
                                                                                                          Specifically,
                                                                                                          that
                                                                                                          acquisition
                                                                                                          provided
                                                                                                          us
                                                                                                          with
                                                                                                          a
                                                                                                          number
                                                                                                          of
                                                                                                          Nevada-based
                                                                                                          placer
                                                                                                          claims,
                                                                                                          including
                                                                                                          the
                                                                                                          Gold
                                                                                                          Canyon
                                                                                                          and
                                                                                                          Spring
                                                                                                          Valley
                                                                                                          claims,
                                                                                                          and
                                                                                                          17
                                                                                                          unpatented
                                                                                                          lode
                                                                                                          claims
                                                                                                          called
                                                                                                          the
                                                                                                          Big
                                                                                                          Mike
                                                                                                          Copper
                                                                                                          Project.
                                                                                                          This
                                                                                                          acquisition
                                                                                                          did
                                                                                                          not
                                                                                                          include
                                                                                                          any
                                                                                                          real
                                                                                                          property
                                                                                                          rights.
                                                                                                          In
                                                                                                          November
                                                                                                          2003,
                                                                                                          we
                                                                                                          acquired
                                                                                                          the
                                                                                                          Plum
                                                                                                          mine
                                                                                                          facility
                                                                                                          as
                                                                                                          well
                                                                                                          as
                                                                                                          water
                                                                                                          rights
                                                                                                          that
                                                                                                          are
                                                                                                          usable
                                                                                                          at
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          and
                                                                                                          the
                                                                                                          Gold
                                                                                                          Canyon
                                                                                                          and
                                                                                                          Spring
                                                                                                          Valley
                                                                                                          placer
                                                                                                          claims.
                                                                                                          In
                                                                                                          a
                                                                                                          separate
                                                                                                          transaction,
                                                                                                          we
                                                                                                          obtained
                                                                                                          mineral
                                                                                                          permits
                                                                                                          in
                                                                                                          Alberta,
                                                                                                          Canada
                                                                                                          in
                                                                                                          May
                                                                                                          2004.
  The
                                                                                                          Big
                                                                                                          Mike
                                                                                                          Copper
                                                                                                          Project
                                                                                                          is
                                                                                                          located
                                                                                                          in
                                                                                                          Pershing
                                                                                                          County,
                                                                                                          Nevada.
                                                                                                          It
                                                                                                          covers
                                                                                                          a
                                                                                                          total
                                                                                                          of
                                                                                                          310
                                                                                                          acres
                                                                                                          and
                                                                                                          consists
                                                                                                          of
                                                                                                          17
                                                                                                          unpatented
                                                                                                          lode
                                                                                                          claims
                                                                                                          and
                                                                                                          one
                                                                                                          placer
                                                                                                          claim.
                                                                                                          We
                                                                                                          have
                                                                                                          not
                                                                                                          established
                                                                                                          any
                                                                                                          proven
                                                                                                          or
                                                                                                          probable
                                                                                                          reserves
                                                                                                          that
                                                                                                          meet
                                                                                                          the
                                                                                                          requirements
                                                                                                          of
                                                                                                          SEC
                                                                                                          Industry
                                                                                                          Guide
                                                                                                          7.
                                                                                                          We
                                                                                                          have
                                                                                                          not
                                                                                                          completed
                                                                                                          any
                                                                                                          exploration
                                                                                                          activity
                                                                                                          on
                                                                                                          the
                                                                                                          project.
                                                                                                          The
                                                                                                          property
                                                                                                          includes
                                                                                                          an
                                                                                                          open
                                                                                                          pit,
                                                                                                          mineralized
                                                                                                          material
                                                                                                          in
                                                                                                          a
                                                                                                          stockpile
                                                                                                          and
                                                                                                          waste
                                                                                                          dumps.
                                                                                                          We
                                                                                                          believe
                                                                                                          the
                                                                                                          property
                                                                                                          has
                                                                                                          exploration
                                                                                                          potential
                                                                                                          for
                                                                                                          primary
                                                                                                          and
                                                                                                          oxide
                                                                                                          copper.
                                                                                                          In
                                                                                                          November
                                                                                                          2004,
                                                                                                          we
                                                                                                          entered
                                                                                                          into
                                                                                                          a
                                                                                                          Memorandum
                                                                                                          of
                                                                                                          Understanding
                                                                                                          to
                                                                                                          form
                                                                                                          a
                                                                                                          joint
                                                                                                          venture
                                                                                                          to
                                                                                                          begin
                                                                                                          exploration
                                                                                                          activities
                                                                                                          on
                                                                                                          this
                                                                                                          property.
                                                                                                          The
                                                                                                          negotiations
                                                                                                          were
                                                                                                          put
                                                                                                          on
                                                                                                          hold
                                                                                                          in
                                                                                                          December
                                                                                                          2004
                                                                                                          by
                                                                                                          the
                                                                                                          dispute
                                                                                                          over
                                                                                                          control
                                                                                                          of
                                                                                                          the
                                                                                                          company.
                                                                                                          We
                                                                                                          continue
                                                                                                          to
                                                                                                          look
                                                                                                          for
                                                                                                          a
                                                                                                          business
                                                                                                          partner
                                                                                                          to
                                                                                                          develop
                                                                                                          this
                                                                                                          project.
                                                                                                          We
                                                                                                          are
                                                                                                          still
                                                                                                          in
                                                                                                          discussions
                                                                                                          with
                                                                                                          the
                                                                                                          party
                                                                                                          who
                                                                                                          executed
                                                                                                          the
                                                                                                          Memorandum
                                                                                                          of
                                                                                                          Understanding
                                                                                                          in
                                                                                                          November
                                                                                                          2004.
  In
                                                                                                          May
                                                                                                          2004,
                                                                                                          the
                                                                                                          Alberta
                                                                                                          government
                                                                                                          granted
                                                                                                          us
                                                                                                          mineral
                                                                                                          permits
                                                                                                          for
                                                                                                          all
                                                                                                          non-energy
                                                                                                          minerals
                                                                                                          on
                                                                                                          nearly
                                                                                                          800
                                                                                                          square
                                                                                                          miles
                                                                                                          of
                                                                                                          Alberta,
                                                                                                          Canada
                                                                                                          mineral
                                                                                                          property.
                                                                                                          Sedimentary
                                                                                                          Oolitic
                                                                                                          iron
                                                                                                          bearing
                                                                                                          material
                                                                                                          was
                                                                                                          discovered
                                                                                                          in
                                                                                                          1953
                                                                                                          from
                                                                                                          oil
                                                                                                          and
                                                                                                          gas
                                                                                                          drilling
                                                                                                          in
                                                                                                          the
                                                                                                          area
                                                                                                          covered
                                                                                                          by
                                                                                                          our
                                                                                                          mineral
                                                                                                          permits.
                                                                                                          We
                                                                                                          are
                                                                                                          in
                                                                                                          the
                                                                                                          process
                                                                                                          of
                                                                                                          reviewing
                                                                                                          existing
                                                                                                          data
                                                                                                          and
                                                                                                          conducting
                                                                                                          a
                                                                                                          pre-feasibility
                                                                                                          study
                                                                                                          on
                                                                                                          the
                                                                                                          project.
                                                                                                          The
                                                                                                          study
                                                                                                          will
                                                                                                          include
                                                                                                          new
                                                                                                          test
                                                                                                          work
                                                                                                          to
                                                                                                          follow-up
                                                                                                          earlier
                                                                                                          test
                                                                                                          work
                                                                                                          performed
                                                                                                          on
                                                                                                          the
                                                                                                          property.
                                                                                                          From
                                                                                                          1995
                                                                                                          through
                                                                                                          1997,
                                                                                                          a
                                                                                                          series
                                                                                                          of
                                                                                                          tests
                                                                                                          were
                                                                                                          performed
                                                                                                          that
                                                                                                          showed
                                                                                                          the
                                                                                                          mineralized
                                                                                                          material
                                                                                                          present
                                                                                                          was
                                                                                                          amenable
                                                                                                          to
                                                                                                          treatment
                                                                                                          to
                                                                                                          produce
                                                                                                          iron
                                                                                                          pellets
                                                                                                          and
                                                                                                          pig
                                                                                                          iron.
                                                                                                          We
                                                                                                          are
                                                                                                          negotiating
                                                                                                          the
                                                                                                          acquisition
                                                                                                          of
                                                                                                          the
                                                                                                          coal
                                                                                                          rights
                                                                                                          in
                                                                                                          this
                                                                                                          area.
                                                                                                          We
                                                                                                          are
                                                                                                          also
                                                                                                          investigating
                                                                                                          the
                                                                                                          possible
                                                                                                          acquisition
                                                                                                          of
                                                                                                          the
                                                                                                          rights
                                                                                                          to
                                                                                                          the
                                                                                                          energy
                                                                                                          minerals,
                                                                                                          gas,
                                                                                                          and
                                                                                                          oil
                                                                                                          on
                                                                                                          this
                                                                                                          property.
  This
                                                                                                          is
                                                                                                          an
                                                                                                          early
                                                                                                          stage
                                                                                                          project
                                                                                                          and
                                                                                                          our
                                                                                                          activities
                                                                                                          associated
                                                                                                          with
                                                                                                          this
                                                                                                          mineral
                                                                                                          area
                                                                                                          are
                                                                                                          exploratory
                                                                                                          in
                                                                                                          nature.
                                                                                                          We
                                                                                                          have
                                                                                                          not
                                                                                                          established
                                                                                                          any
                                                                                                          reserves
                                                                                                          on
                                                                                                          this
                                                                                                          property.
                                                                                                          The
                                                                                                          scope
                                                                                                          and
                                                                                                          size
                                                                                                          of
                                                                                                          this
                                                                                                          potential
                                                                                                          project
                                                                                                          will
                                                                                                          require
                                                                                                          substantial
                                                                                                          capital,
                                                                                                          time
                                                                                                          and
                                                                                                          outside
                                                                                                          assistance
                                                                                                          during
                                                                                                          both
                                                                                                          the
                                                                                                          pre-
                                                                                                          and
                                                                                                          post-feasibility
                                                                                                          stages.
                                                                                                          We
                                                                                                          are
                                                                                                          considering
                                                                                                          several
                                                                                                          financial
                                                                                                          alternatives,
                                                                                                          including
                                                                                                          a
                                                                                                          joint
                                                                                                          venture,
                                                                                                          to
                                                                                                          develop
                                                                                                          this
                                                                                                          project.
  ***Liquidity
                                                                                                          and
                                                                                                          Capital
                                                                                                          Resources***
  We
                                                                                                          recognize
                                                                                                          that
                                                                                                          our
                                                                                                          cash
                                                                                                          resources
                                                                                                          are
                                                                                                          limited.
                                                                                                          Our
                                                                                                          continued
                                                                                                          existence
                                                                                                          and
                                                                                                          plans
                                                                                                          for
                                                                                                          future
                                                                                                          growth
                                                                                                          depend
                                                                                                          on
                                                                                                          our
                                                                                                          ability
                                                                                                          to
                                                                                                          obtain
                                                                                                          the
                                                                                                          capital
                                                                                                          necessary
                                                                                                          to
                                                                                                          operate,
                                                                                                          through
                                                                                                          the
                                                                                                          generation
                                                                                                          of
                                                                                                          revenue
                                                                                                          or
                                                                                                          the
                                                                                                          issuance
                                                                                                          of
                                                                                                          additional
                                                                                                          debt
                                                                                                          or
                                                                                                          equity.
                                                                                                          In
                                                                                                          July
                                                                                                          2005,
                                                                                                          we
                                                                                                          received
                                                                                                          $800,000
                                                                                                          in
                                                                                                          financing
                                                                                                          (See
                                                                                                          Recent
                                                                                                          Financing
                                                                                                          Events
                                                                                                          and
                                                                                                          Restructuring,
                                                                                                          below).
                                                                                                          While
                                                                                                          this
                                                                                                          additional
                                                                                                          funding
                                                                                                          will
                                                                                                          meet
                                                                                                          our
                                                                                                          immediate
                                                                                                          working
                                                                                                          capital
                                                                                                          needs,
                                                                                                          if
                                                                                                          we
                                                                                                          are
                                                                                                          not
                                                                                                          able
                                                                                                          to
                                                                                                          generate
                                                                                                          sufficient
                                                                                                          revenues
                                                                                                          and
                                                                                                          cash
                                                                                                          flows
                                                                                                          or
                                                                                                          obtain
                                                                                                          additional
                                                                                                          or
                                                                                                          alternative
                                                                                                          funding,
                                                                                                          we
                                                                                                          will
                                                                                                          be
                                                                                                          unable
                                                                                                          to
                                                                                                          continue
                                                                                                          as
                                                                                                          a
                                                                                                          going
                                                                                                          concern.
                                                                                                          As
                                                                                                          disclosed
                                                                                                          in
                                                                                                          the
                                                                                                          report
                                                                                                          of
                                                                                                          our
                                                                                                          independent
                                                                                                          registered
                                                                                                          public
                                                                                                          accounting
                                                                                                          firm
                                                                                                          in
                                                                                                          our
                                                                                                          financial
                                                                                                          statements
                                                                                                          provided
                                                                                                          in
                                                                                                          our
                                                                                                          Form
                                                                                                          10-KSB
                                                                                                          for
                                                                                                          the
                                                                                                          year
                                                                                                          ended
                                                                                                          December
                                                                                                          31,
                                                                                                          2004,
                                                                                                          our
                                                                                                          recurring
                                                                                                          losses
                                                                                                          and
                                                                                                          negative
                                                                                                          cash
                                                                                                          flow
                                                                                                          from
                                                                                                          operations
                                                                                                          raise
                                                                                                          substantial
                                                                                                          doubt
                                                                                                          about
                                                                                                          our
                                                                                                          ability
                                                                                                          to
                                                                                                          continue
                                                                                                          as
                                                                                                          a
                                                                                                          going
                                                                                                          concern.
  3
  Under
                                                                                                          the
                                                                                                          terms
                                                                                                          of
                                                                                                          our
                                                                                                          November
                                                                                                          2004
                                                                                                          subscription
                                                                                                          agreement,
                                                                                                          we
                                                                                                          issued
                                                                                                          8%
                                                                                                          convertible
                                                                                                          notes
                                                                                                          to
                                                                                                          an
                                                                                                          investor
                                                                                                          group.
                                                                                                          Under
                                                                                                          the
                                                                                                          terms
                                                                                                          of
                                                                                                          the
                                                                                                          notes,
                                                                                                          our
                                                                                                          first
                                                                                                          principal
                                                                                                          and
                                                                                                          interest
                                                                                                          repayment
                                                                                                          was
                                                                                                          scheduled
                                                                                                          for
                                                                                                          April
                                                                                                          1,
                                                                                                          2005.
                                                                                                          Prior
                                                                                                          to
                                                                                                          April
                                                                                                          1,
                                                                                                          2005,
                                                                                                          knowing
                                                                                                          that
                                                                                                          we
                                                                                                          did
                                                                                                          not
                                                                                                          have
                                                                                                          sufficient
                                                                                                          cash
                                                                                                          available
                                                                                                          to
                                                                                                          meet
                                                                                                          these
                                                                                                          obligations,
                                                                                                          we
                                                                                                          began
                                                                                                          negotiations
                                                                                                          with
                                                                                                          the
                                                                                                          major
                                                                                                          note
                                                                                                          holders
                                                                                                          in
                                                                                                          an
                                                                                                          effort
                                                                                                          to
                                                                                                          delay
                                                                                                          repayment
                                                                                                          of
                                                                                                          both
                                                                                                          the
                                                                                                          principal
                                                                                                          and
                                                                                                          interest
                                                                                                          amounts
                                                                                                          for
                                                                                                          a
                                                                                                          12-month
                                                                                                          period.
                                                                                                          Our
                                                                                                          negotiations
                                                                                                          with
                                                                                                          these
                                                                                                          note
                                                                                                          holders
                                                                                                          regarding
                                                                                                          the
                                                                                                          repayment
                                                                                                          delay
                                                                                                          have
                                                                                                          so
                                                                                                          far
                                                                                                          been
                                                                                                          successful
                                                                                                          and
                                                                                                          we
                                                                                                          have
                                                                                                          reached
                                                                                                          a
                                                                                                          tentative
                                                                                                          agreement
                                                                                                          regarding
                                                                                                          the
                                                                                                          12-month
                                                                                                          payment
                                                                                                          deferral.
                                                                                                          We
                                                                                                          remain
                                                                                                          optimistic
                                                                                                          that
                                                                                                          we
                                                                                                          will
                                                                                                          reach
                                                                                                          a
                                                                                                          definitive
                                                                                                          agreement.
                                                                                                          However,
                                                                                                          we
                                                                                                          are
                                                                                                          in
                                                                                                          default
                                                                                                          on
                                                                                                          these
                                                                                                          notes,
                                                                                                          and
                                                                                                          in
                                                                                                          the
                                                                                                          event
                                                                                                          we
                                                                                                          are
                                                                                                          not
                                                                                                          successful
                                                                                                          in
                                                                                                          achieving
                                                                                                          a
                                                                                                          payment
                                                                                                          deferral,
                                                                                                          we
                                                                                                          will
                                                                                                          be
                                                                                                          unable
                                                                                                          to
                                                                                                          meet
                                                                                                          the
                                                                                                          current
                                                                                                          note
                                                                                                          obligations.
                                                                                                          While
                                                                                                          failure
                                                                                                          to
                                                                                                          reach
                                                                                                          a
                                                                                                          resolution
                                                                                                          would
                                                                                                          likely
                                                                                                          cause
                                                                                                          us
                                                                                                          to
                                                                                                          seek
                                                                                                          external
                                                                                                          funding
                                                                                                          in
                                                                                                          order
                                                                                                          to
                                                                                                          meet
                                                                                                          our
                                                                                                          obligation,
                                                                                                          there
                                                                                                          can
                                                                                                          be
                                                                                                          no
                                                                                                          assurance
                                                                                                          that
                                                                                                          such
                                                                                                          funding
                                                                                                          would
                                                                                                          be
                                                                                                          available.
                                                                                                          If
                                                                                                          such
                                                                                                          funding
                                                                                                          were
                                                                                                          not
                                                                                                          available,
                                                                                                          we
                                                                                                          might
                                                                                                          have
                                                                                                          no
                                                                                                          alternative
                                                                                                          other
                                                                                                          than
                                                                                                          to
                                                                                                          default
                                                                                                          on
                                                                                                          these
                                                                                                          notes.
  We
                                                                                                          have
                                                                                                          yet
                                                                                                          to
                                                                                                          realize
                                                                                                          an
                                                                                                          operating
                                                                                                          profit
                                                                                                          at
                                                                                                          our
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          location.
                                                                                                          However,
                                                                                                          we
                                                                                                          believe
                                                                                                          that
                                                                                                          our
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          operations
                                                                                                          will
                                                                                                          become
                                                                                                          profitable
                                                                                                          and
                                                                                                          generate
                                                                                                          positive
                                                                                                          cash
                                                                                                          flow
                                                                                                          during
                                                                                                          the
                                                                                                          year
                                                                                                          2005.
  We
                                                                                                          expect
                                                                                                          to
                                                                                                          expand
                                                                                                          our
                                                                                                          existing
                                                                                                          leach
                                                                                                          pads,
                                                                                                          which
                                                                                                          currently
                                                                                                          number
                                                                                                          three,
                                                                                                          to
                                                                                                          a
                                                                                                          total
                                                                                                          of
                                                                                                          either
                                                                                                          four
                                                                                                          or
                                                                                                          five
                                                                                                          leach
                                                                                                          pads
                                                                                                          during
                                                                                                          2005.
                                                                                                          The
                                                                                                          cost
                                                                                                          of
                                                                                                          this
                                                                                                          expansion
                                                                                                          will
                                                                                                          be
                                                                                                          approximately
                                                                                                          $600,000.
                                                                                                          We
                                                                                                          are
                                                                                                          also
                                                                                                          in
                                                                                                          the
                                                                                                          process
                                                                                                          of
                                                                                                          taking
                                                                                                          over
                                                                                                          the
                                                                                                          crushing
                                                                                                          operations
                                                                                                          from
                                                                                                          our
                                                                                                          third-party
                                                                                                          contractor.
                                                                                                          This
                                                                                                          transition
                                                                                                          requires
                                                                                                          us
                                                                                                          to
                                                                                                          acquire
                                                                                                          and
                                                                                                          assemble
                                                                                                          our
                                                                                                          own
                                                                                                          crushing
                                                                                                          equipment,
                                                                                                          at
                                                                                                          an
                                                                                                          approximate
                                                                                                          cost
                                                                                                          of
                                                                                                          $100,000.
                                                                                                          These
                                                                                                          expenditures
                                                                                                          represent
                                                                                                          our
                                                                                                          only
                                                                                                          major
                                                                                                          capital
                                                                                                          expenditures
                                                                                                          currently
                                                                                                          planned
                                                                                                          for
                                                                                                          2005.
                                                                                                          We
                                                                                                          intend
                                                                                                          to
                                                                                                          finance
                                                                                                          our
                                                                                                          crushing
                                                                                                          equipment,
                                                                                                          our
                                                                                                          leach
                                                                                                          pad
                                                                                                          expansion
                                                                                                          project
                                                                                                          and
                                                                                                          any
                                                                                                          other
                                                                                                          capital
                                                                                                          expenditures
                                                                                                          in
                                                                                                          2005
                                                                                                          through
                                                                                                          the
                                                                                                          issuance
                                                                                                          of
                                                                                                          debt
                                                                                                          and
                                                                                                          equity
                                                                                                          instruments
                                                                                                          to
                                                                                                          existing
                                                                                                          shareholders
                                                                                                          and
                                                                                                          other
                                                                                                          parties.
  ***Restatement
                                                                                                          of
                                                                                                          Financial
                                                                                                          Statements***
  Upon
                                                                                                          review
                                                                                                          of
                                                                                                          the
                                                                                                          standards
                                                                                                          for
                                                                                                          reporting
                                                                                                          mineral
                                                                                                          reserves
                                                                                                          as
                                                                                                          defined
                                                                                                          by
                                                                                                          SEC
                                                                                                          Industry
                                                                                                          Guide
                                                                                                          7
                                                                                                          (“Guide
                                                                                                          7”),
                                                                                                          we
                                                                                                          have
                                                                                                          concluded
                                                                                                          that
                                                                                                          we
                                                                                                          did
                                                                                                          not
                                                                                                          have
                                                                                                          sufficient
                                                                                                          information
                                                                                                          to
                                                                                                          establish
                                                                                                          the
                                                                                                          existence
                                                                                                          of
                                                                                                          reserves
                                                                                                          as
                                                                                                          of
                                                                                                          December
                                                                                                          31,
                                                                                                          2004
                                                                                                          and
                                                                                                          that
                                                                                                          certain
                                                                                                          costs
                                                                                                          that
                                                                                                          we
                                                                                                          had
                                                                                                          incurred
                                                                                                          in
                                                                                                          the
                                                                                                          development
                                                                                                          of
                                                                                                          our
                                                                                                          mining
                                                                                                          facility
                                                                                                          must
                                                                                                          be
                                                                                                          expensed
                                                                                                          as
                                                                                                          exploration
                                                                                                          or
“test
                                                                                                          mining”
                                                                                                          costs.
                                                                                                          We
                                                                                                          have
                                                                                                          restated
                                                                                                          our
                                                                                                          2004
                                                                                                          financial
                                                                                                          statements
                                                                                                          to
                                                                                                          classify
                                                                                                          all
                                                                                                          costs
                                                                                                          previously
                                                                                                          capitalized
                                                                                                          (the
                                                                                                          recovery
                                                                                                          of
                                                                                                          which
                                                                                                          is
                                                                                                          dependent
                                                                                                          upon
                                                                                                          the
                                                                                                          economical
                                                                                                          extraction
                                                                                                          of
                                                                                                          gold
                                                                                                          from
                                                                                                          the
                                                                                                          mineralized
                                                                                                          material
                                                                                                          we
                                                                                                          are
                                                                                                          currently
                                                                                                          processing),
                                                                                                          as
                                                                                                          test
                                                                                                          mining
                                                                                                          expenses.
                                                                                                          These
                                                                                                          costs,
                                                                                                          which
                                                                                                          total
                                                                                                          approximately
                                                                                                          $4.5
                                                                                                          million
                                                                                                          net
                                                                                                          of
                                                                                                          accumulated
                                                                                                          depreciation,
                                                                                                          include
                                                                                                          our
                                                                                                          asset
                                                                                                          retirement
                                                                                                          obligation
                                                                                                          asset
                                                                                                          of
                                                                                                          $453,786.
                                                                                                          In
                                                                                                          connection
                                                                                                          with
                                                                                                          our
                                                                                                          restatement
                                                                                                          of
                                                                                                          our
                                                                                                          mineral
                                                                                                          property
                                                                                                          assets,
                                                                                                          we
                                                                                                          have
                                                                                                          also
                                                                                                          restated
                                                                                                          our
                                                                                                          asset
                                                                                                          retirement
                                                                                                          obligation
                                                                                                          liability,
                                                                                                          classifying
                                                                                                          it
                                                                                                          as
                                                                                                          an
                                                                                                          environmental
                                                                                                          reclamation
                                                                                                          liability
                                                                                                          and
                                                                                                          not
                                                                                                          an
                                                                                                          asset
                                                                                                          retirement
                                                                                                          obligation
                                                                                                          as
                                                                                                          described
                                                                                                          by
                                                                                                          Financial
                                                                                                          Accounting
                                                                                                          Standards
                                                                                                          Board
                                                                                                          Statement
                                                                                                          No.
                                                                                                          143.
  We
                                                                                                          have
                                                                                                          also
                                                                                                          restated
                                                                                                          our
                                                                                                          shareholders’
                                                                                                          equity.
                                                                                                          On
                                                                                                          December
                                                                                                          20,
                                                                                                          2004,
                                                                                                          we
                                                                                                          received
                                                                                                          notice
                                                                                                          from
                                                                                                          holders
                                                                                                          of
                                                                                                          approximately
                                                                                                          $3.8
                                                                                                          million
                                                                                                          of
                                                                                                          convertible
                                                                                                          notes
                                                                                                          of
                                                                                                          their
                                                                                                          intention
                                                                                                          to
                                                                                                          convert
                                                                                                          into
                                                                                                          shares
                                                                                                          of
                                                                                                          our
                                                                                                          common
                                                                                                          stock.
                                                                                                          In
                                                                                                          connection
                                                                                                          with
                                                                                                          the
                                                                                                          notice
                                                                                                          we
                                                                                                          reduced
                                                                                                          convertible
                                                                                                          notes
                                                                                                          payable
                                                                                                          by
                                                                                                          $3.8
                                                                                                          million
                                                                                                          and
                                                                                                          recorded
                                                                                                          an
                                                                                                          additional
                                                                                                          33,817,594
                                                                                                          shares
                                                                                                          (converted
                                                                                                          at
                                                                                                          approximately
                                                                                                          $0.11
                                                                                                          per
                                                                                                          share)
                                                                                                          at
                                                                                                          December
                                                                                                          31,
                                                                                                          2004.
                                                                                                          Upon
                                                                                                          further
                                                                                                          consideration,
                                                                                                          we
                                                                                                          have
                                                                                                          determined
                                                                                                          that
                                                                                                          since
                                                                                                          the
                                                                                                          shares
                                                                                                          had
                                                                                                          not
                                                                                                          been
                                                                                                          physically
                                                                                                          issued
                                                                                                          prior
                                                                                                          to
                                                                                                          year
                                                                                                          end,
                                                                                                          the
                                                                                                          liability
                                                                                                          and
                                                                                                          stockholders’
                                                                                                          equity
                                                                                                          accounts
                                                                                                          should
                                                                                                          not
                                                                                                          be
                                                                                                          adjusted
                                                                                                          until
                                                                                                          the
                                                                                                          shares
                                                                                                          have
                                                                                                          been
                                                                                                          issued.
                                                                                                          Accordingly,
                                                                                                          we
                                                                                                          restated
                                                                                                          our
                                                                                                          convertible
                                                                                                          note
                                                                                                          and
                                                                                                          stock
                                                                                                          holder
                                                                                                          equity
                                                                                                          accounts
                                                                                                          by
                                                                                                          approximately
                                                                                                          $3.8
                                                                                                          million.
                                                                                                          The
                                                                                                          restatement
                                                                                                          has
                                                                                                          no
                                                                                                          affect
                                                                                                          on
                                                                                                          net
                                                                                                          loss
                                                                                                          or
                                                                                                          cash
                                                                                                          flows
                                                                                                          as
                                                                                                          previously
                                                                                                          reported.
  ***Recent
                                                                                                          Financing
                                                                                                          Events
                                                                                                          and
                                                                                                          Restructuring***
  On
                                                                                                          July
                                                                                                          15,
                                                                                                          2005,
                                                                                                          we
                                                                                                          completed
                                                                                                          a
                                                                                                          financing
                                                                                                          transaction,
                                                                                                          which
                                                                                                          has
                                                                                                          provided
                                                                                                          us
                                                                                                          with
                                                                                                          $800,000
                                                                                                          in
                                                                                                          funding.
                                                                                                          In
                                                                                                          consideration
                                                                                                          for
                                                                                                          the
                                                                                                          financing,
                                                                                                          the
                                                                                                          Company
                                                                                                          has
                                                                                                          issued
                                                                                                          promissory
                                                                                                          notes
                                                                                                          with
                                                                                                          a
                                                                                                          face
                                                                                                          value
                                                                                                          of
                                                                                                          $1.2
                                                                                                          million,
                                                                                                          reflecting
                                                                                                          an
                                                                                                          original
                                                                                                          issue
                                                                                                          discount
                                                                                                          of
                                                                                                          thirty-three
                                                                                                          and
                                                                                                          one-third
                                                                                                          (33.3%)
                                                                                                          percent.
                                                                                                          The
                                                                                                          term
                                                                                                          of
                                                                                                          the
                                                                                                          notes
                                                                                                          is
                                                                                                          two
                                                                                                          years,
                                                                                                          with
                                                                                                          an
                                                                                                          optional
                                                                                                          extension
                                                                                                          of
                                                                                                          one
                                                                                                          year
                                                                                                          at
                                                                                                          the
                                                                                                          option
                                                                                                          of
                                                                                                          the
                                                                                                          investor.
                                                                                                          The
                                                                                                          annual
                                                                                                          interest
                                                                                                          rate
                                                                                                          on
                                                                                                          the
                                                                                                          notes
                                                                                                          is
                                                                                                          15%
                                                                                                          of
                                                                                                          the
                                                                                                          face
                                                                                                          value
                                                                                                          and
                                                                                                          is
                                                                                                          payable
                                                                                                          monthly.
                                                                                                          The
                                                                                                          funds
                                                                                                          will
                                                                                                          be
                                                                                                          used
                                                                                                          for
                                                                                                          working
                                                                                                          capital
                                                                                                          and
                                                                                                          general
                                                                                                          corporate
                                                                                                          purposes.
  In
                                                                                                          2004,
                                                                                                          we
                                                                                                          offered
                                                                                                          securities
                                                                                                          in
                                                                                                          a
                                                                                                          private
                                                                                                          placement
                                                                                                          transaction
                                                                                                          completed
                                                                                                          during
                                                                                                          March 2004
                                                                                                          (the
“March
                                                                                                          Offering”).
                                                                                                          In
                                                                                                          connection
                                                                                                          with
                                                                                                          the
                                                                                                          offering,
                                                                                                          we
                                                                                                          received
                                                                                                          gross
                                                                                                          proceeds
                                                                                                          of
                                                                                                          $10
                                                                                                          million
                                                                                                          from
                                                                                                          a
                                                                                                          group
                                                                                                          of
                                                                                                          accredited
                                                                                                          institutional
                                                                                                          and
                                                                                                          individual
                                                                                                          investors.
                                                                                                          Subsequent
                                                                                                          to
                                                                                                          the
                                                                                                          offering’s
                                                                                                          close,
                                                                                                          we
                                                                                                          failed
                                                                                                          to
                                                                                                          meet
                                                                                                          certain
                                                                                                          requirements
                                                                                                          of
                                                                                                          the
                                                                                                          offering
                                                                                                          regarding
                                                                                                          filing
                                                                                                          an
                                                                                                          effective
                                                                                                          registration
                                                                                                          statement
                                                                                                          with
                                                                                                          the
                                                                                                          Securities
                                                                                                          and
                                                                                                          Exchange
                                                                                                          Commission.
                                                                                                          Under
                                                                                                          the
                                                                                                          terms
                                                                                                          of
                                                                                                          the
                                                                                                          March
                                                                                                          2004
                                                                                                          subscription
                                                                                                          agreement,
                                                                                                          failure
                                                                                                          to
                                                                                                          have
                                                                                                          an
                                                                                                          effective
                                                                                                          registration
                                                                                                          statement
                                                                                                          by
                                                                                                          the
                                                                                                          required
                                                                                                          date
                                                                                                          resulted
                                                                                                          in
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          in
                                                                                                          the
                                                                                                          amount
                                                                                                          of
                                                                                                          2%
                                                                                                          of
                                                                                                          the
                                                                                                          principal
                                                                                                          investment
                                                                                                          amount
                                                                                                          (i.e.,
                                                                                                          $200,000)
                                                                                                          for
                                                                                                          each
                                                                                                          30-day
                                                                                                          period
                                                                                                          until
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          was
                                                                                                          declared
                                                                                                          effective.
                                                                                                          We
                                                                                                          accrued
                                                                                                          approximately
                                                                                                          $1.1
                                                                                                          million
                                                                                                          in
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          through
                                                                                                          November
                                                                                                          30,
                                                                                                          2004
                                                                                                          associated
                                                                                                          with
                                                                                                          our
                                                                                                          failure
                                                                                                          to
                                                                                                          cause
                                                                                                          our
                                                                                                          registration
                                                                                                          statement
                                                                                                          to
                                                                                                          be
                                                                                                          effective.
  4
  During
                                                                                                          the
                                                                                                          SEC
                                                                                                          review
                                                                                                          process
                                                                                                          of
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          we
                                                                                                          filed
                                                                                                          in
                                                                                                          connection
                                                                                                          with
                                                                                                          the
                                                                                                          March
                                                                                                          Offering,
                                                                                                          we
                                                                                                          learned
                                                                                                          that
                                                                                                          our
                                                                                                          founder
                                                                                                          and
                                                                                                          former
                                                                                                          Chief
                                                                                                          Executive
                                                                                                          Officer
                                                                                                          may
                                                                                                          have
                                                                                                          misrepresented
                                                                                                          the
                                                                                                          value
                                                                                                          of
                                                                                                          certain
                                                                                                          mineral
                                                                                                          properties
                                                                                                          that
                                                                                                          his
                                                                                                          company
                                                                                                          sold
                                                                                                          to
                                                                                                          us
                                                                                                          in
                                                                                                          a
                                                                                                          June
                                                                                                          2003
                                                                                                          transaction.
                                                                                                          Our
                                                                                                          discussions
                                                                                                          with
                                                                                                          the
                                                                                                          SEC
                                                                                                          led
                                                                                                          to
                                                                                                          our
                                                                                                          decision
                                                                                                          to
                                                                                                          restate
                                                                                                          our
                                                                                                          annual
                                                                                                          and
                                                                                                          quarterly
                                                                                                          SEC
                                                                                                          filings
                                                                                                          to
                                                                                                          reflect
                                                                                                          our
                                                                                                          reevaluation
                                                                                                          of
                                                                                                          the
                                                                                                          value
                                                                                                          of
                                                                                                          those
                                                                                                          mineral
                                                                                                          properties.
                                                                                                          This
                                                                                                          reevaluation
                                                                                                          led
                                                                                                          to
                                                                                                          an
                                                                                                          investigation
                                                                                                          into
                                                                                                          the
                                                                                                          activities
                                                                                                          of
                                                                                                          our
                                                                                                          founder.
                                                                                                          On
                                                                                                          November
                                                                                                          9,
                                                                                                          2004,
                                                                                                          we
                                                                                                          filed
                                                                                                          a
                                                                                                          lawsuit
                                                                                                          in
                                                                                                          Maricopa
                                                                                                          County
                                                                                                          (Arizona)
                                                                                                          Superior
                                                                                                          Court
                                                                                                          against
                                                                                                          Stephen
                                                                                                          B.
                                                                                                          Parent
                                                                                                          and
                                                                                                          four
                                                                                                          other
                                                                                                          Defendants,
                                                                                                          together
                                                                                                          with
                                                                                                          their
                                                                                                          spouses,
                                                                                                          and
                                                                                                          Ecovery,
                                                                                                          Inc.
                                                                                                          (See
                                                                                                          -
                                                                                                          Legal
                                                                                                          Proceedings).
                                                                                                          In
                                                                                                          essence,
                                                                                                          the
                                                                                                          complaint
                                                                                                          alleges
                                                                                                          that
                                                                                                          Stephen
                                                                                                          Parent
                                                                                                          misrepresented
                                                                                                          the
                                                                                                          value
                                                                                                          of
                                                                                                          certain
                                                                                                          placer
                                                                                                          mining
                                                                                                          claims
                                                                                                          that
                                                                                                          his
                                                                                                          company,
                                                                                                          Ecovery,
                                                                                                          sold
                                                                                                          to
                                                                                                          us
                                                                                                          in
                                                                                                          2003
                                                                                                          in
                                                                                                          exchange
                                                                                                          for
                                                                                                          approximately
                                                                                                          99,000,000
                                                                                                          shares
                                                                                                          of
                                                                                                          our
                                                                                                          stock;
                                                                                                          that
                                                                                                          Ecovery
                                                                                                          no
                                                                                                          longer
                                                                                                          had
                                                                                                          good
                                                                                                          title
                                                                                                          to
                                                                                                          the
                                                                                                          mining
                                                                                                          claims
                                                                                                          when
                                                                                                          they
                                                                                                          were
                                                                                                          sold
                                                                                                          to
                                                                                                          us;
                                                                                                          that
                                                                                                          Mr. Parent
                                                                                                          and
                                                                                                          the
                                                                                                          other
                                                                                                          named
                                                                                                          Defendants
                                                                                                          conspired
                                                                                                          to
                                                                                                          defraud
                                                                                                          us
                                                                                                          out
                                                                                                          of
                                                                                                          approximately
                                                                                                          24,000,000
                                                                                                          shares
                                                                                                          of
                                                                                                          our
                                                                                                          stock;
                                                                                                          and
                                                                                                          that
                                                                                                          Mr.
                                                                                                          Parent
                                                                                                          misappropriated
                                                                                                          more
                                                                                                          than
                                                                                                          $300,000
                                                                                                          in
                                                                                                          company
                                                                                                          funds.
  The
                                                                                                          allegations
                                                                                                          made
                                                                                                          in
                                                                                                          our
                                                                                                          lawsuit
                                                                                                          raised
                                                                                                          questions
                                                                                                          about
                                                                                                          the
                                                                                                          representations
                                                                                                          that
                                                                                                          our
                                                                                                          founder
                                                                                                          made
                                                                                                          during
                                                                                                          the
                                                                                                          March
                                                                                                          2004
                                                                                                          Offering.
                                                                                                          The
                                                                                                          delay
                                                                                                          in
                                                                                                          effectiveness
                                                                                                          of
                                                                                                          our
                                                                                                          registration
                                                                                                          statement
                                                                                                          combined
                                                                                                          with
                                                                                                          the
                                                                                                          allegations
                                                                                                          raised
                                                                                                          in
                                                                                                          the
                                                                                                          lawsuit
                                                                                                          caused
                                                                                                          concern
                                                                                                          among
                                                                                                          the
                                                                                                          investors
                                                                                                          in
                                                                                                          the
                                                                                                          March
                                                                                                          2004
                                                                                                          Offering.
                                                                                                          We
                                                                                                          worked
                                                                                                          with
                                                                                                          the
                                                                                                          investors
                                                                                                          to
                                                                                                          address
                                                                                                          their
                                                                                                          concerns
                                                                                                          in
                                                                                                          a
                                                                                                          manner
                                                                                                          that
                                                                                                          would
                                                                                                          not
                                                                                                          force
                                                                                                          us
                                                                                                          to
                                                                                                          pay
                                                                                                          a
                                                                                                          large
                                                                                                          cash
                                                                                                          penalty
                                                                                                          or
                                                                                                          face
                                                                                                          a
                                                                                                          lawsuit,
                                                                                                          both
                                                                                                          of
                                                                                                          which
                                                                                                          would
                                                                                                          be
                                                                                                          detrimental
                                                                                                          to
                                                                                                          our
                                                                                                          shareholders.
                                                                                                          In
                                                                                                          consideration
                                                                                                          for
                                                                                                          restructuring
                                                                                                          the
                                                                                                          original
                                                                                                          transaction,
                                                                                                          the
                                                                                                          investors
                                                                                                          agreed
                                                                                                          to
                                                                                                          grant
                                                                                                          us
                                                                                                          a
                                                                                                          release
                                                                                                          for
                                                                                                          any
                                                                                                          misrepresentations
                                                                                                          that
                                                                                                          may
                                                                                                          have
                                                                                                          been
                                                                                                          made,
                                                                                                          allowed
                                                                                                          us
                                                                                                          to
                                                                                                          capitalize
                                                                                                          the
                                                                                                          accrued
                                                                                                          liquidated
                                                                                                          damages,
                                                                                                          and
                                                                                                          provided
                                                                                                          us
                                                                                                          with
                                                                                                          an
                                                                                                          additional
                                                                                                          90
                                                                                                          days
                                                                                                          to
                                                                                                          cause
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          to
                                                                                                          become
                                                                                                          effective,
                                                                                                          thereby
                                                                                                          avoiding
                                                                                                          potential
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          of
                                                                                                          $600,000
                                                                                                          if
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          were
                                                                                                          to
                                                                                                          be
                                                                                                          filed
                                                                                                          before
                                                                                                          December
                                                                                                          30,
                                                                                                          2004.
  As
                                                                                                          a
                                                                                                          result,
                                                                                                          and
                                                                                                          effective
                                                                                                          November 30,
                                                                                                          2004,
                                                                                                          we
                                                                                                          restructured
                                                                                                          the
                                                                                                          private
                                                                                                          placement
                                                                                                          transaction.
                                                                                                          In
                                                                                                          connection
                                                                                                          with
                                                                                                          the
                                                                                                          restructuring,
                                                                                                          we
                                                                                                          exchanged
                                                                                                          the
                                                                                                          21,739,129
                                                                                                          shares
                                                                                                          of
                                                                                                          common
                                                                                                          stock
                                                                                                          and
                                                                                                          the
                                                                                                          21,739,129
                                                                                                          warrants
                                                                                                          to
                                                                                                          purchase
                                                                                                          shares
                                                                                                          of
                                                                                                          common
                                                                                                          stock
                                                                                                          issued
                                                                                                          to
                                                                                                          the
                                                                                                          investors
                                                                                                          in
                                                                                                          the
                                                                                                          March
                                                                                                          Offering
                                                                                                          for
                                                                                                          8%
                                                                                                          convertible
                                                                                                          notes
                                                                                                          in
                                                                                                          the
                                                                                                          aggregate
                                                                                                          principal
                                                                                                          amount
                                                                                                          of
                                                                                                          approximately
                                                                                                          $11.1 million
                                                                                                          and
                                                                                                          four-year
                                                                                                          warrants
                                                                                                          to
                                                                                                          purchase
                                                                                                          27,750,000
                                                                                                          shares
                                                                                                          of
                                                                                                          common
                                                                                                          stock
                                                                                                          at
                                                                                                          an
                                                                                                          exercise
                                                                                                          price
                                                                                                          of
                                                                                                          $0.20
                                                                                                          per
                                                                                                          share,
                                                                                                          subject
                                                                                                          to
                                                                                                          anti-dilution
                                                                                                          adjustments.
                                                                                                          The
                                                                                                          principal
                                                                                                          amount
                                                                                                          of
                                                                                                          the
                                                                                                          convertible
                                                                                                          notes
                                                                                                          consists
                                                                                                          of
                                                                                                          the
                                                                                                          original
                                                                                                          $10.0 million
                                                                                                          investment
                                                                                                          plus
                                                                                                          approximately
                                                                                                          $1.1 million
                                                                                                          of
                                                                                                          accrued
                                                                                                          penalties
                                                                                                          associated
                                                                                                          with
                                                                                                          the
                                                                                                          delay
                                                                                                          in
                                                                                                          effectiveness
                                                                                                          of
                                                                                                          our
                                                                                                          registration
                                                                                                          statement
                                                                                                          covering
                                                                                                          the
                                                                                                          resale
                                                                                                          of
                                                                                                          the
                                                                                                          shares
                                                                                                          of
                                                                                                          common
                                                                                                          stock
                                                                                                          held
                                                                                                          by
                                                                                                          the
                                                                                                          investors.
                                                                                                          The
                                                                                                          restructured
                                                                                                          subscription
                                                                                                          agreement
                                                                                                          also
                                                                                                          permitted
                                                                                                          the
                                                                                                          convertible
                                                                                                          note
                                                                                                          holders
                                                                                                          to
                                                                                                          convert
                                                                                                          their
                                                                                                          notes
                                                                                                          into
                                                                                                          common
                                                                                                          stock
                                                                                                          at
                                                                                                          a
                                                                                                          discounted
                                                                                                          conversion
                                                                                                          rate
                                                                                                          if
                                                                                                          they
                                                                                                          delivered
                                                                                                          their
                                                                                                          notices
                                                                                                          of
                                                                                                          conversion
                                                                                                          within
                                                                                                          20
                                                                                                          trading
                                                                                                          days
                                                                                                          of
                                                                                                          the
                                                                                                          November
                                                                                                          30,
                                                                                                          2004
                                                                                                          restructuring
                                                                                                          closing
                                                                                                          date.
  On
                                                                                                          or
                                                                                                          about
                                                                                                          December
                                                                                                          9,
                                                                                                          2004,
                                                                                                          Mr.
                                                                                                          Parent
                                                                                                          and
                                                                                                          fellow
                                                                                                          directors
                                                                                                          Jerrie
                                                                                                          W.
                                                                                                          Gasch
                                                                                                          and
                                                                                                          Purnendu
                                                                                                          K.
                                                                                                          Rana
                                                                                                          Medhi
                                                                                                          purportedly
                                                                                                          seized
                                                                                                          control
                                                                                                          of
                                                                                                          our
                                                                                                          company.
                                                                                                          They
                                                                                                          attempted
                                                                                                          to
                                                                                                          remove
                                                                                                          the
                                                                                                          remaining
                                                                                                          seven
                                                                                                          members
                                                                                                          of
                                                                                                          our
                                                                                                          board
                                                                                                          and
                                                                                                          announced
                                                                                                          their
                                                                                                          intention
                                                                                                          not
                                                                                                          to
                                                                                                          honor
                                                                                                          the
                                                                                                          restructured
                                                                                                          subscription
                                                                                                          agreement
                                                                                                          of
                                                                                                          November
                                                                                                          30,
                                                                                                          2004,
                                                                                                          which
                                                                                                          both
                                                                                                          Mr.
                                                                                                          Medhi
                                                                                                          and
                                                                                                          Mr.
                                                                                                          Gasch
                                                                                                          had
                                                                                                          approved.
                                                                                                          On
                                                                                                          December
                                                                                                          21,
                                                                                                          2004,
                                                                                                          Mr.
                                                                                                          Parent
                                                                                                          caused
                                                                                                          our
                                                                                                          pending
                                                                                                          registration
                                                                                                          statement
                                                                                                          to
                                                                                                          be
                                                                                                          withdrawn
                                                                                                          from
                                                                                                          SEC
                                                                                                          consideration,
                                                                                                          resulting
                                                                                                          in
                                                                                                          further
                                                                                                          delays
                                                                                                          to
                                                                                                          the
                                                                                                          registration
                                                                                                          process
                                                                                                          and
                                                                                                          additional
                                                                                                          liquidated
                                                                                                          damages.
                                                                                                          Mr.
                                                                                                          Parent
                                                                                                          remained
                                                                                                          in
                                                                                                          control
                                                                                                          of
                                                                                                          our
                                                                                                          corporate
                                                                                                          office
                                                                                                          until
                                                                                                          February
                                                                                                          16,
                                                                                                          2005
                                                                                                          (See
                                                                                                          -
                                                                                                          Legal
                                                                                                          Proceedings).
                                                                                                          During
                                                                                                          his
                                                                                                          period
                                                                                                          of
                                                                                                          purported
                                                                                                          control
                                                                                                          of
                                                                                                          our
                                                                                                          company,
                                                                                                          Mr.
                                                                                                          Parent
                                                                                                          refused
                                                                                                          to
                                                                                                          honor
                                                                                                          our
                                                                                                          obligations
                                                                                                          under
                                                                                                          either
                                                                                                          the
                                                                                                          March
                                                                                                          2004
                                                                                                          subscription
                                                                                                          agreement
                                                                                                          or
                                                                                                          the
                                                                                                          restructured
                                                                                                          November
                                                                                                          2004
                                                                                                          subscription
                                                                                                          agreement.
  On
                                                                                                          December
                                                                                                          20,
                                                                                                          2004,
                                                                                                          we
                                                                                                          received
                                                                                                          notice
                                                                                                          from
                                                                                                          holders
                                                                                                          of
                                                                                                          approximately
                                                                                                          $3.8
                                                                                                          million
                                                                                                          of
                                                                                                          convertible
                                                                                                          notes
                                                                                                          payable
                                                                                                          of
                                                                                                          their
                                                                                                          intention
                                                                                                          to
                                                                                                          convert
                                                                                                          into
                                                                                                          shares
                                                                                                          of
                                                                                                          our
                                                                                                          common
                                                                                                          stock.
                                                                                                          As
                                                                                                          a
                                                                                                          result,
                                                                                                          we
                                                                                                          recorded
                                                                                                          the
                                                                                                          issuance
                                                                                                          of
                                                                                                          33,817,594
                                                                                                          shares
                                                                                                          on
                                                                                                          December
                                                                                                          20,
                                                                                                          2004.
                                                                                                          We
                                                                                                          were
                                                                                                          required
                                                                                                          to
                                                                                                          deliver
                                                                                                          certificates
                                                                                                          representing
                                                                                                          unrestricted,
                                                                                                          stock
                                                                                                          which
                                                                                                          was
                                                                                                          issued
                                                                                                          in
                                                                                                          a
                                                                                                          registered
                                                                                                          transaction within
                                                                                                          three
                                                                                                          business
                                                                                                          days
                                                                                                          of
                                                                                                          our
                                                                                                          receipt
                                                                                                          of
                                                                                                          the
                                                                                                          notices
                                                                                                          of
                                                                                                          conversion.
                                                                                                          As
                                                                                                          discussed
                                                                                                          above,
                                                                                                          our
                                                                                                          former
                                                                                                          Chief
                                                                                                          Executive
                                                                                                          Officer
                                                                                                          did
                                                                                                          not
                                                                                                          deliver
                                                                                                          the
                                                                                                          stock
                                                                                                          certificates
                                                                                                          within
                                                                                                          the
                                                                                                          required
                                                                                                          period,
                                                                                                          resulting
                                                                                                          in
                                                                                                          material
                                                                                                          financial
                                                                                                          damages
                                                                                                          to
                                                                                                          our
                                                                                                          company.
  Under
                                                                                                          the
                                                                                                          terms
                                                                                                          of
                                                                                                          the
                                                                                                          November
                                                                                                          2004
                                                                                                          subscription
                                                                                                          agreement,
                                                                                                          convertible
                                                                                                          note
                                                                                                          holders
                                                                                                          have
                                                                                                          the
                                                                                                          right
                                                                                                          to
                                                                                                          a
                                                                                                          mandatory
                                                                                                          redemption
                                                                                                          payment
                                                                                                          in
                                                                                                          the
                                                                                                          event
                                                                                                          we
                                                                                                          are
                                                                                                          prohibited
                                                                                                          or
                                                                                                          otherwise
                                                                                                          fail
                                                                                                          to
                                                                                                          deliver
                                                                                                          shares
                                                                                                          of
                                                                                                          our
                                                                                                          common
                                                                                                          stock
                                                                                                          to
                                                                                                          converting
                                                                                                          note
                                                                                                          holders.
                                                                                                          The
                                                                                                          mandatory
                                                                                                          redemption
                                                                                                          payment
                                                                                                          is
                                                                                                          calculated
                                                                                                          as
                                                                                                          an
                                                                                                          amount
                                                                                                          equal
                                                                                                          to
                                                                                                          the
                                                                                                          product
                                                                                                          of
                                                                                                          the
                                                                                                          number
                                                                                                          of
                                                                                                          shares
                                                                                                          of
                                                                                                          common
                                                                                                          stock
                                                                                                          otherwise
                                                                                                          deliverable
                                                                                                          upon
                                                                                                          conversion
                                                                                                          of
                                                                                                          the
                                                                                                          note’s
                                                                                                          principal
                                                                                                          and
                                                                                                          interest
                                                                                                          multiplied
                                                                                                          by
                                                                                                          the
                                                                                                          highest
                                                                                                          price
                                                                                                          of
                                                                                                          our
                                                                                                          common
                                                                                                          stock
                                                                                                          for
                                                                                                          the
                                                                                                          period
                                                                                                          beginning
                                                                                                          with
                                                                                                          the
                                                                                                          Deemed
                                                                                                          Conversion
                                                                                                          Date
                                                                                                          (the
                                                                                                          date
                                                                                                          the
                                                                                                          holder
                                                                                                          elects
                                                                                                          to
                                                                                                          convert
                                                                                                          the
                                                                                                          note)
                                                                                                          and
                                                                                                          ending
                                                                                                          with
                                                                                                          the
                                                                                                          payment
                                                                                                          date.
                                                                                                          On
                                                                                                          March
                                                                                                          7,
                                                                                                          2005,
                                                                                                          we
                                                                                                          received
                                                                                                          a
                                                                                                          mandatory
                                                                                                          redemption
                                                                                                          payment
                                                                                                          demand
                                                                                                          relating
                                                                                                          to
                                                                                                          our
                                                                                                          failure
                                                                                                          to
                                                                                                          deliver
                                                                                                          stock
                                                                                                          certificates
                                                                                                          representing
                                                                                                          29,573,803
                                                                                                          shares
                                                                                                          of
                                                                                                          our
                                                                                                          common
                                                                                                          stock.
                                                                                                          Under
                                                                                                          the
                                                                                                          mandatory
                                                                                                          redemption
                                                                                                          payment
                                                                                                          provisions
                                                                                                          of
                                                                                                          the
                                                                                                          November
                                                                                                          2004
                                                                                                          subscription
                                                                                                          agreement,
                                                                                                          we
                                                                                                          repurchased
                                                                                                          the
                                                                                                          29,573,803
                                                                                                          shares
                                                                                                          of
                                                                                                          common
                                                                                                          stock
                                                                                                          at
                                                                                                          $0.23
                                                                                                          per
                                                                                                          share,
                                                                                                          or
                                                                                                          $6,801,975.
                                                                                                          We
                                                                                                          issued
                                                                                                          a
                                                                                                          convertible
                                                                                                          note
                                                                                                          in
                                                                                                          the
                                                                                                          aggregate
                                                                                                          amount
                                                                                                          of
                                                                                                          $6,885,184
                                                                                                          for
                                                                                                          the
                                                                                                          29,573,803
                                                                                                          shares
                                                                                                          and
                                                                                                          accrued
                                                                                                          interest.
  5
  On
                                                                                                          December
                                                                                                          20,
                                                                                                          2004,
                                                                                                          we
                                                                                                          received
                                                                                                          notice
                                                                                                          from
                                                                                                          holders
                                                                                                          of
                                                                                                          approximately
                                                                                                          $500,000
                                                                                                          of
                                                                                                          convertible
                                                                                                          notes
                                                                                                          payable
                                                                                                          of
                                                                                                          their
                                                                                                          intention
                                                                                                          to
                                                                                                          convert
                                                                                                          into
                                                                                                          shares
                                                                                                          of
                                                                                                          our
                                                                                                          common
                                                                                                          stock.
                                                                                                          As
                                                                                                          a
                                                                                                          result,
                                                                                                          we
                                                                                                          recorded
                                                                                                          the
                                                                                                          issuance
                                                                                                          of
                                                                                                          4,243,791
                                                                                                          shares
                                                                                                          on
                                                                                                          December
                                                                                                          20,
                                                                                                          2004.
                                                                                                          We
                                                                                                          were
                                                                                                          required
                                                                                                          to
                                                                                                          deliver
                                                                                                          certificates
                                                                                                          representing
                                                                                                          unrestricted,
                                                                                                          stock
                                                                                                          which
                                                                                                          was
                                                                                                          issued
                                                                                                          in
                                                                                                          a
                                                                                                          registered
                                                                                                          transaction
                                                                                                          within
                                                                                                          three
                                                                                                          business
                                                                                                          days
                                                                                                          of
                                                                                                          our
                                                                                                          receipt
                                                                                                          of
                                                                                                          the
                                                                                                          notices
                                                                                                          of
                                                                                                          conversion
                                                                                                          (the
“Delivery
                                                                                                          Date”).
                                                                                                          The
                                                                                                          failure
                                                                                                          to
                                                                                                          deliver
                                                                                                          the
                                                                                                          shares
                                                                                                          by
                                                                                                          the
                                                                                                          Delivery
                                                                                                          Date
                                                                                                          resulted
                                                                                                          in
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          of
                                                                                                          1%
                                                                                                          of
                                                                                                          the
                                                                                                          Note
                                                                                                          principal
                                                                                                          amount
                                                                                                          being
                                                                                                          converted
                                                                                                          per
                                                                                                          business
                                                                                                          day
                                                                                                          after
                                                                                                          the
                                                                                                          Delivery
                                                                                                          Date.
                                                                                                          Our
                                                                                                          former
                                                                                                          Chief
                                                                                                          Executive
                                                                                                          Officer
                                                                                                          did
                                                                                                          not
                                                                                                          deliver
                                                                                                          the
                                                                                                          stock
                                                                                                          certificates
                                                                                                          within
                                                                                                          the
                                                                                                          required
                                                                                                          period.
                                                                                                          On
                                                                                                          March
                                                                                                          18,
                                                                                                          2005
                                                                                                          we
                                                                                                          delivered
                                                                                                          the
                                                                                                          certificates
                                                                                                          representing
                                                                                                          the
                                                                                                          shares
                                                                                                          of
                                                                                                          common
                                                                                                          stock
                                                                                                          to
                                                                                                          these
                                                                                                          converting
                                                                                                          note
                                                                                                          holders.
                                                                                                          The
                                                                                                          84
                                                                                                          -day
                                                                                                          delay
                                                                                                          in
                                                                                                          delivering
                                                                                                          the
                                                                                                          shares
                                                                                                          resulted
                                                                                                          in
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          of
                                                                                                          $403,175.
                                                                                                          We
                                                                                                          recognized
                                                                                                          these
                                                                                                          damages
                                                                                                          during
                                                                                                          the
                                                                                                          fourth
                                                                                                          quarter
                                                                                                          of
                                                                                                          2004
                                                                                                          and
                                                                                                          the
                                                                                                          first
                                                                                                          quarter
                                                                                                          of
                                                                                                          2005.
                                                                                                          We
                                                                                                          issued
                                                                                                          convertible
                                                                                                          notes
                                                                                                          for
                                                                                                          the
                                                                                                          amount
                                                                                                          of
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          due.
  Our
                                                                                                          November
                                                                                                          2004
                                                                                                          subscription
                                                                                                          agreement
                                                                                                          required
                                                                                                          us
                                                                                                          to
                                                                                                          file
                                                                                                          a
                                                                                                          registration
                                                                                                          statement
                                                                                                          with
                                                                                                          the
                                                                                                          Securities
                                                                                                          and
                                                                                                          Exchange
                                                                                                          Commission
                                                                                                          no
                                                                                                          later
                                                                                                          than
                                                                                                          December
                                                                                                          30,
                                                                                                          2004
                                                                                                          and
                                                                                                          to
                                                                                                          cause
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          to
                                                                                                          be
                                                                                                          declared
                                                                                                          effective
                                                                                                          no
                                                                                                          later
                                                                                                          than
                                                                                                          February
                                                                                                          14,
                                                                                                          2005.
                                                                                                          As
                                                                                                          discussed
                                                                                                          above,
                                                                                                          our
                                                                                                          former
                                                                                                          Chief
                                                                                                          Executive
                                                                                                          Officer
                                                                                                          withdrew
                                                                                                          our
                                                                                                          pending
                                                                                                          registration
                                                                                                          statement
                                                                                                          and
                                                                                                          did
                                                                                                          not
                                                                                                          submit
                                                                                                          a
                                                                                                          new
                                                                                                          registration
                                                                                                          statement
                                                                                                          during
                                                                                                          the
                                                                                                          period
                                                                                                          of
                                                                                                          his
                                                                                                          purported
                                                                                                          control
                                                                                                          of
                                                                                                          our
                                                                                                          company.
                                                                                                          His
                                                                                                          failure
                                                                                                          to
                                                                                                          submit
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          to
                                                                                                          the
                                                                                                          SEC
                                                                                                          by
                                                                                                          December
                                                                                                          30,
                                                                                                          2004
                                                                                                          triggered
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          to
                                                                                                          accrue
                                                                                                          under
                                                                                                          the
                                                                                                          November
                                                                                                          2004
                                                                                                          subscription
                                                                                                          agreement.
                                                                                                          Pursuant
                                                                                                          to
                                                                                                          the
                                                                                                          terms
                                                                                                          of
                                                                                                          the
                                                                                                          Subscription
                                                                                                          Agreement,
                                                                                                          the
                                                                                                          damages
                                                                                                          may
                                                                                                          be
                                                                                                          paid
                                                                                                          in
                                                                                                          cash
                                                                                                          or
                                                                                                          in
                                                                                                          unrestricted
                                                                                                          common
                                                                                                          stock.
                                                                                                          If
                                                                                                          paid
                                                                                                          in
                                                                                                          stock,
                                                                                                          we
                                                                                                          are
                                                                                                          required
                                                                                                          to
                                                                                                          pay
                                                                                                          200%
                                                                                                          of
                                                                                                          the
                                                                                                          cash
                                                                                                          penalty.
                                                                                                          Because
                                                                                                          we
                                                                                                          do
                                                                                                          not
                                                                                                          have
                                                                                                          the
                                                                                                          cash
                                                                                                          or
                                                                                                          stock
                                                                                                          which
                                                                                                          was
                                                                                                          issued
                                                                                                          in
                                                                                                          a
                                                                                                          registered
                                                                                                          transaction
                                                                                                          to
                                                                                                          pay
                                                                                                          the
                                                                                                          liquidated
                                                                                                          damages,
                                                                                                          we
                                                                                                          reached
                                                                                                          a
                                                                                                          settlement
                                                                                                          agreement
                                                                                                          with
                                                                                                          the
                                                                                                          investors
                                                                                                          to
                                                                                                          pay
                                                                                                          the
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          in
                                                                                                          restricted
                                                                                                          common
                                                                                                          stock
                                                                                                          valued
                                                                                                          at
                                                                                                          $0.03
                                                                                                          per
                                                                                                          share.
                                                                                                          The
                                                                                                          total
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          accrued
                                                                                                          between
                                                                                                          December
                                                                                                          30,
                                                                                                          2004
                                                                                                          and
                                                                                                          April
                                                                                                          27,
                                                                                                          2005
                                                                                                          was
                                                                                                          approximately
                                                                                                          $
                                                                                                          1,776,000.
                                                                                                          Pursuant
                                                                                                          to
                                                                                                          this
                                                                                                          settlement
                                                                                                          agreement,
                                                                                                          we
                                                                                                          issued
                                                                                                          approximately
                                                                                                          59
                                                                                                          million
                                                                                                          shares
                                                                                                          of
                                                                                                          restricted
                                                                                                          common
                                                                                                          stock
                                                                                                          in
                                                                                                          April
                                                                                                          2005.
  During
                                                                                                          the
                                                                                                          first
                                                                                                          half
                                                                                                          of
                                                                                                          2005,
                                                                                                          we
                                                                                                          incurred
                                                                                                          approximately
                                                                                                          $2.8
                                                                                                          million
                                                                                                          of
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          and
                                                                                                          other
                                                                                                          expenses
                                                                                                          related
                                                                                                          to
                                                                                                          our
                                                                                                          obligations
                                                                                                          under
                                                                                                          the
                                                                                                          March
                                                                                                          2004
                                                                                                          and
                                                                                                          November
                                                                                                          2004
                                                                                                          subscription
                                                                                                          agreements.
                                                                                                          The
                                                                                                          damages
                                                                                                          were
                                                                                                          compounded
                                                                                                          by
                                                                                                          the
                                                                                                          former
                                                                                                          Chief
                                                                                                          Executive
                                                                                                          Officer’s
                                                                                                          decision
                                                                                                          to
                                                                                                          withdraw
                                                                                                          the
                                                                                                          SEC
                                                                                                          registration
                                                                                                          statement
                                                                                                          and
                                                                                                          his
                                                                                                          failure
                                                                                                          to
                                                                                                          deliver
                                                                                                          common
                                                                                                          shares
                                                                                                          pursuant
                                                                                                          to
                                                                                                          the
                                                                                                          November
                                                                                                          2004
                                                                                                          restructuring
                                                                                                          agreement.
                                                                                                          We
                                                                                                          filed
                                                                                                          the
                                                                                                          SB-2
                                                                                                          registration
                                                                                                          statement
                                                                                                          in
                                                                                                          April
                                                                                                          of
                                                                                                          2005
                                                                                                          and
                                                                                                          have
                                                                                                          delivered
                                                                                                          the
                                                                                                          shares.
                                                                                                          We
                                                                                                          are
                                                                                                          now
                                                                                                          in
                                                                                                          the
                                                                                                          process
                                                                                                          of
                                                                                                          trying
                                                                                                          to
                                                                                                          get
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          declared
                                                                                                          effective
                                                                                                          by
                                                                                                          the
                                                                                                          SEC.
                                                                                                          Until
                                                                                                          the
                                                                                                          registration
                                                                                                          statement
                                                                                                          is
                                                                                                          declared
                                                                                                          effective,
                                                                                                          we
                                                                                                          continue
                                                                                                          to
                                                                                                          incur
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          under
                                                                                                          the
                                                                                                          November
                                                                                                          30,
                                                                                                          2004
                                                                                                          Subscription
                                                                                                          Agreement
                                                                                                          (See
                                                                                                          Recent
                                                                                                          Financing
                                                                                                          Events
                                                                                                          and
                                                                                                          Restructuring
                                                                                                          for
                                                                                                          additional
                                                                                                          information).
                                                                                                          Pursuant
                                                                                                          to
                                                                                                          the
                                                                                                          terms
                                                                                                          of
                                                                                                          the
                                                                                                          Subscription
                                                                                                          Agreement,
                                                                                                          the
                                                                                                          damages
                                                                                                          may
                                                                                                          be
                                                                                                          paid
                                                                                                          in
                                                                                                          cash
                                                                                                          or
                                                                                                          in
                                                                                                          unrestricted
                                                                                                          common
                                                                                                          stock.
                                                                                                          If
                                                                                                          paid
                                                                                                          in
                                                                                                          stock,
                                                                                                          we
                                                                                                          are
                                                                                                          required
                                                                                                          to
                                                                                                          pay
                                                                                                          200%
                                                                                                          of
                                                                                                          the
                                                                                                          cash
                                                                                                          penalty.
                                                                                                          Because
                                                                                                          we
                                                                                                          do
                                                                                                          not
                                                                                                          have
                                                                                                          the
                                                                                                          cash
                                                                                                          or
                                                                                                          stock
                                                                                                          which
                                                                                                          was
                                                                                                          issued
                                                                                                          in
                                                                                                          a
                                                                                                          registered
                                                                                                          transaction to
                                                                                                          pay
                                                                                                          the
                                                                                                          liquidated
                                                                                                          damages,
                                                                                                          we
                                                                                                          have
                                                                                                          reached
                                                                                                          a
                                                                                                          settlement
                                                                                                          agreement
                                                                                                          with
                                                                                                          the
                                                                                                          investors
                                                                                                          to
                                                                                                          pay
                                                                                                          the
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          in
                                                                                                          restricted
                                                                                                          common
                                                                                                          stock
                                                                                                          valued
                                                                                                          at
                                                                                                          $0.03
                                                                                                          per
                                                                                                          share.
                                                                                                          The
                                                                                                          total
                                                                                                          liquidated
                                                                                                          damages
                                                                                                          accrued
                                                                                                          between
                                                                                                          April
                                                                                                          28,
                                                                                                          2005
                                                                                                          and
                                                                                                          July
                                                                                                          26,
                                                                                                          2005,
                                                                                                          was
                                                                                                          approximately
                                                                                                          $
                                                                                                          1.2
                                                                                                          million.
                                                                                                          Pursuant
                                                                                                          to
                                                                                                          this
                                                                                                          settlement
                                                                                                          agreement,
                                                                                                          we
                                                                                                          will
                                                                                                          issue
                                                                                                          approximately
                                                                                                          40
                                                                                                          million
                                                                                                          shares
                                                                                                          of
                                                                                                          restricted
                                                                                                          common
                                                                                                          stock
                                                                                                          in
                                                                                                          the
                                                                                                          third
                                                                                                          quarter
                                                                                                          of
                                                                                                          2005.
  Off-Balance
                                                                                                          Sheet
                                                                                                          Arrangements.
  We
                                                                                                          were
                                                                                                          not
                                                                                                          a
                                                                                                          party
                                                                                                          to
                                                                                                          any
                                                                                                          off-balance
                                                                                                          sheet
                                                                                                          arrangements
                                                                                                          during
                                                                                                          the
                                                                                                          period
                                                                                                          covered
                                                                                                          by
                                                                                                          this
                                                                                                          report.
                                                                                                          [See
                                                                                                          Regulation
                                                                                                          S-B
                                                                                                          303(c)
                                                                                                          for
                                                                                                          required
                                                                                                          disclosure
                                                                                                          of
                                                                                                          off-balance
                                                                                                          sheet
                                                                                                          arrangements.
                                                                                                          I
                                                                                                          have
                                                                                                          made
                                                                                                          the
                                                                                                          assumption
                                                                                                          that
                                                                                                          there
                                                                                                          were
                                                                                                          none,
                                                                                                          but
                                                                                                          if
                                                                                                          the
                                                                                                          company
                                                                                                          did
                                                                                                          have
                                                                                                          them,
                                                                                                          they
                                                                                                          need
                                                                                                          to
                                                                                                          be
                                                                                                          disclosed
                                                                                                          here
                                                                                                          under
                                                                                                          a
                                                                                                          separate
                                                                                                          caption.]
  **Item
                                                                                                          3.**  **Controls
                                                                                                          and
                                                                                                          Procedures**
  Based
                                                                                                          on
                                                                                                          the
                                                                                                          most
                                                                                                          recent
                                                                                                          evaluation,
                                                                                                          which
                                                                                                          was
                                                                                                          completed
                                                                                                          as
                                                                                                          of
                                                                                                          the
                                                                                                          end
                                                                                                          of
                                                                                                          the
                                                                                                          period
                                                                                                          covered
                                                                                                          by
                                                                                                          this
                                                                                                          Form
                                                                                                          10-QSB,
                                                                                                          we
                                                                                                          believe
                                                                                                          our
                                                                                                          company’s
                                                                                                          disclosure
                                                                                                          controls
                                                                                                          and
                                                                                                          procedures
                                                                                                          (as
                                                                                                          defined
                                                                                                          in
                                                                                                          the
                                                                                                          Exchange
                                                                                                          Act
                                                                                                          Rules
                                                                                                          13a-15(e)
                                                                                                          and
                                                                                                          15d-15(e)
                                                                                                          are
                                                                                                          effective
                                                                                                          to
                                                                                                          ensure
                                                                                                          that
                                                                                                          information
                                                                                                          required
                                                                                                          to
                                                                                                          be
                                                                                                          disclosed
                                                                                                          by
                                                                                                          us
                                                                                                          in
                                                                                                          this
                                                                                                          report
                                                                                                          is
                                                                                                          accumulated
                                                                                                          and
                                                                                                          communicated
                                                                                                          to
                                                                                                          our
                                                                                                          management,
                                                                                                          including
                                                                                                          our
                                                                                                          principal
                                                                                                          executive
                                                                                                          officer
                                                                                                          and
                                                                                                          principal
                                                                                                          financial
                                                                                                          officer,
                                                                                                          as
                                                                                                          appropriate,
                                                                                                          to
                                                                                                          allow
                                                                                                          timely
                                                                                                          decisions
                                                                                                          regarding
                                                                                                          required
                                                                                                          disclosure.
                                                                                                          Our
                                                                                                          executive
                                                                                                          officers
                                                                                                          have
                                                                                                          also
                                                                                                          concluded
                                                                                                          that
                                                                                                          our
                                                                                                          disclosure
                                                                                                          controls
                                                                                                          and
                                                                                                          procedures
                                                                                                          are
                                                                                                          also
                                                                                                          effective
                                                                                                          to
                                                                                                          give
                                                                                                          reasonable
                                                                                                          assurance
                                                                                                          that
                                                                                                          the
                                                                                                          information
                                                                                                          required
                                                                                                          to
                                                                                                          be
                                                                                                          disclosed
                                                                                                          in
                                                                                                          our
                                                                                                          filings
                                                                                                          is
                                                                                                          recorded,
                                                                                                          processed,
                                                                                                          summarized
                                                                                                          and
                                                                                                          reported
                                                                                                          within
                                                                                                          the
                                                                                                          time
                                                                                                          periods
                                                                                                          specified
                                                                                                          in
                                                                                                          the
                                                                                                          rules
                                                                                                          and
                                                                                                          forms
                                                                                                          of
                                                                                                          the
                                                                                                          SEC.
  We
                                                                                                          have
                                                                                                          identified
                                                                                                          conditions
                                                                                                          as
                                                                                                          of
                                                                                                          June
                                                                                                          30,
                                                                                                          2005
                                                                                                          that
                                                                                                          we
                                                                                                          believe
                                                                                                          are
                                                                                                          significant
                                                                                                          deficiencies
                                                                                                          in
                                                                                                          internal
                                                                                                          controls
                                                                                                          that
                                                                                                          include:
                                                                                                          1)
                                                                                                          a
                                                                                                          lack
                                                                                                          of
                                                                                                          segregation
                                                                                                          of
                                                                                                          duties
                                                                                                          in
                                                                                                          accounting
                                                                                                          and
                                                                                                          financial
                                                                                                          reporting
                                                                                                          activities;
                                                                                                          and
                                                                                                          2)
                                                                                                          the
                                                                                                          lack
                                                                                                          of
                                                                                                          a
                                                                                                          sufficient
                                                                                                          number
                                                                                                          of
                                                                                                          qualified
                                                                                                          accounting
                                                                                                          personnel.
                                                                                                          We
                                                                                                          have
                                                                                                          taken
                                                                                                          corrective
                                                                                                          measures
                                                                                                          since
                                                                                                          the
                                                                                                          end
                                                                                                          of
                                                                                                          the
                                                                                                          second
                                                                                                          quarter
                                                                                                          of
                                                                                                          2005
                                                                                                          to
                                                                                                          remedy
                                                                                                          these
                                                                                                          deficiencies.
                                                                                                          These
                                                                                                          measures
                                                                                                          include
                                                                                                          our
                                                                                                          decision
                                                                                                          to
                                                                                                          consolidate
                                                                                                          the
                                                                                                          corporate
                                                                                                          office
                                                                                                          with
                                                                                                          the
                                                                                                          office
                                                                                                          at
                                                                                                          the
                                                                                                          Plum
                                                                                                          Mine
                                                                                                          operation.
                                                                                                          This
                                                                                                          consolidation
                                                                                                          has
                                                                                                          provided
                                                                                                          the
                                                                                                          corporate
                                                                                                          office
                                                                                                          with
                                                                                                          additional
                                                                                                          accounting
                                                                                                          personnel.
                                                                                                          We
                                                                                                          believe
                                                                                                          that
                                                                                                          the
                                                                                                          presence
                                                                                                          of
                                                                                                          additional
                                                                                                          qualified
                                                                                                          accounting
                                                                                                          personnel
                                                                                                          will
                                                                                                          allow
                                                                                                          us
                                                                                                          to
                                                                                                          effectively
                                                                                                          correct
                                                                                                          the
                                                                                                          lack
                                                                                                          of
                                                                                                          segregation
                                                                                                          of
                                                                                                          duties
                                                                                                          in
                                                                                                          accounting
                                                                                                          and
                                                                                                          financial
                                                                                                          reporting
                                                                                                          activities.
  6
  I n
                                                                                                            December
                                                                                                            2003
                                                                                                            our
                                                                                                            CFO
                                                                                                            implemented
                                                                                                            a
                                                                                                            business
                                                                                                            expense
                                                                                                            reimbursement
                                                                                                            policy
                                                                                                            which
                                                                                                            he
                                                                                                            reviewed
                                                                                                            with
                                                                                                            all
                                                                                                            employees
                                                                                                            who
                                                                                                            regularly
                                                                                                            traveled
                                                                                                            for
                                                                                                            business
                                                                                                            including
                                                                                                            the
                                                                                                            Company’s
                                                                                                            founder,
                                                                                                            CEO
                                                                                                            and
                                                                                                            Chairman.
                                                                                                            The
                                                                                                            CFO
                                                                                                            discussed
                                                                                                            the
                                                                                                            policy
                                                                                                            again
                                                                                                            with
                                                                                                            the
                                                                                                            former
                                                                                                            CEO
                                                                                                            and
                                                                                                            Chairman
                                                                                                            in
                                                                                                            January
                                                                                                            2004
                                                                                                            due
                                                                                                            to
                                                                                                            his
                                                                                                            failure
                                                                                                            to
                                                                                                            comply
                                                                                                            with
                                                                                                            the
                                                                                                            policy.
                                                                                                            The
                                                                                                            CEO’s
                                                                                                            continued
                                                                                                            failure
                                                                                                            to
                                                                                                            properly
                                                                                                            document
                                                                                                            business
                                                                                                            expenses
                                                                                                            led
                                                                                                            the
                                                                                                            CFO
                                                                                                            to
                                                                                                            discuss
                                                                                                            the
                                                                                                            problem
                                                                                                            with
                                                                                                            the
                                                                                                            Company’s
                                                                                                            Board
                                                                                                            of
                                                                                                            Directors,
                                                                                                            the
                                                                                                            Company’s
                                                                                                            outside
                                                                                                            auditor
                                                                                                            and
                                                                                                            legal
                                                                                                            counsel.
                                                                                                            In
                                                                                                            April
                                                                                                            /
                                                                                                            May
                                                                                                            2004
                                                                                                            the
                                                                                                            Company’s
                                                                                                            outside
                                                                                                            auditor
                                                                                                            spoke
                                                                                                            with
                                                                                                            the
                                                                                                            CEO
                                                                                                            regarding
                                                                                                            his
                                                                                                            failure
                                                                                                            to
                                                                                                            document
                                                                                                            travel
                                                                                                            and
                                                                                                            entertainment
                                                                                                            expenses.
                                                                                                            In
                                                                                                            August
                                                                                                            2004
                                                                                                            the
                                                                                                            Company’s
                                                                                                            Board
                                                                                                            of
                                                                                                            Directors
                                                                                                            decided
                                                                                                            to
                                                                                                            take
                                                                                                            firm
                                                                                                            measures
                                                                                                            to
                                                                                                            resolve
                                                                                                            this
                                                                                                            problem
                                                                                                            with
                                                                                                            the
                                                                                                            CEO.
                                                                                                            These
                                                                                                            steps
                                                                                                            led
                                                                                                            to
                                                                                                            the
                                                                                                            CEO’s
                                                                                                            resignation
                                                                                                            on
                                                                                                            September
                                                                                                            3,
                                                                                                            2004.
                                                                                                            The
                                                                                                            Board
                                                                                                            then
                                                                                                            appointed
                                                                                                            the
                                                                                                            CFO
                                                                                                            as
                                                                                                            President
                                                                                                            and
                                                                                                            Chief
                                                                                                            Executive
                                                                                                            Officer.
 
 In
                                                                                                              response
                                                                                                              to
                                                                                                              this
                                                                                                              deficiency,
                                                                                                              five
                                                                                                              independent
                                                                                                              board
                                                                                                              members
                                                                                                              were
                                                                                                              added
                                                                                                              and
                                                                                                              an
                                                                                                              audit
                                                                                                              committee,
                                                                                                              composed
                                                                                                              of
                                                                                                              directors’
                                                                                                              independent
                                                                                                              of
                                                                                                              the
                                                                                                              Company’s
                                                                                                              day-to-day
                                                                                                              management
                                                                                                              function,
                                                                                                              was
                                                                                                              formed
                                                                                                              to
                                                                                                              oversee
                                                                                                              the
                                                                                                              financial
                                                                                                              reporting
                                                                                                              and
                                                                                                              to
                                                                                                              review
                                                                                                              and
                                                                                                              approve
                                                                                                              executive
                                                                                                              expense
                                                                                                              account
                                                                                                              charges.
 
 As
                                                                                                                our
                                                                                                                former
                                                                                                                CFO
                                                                                                                is
                                                                                                                assuming
                                                                                                                the
                                                                                                                duties
                                                                                                                of
                                                                                                                the
                                                                                                                CEO
                                                                                                                and
                                                                                                                the
                                                                                                                Company
                                                                                                                has
                                                                                                                presently
                                                                                                                not
                                                                                                                hired
                                                                                                                another
                                                                                                                individual
                                                                                                                to
                                                                                                                act
                                                                                                                as
                                                                                                                CFO,
                                                                                                                we
                                                                                                                believe
                                                                                                                we
                                                                                                                have
                                                                                                                a
                                                                                                                significant
                                                                                                                deficiency
                                                                                                                with
                                                                                                                respect
                                                                                                                to
                                                                                                                the
                                                                                                                lack
                                                                                                                of
                                                                                                                qualified
                                                                                                                accounting
                                                                                                                personnel.
                                                                                                                We
                                                                                                                have
                                                                                                                been
                                                                                                                able
                                                                                                                to
                                                                                                                mitigate
                                                                                                                this
                                                                                                                deficiency
                                                                                                                by
                                                                                                                engaging
                                                                                                                outside
                                                                                                                consultants
                                                                                                                to
                                                                                                                assist
                                                                                                                the
                                                                                                                Company
                                                                                                                in
                                                                                                                its
                                                                                                                accounting
                                                                                                                activities,
                                                                                                                but
                                                                                                                acknowledge
                                                                                                                that
                                                                                                                the
                                                                                                                only
                                                                                                                effective
                                                                                                                long-term
                                                                                                                solution
                                                                                                                to
                                                                                                                our
                                                                                                                accounting
                                                                                                                needs
                                                                                                                is
                                                                                                                to
                                                                                                                hire
                                                                                                                a
                                                                                                                qualified
                                                                                                                CFO.
                                                                                                                Due
                                                                                                                to
                                                                                                                our
                                                                                                                budgetary
                                                                                                                constraints
                                                                                                                and
                                                                                                                the
                                                                                                                small
                                                                                                                size
                                                                                                                of
                                                                                                                our
                                                                                                                company
                                                                                                                we
                                                                                                                are
                                                                                                                uncertain
                                                                                                                as
                                                                                                                to
                                                                                                                when
                                                                                                                we
                                                                                                                will
                                                                                                                be
                                                                                                                able
                                                                                                                to
                                                                                                                accomplish
                                                                                                                this.
                                                                                                                We
                                                                                                                estimate
                                                                                                                that
                                                                                                                the
                                                                                                                annual
                                                                                                                cost
                                                                                                                of
                                                                                                                a
                                                                                                                qualified
                                                                                                                individual
                                                                                                                to
                                                                                                                act
                                                                                                                as
                                                                                                                the
                                                                                                                Company’s
                                                                                                                CFO
                                                                                                                would
                                                                                                                be
                                                                                                                between
                                                                                                                $75,000
                                                                                                                and
                                                                                                                $100,000.
  We
                                                                                                                  are
                                                                                                                  in
                                                                                                                  the
                                                                                                                  process
                                                                                                                  of
                                                                                                                  taking
                                                                                                                  additional
                                                                                                                  corrective
                                                                                                                  measures
                                                                                                                  to
                                                                                                                  remedy
                                                                                                                  the
                                                                                                                  deficiencies
                                                                                                                  in
                                                                                                                  future
                                                                                                                  periods.
  **PART
                                                                                                                    II
                                                                                                                    -
                                                                                                                    OTHER
                                                                                                                    INFORMATION**
 **Item
                                                                                                                      1.**  **Legal
                                                                                                                      Proceedings**
  ***The
                                                                                                                        State
                                                                                                                        Court
                                                                                                                        Case***
  On
                                                                                                                        November
                                                                                                                        9,
                                                                                                                        2004,
                                                                                                                        we
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        lawsuit
                                                                                                                        in
                                                                                                                        Maricopa
                                                                                                                        County
                                                                                                                        (Arizona)
                                                                                                                        Superior
                                                                                                                        Court
                                                                                                                        against
                                                                                                                        Defendants
                                                                                                                        Stephen
                                                                                                                        B.
                                                                                                                        Parent,
                                                                                                                        Ron
                                                                                                                        Haswell,
                                                                                                                        Walter
                                                                                                                        Doyle,
                                                                                                                        Seth
                                                                                                                        Shaw,
                                                                                                                        Antonio
                                                                                                                        Treminio,
                                                                                                                        together
                                                                                                                        with
                                                                                                                        their
                                                                                                                        spouses,
                                                                                                                        and
                                                                                                                        Ecovery,
                                                                                                                        Inc.,
                                                                                                                        a
                                                                                                                        Nevada
                                                                                                                        corporation,
                                                                                                                        or
                                                                                                                        Ecovery.
  The
                                                                                                                        12-count
                                                                                                                        complaint
                                                                                                                        alleges
                                                                                                                        claims
                                                                                                                        for
                                                                                                                        violations
                                                                                                                        of
                                                                                                                        Arizona’s
                                                                                                                        racketeering
                                                                                                                        act,
                                                                                                                        state-law
                                                                                                                        securities
                                                                                                                        fraud
                                                                                                                        (primary
                                                                                                                        and
                                                                                                                        secondary
                                                                                                                        liability),
                                                                                                                        common-law
                                                                                                                        fraud,
                                                                                                                        negligent
                                                                                                                        misrepresentation,
                                                                                                                        breach
                                                                                                                        of
                                                                                                                        fiduciary
                                                                                                                        duty,
                                                                                                                        negligence/gross
                                                                                                                        negligence,
                                                                                                                        breach
                                                                                                                        of
                                                                                                                        contract,
                                                                                                                        unjust
                                                                                                                        enrichment/restitution,
                                                                                                                        theft/conversion,
                                                                                                                        conspiracy
                                                                                                                        liability,
                                                                                                                        and
                                                                                                                        injunctive
                                                                                                                        relief.
                                                                                                                        In
                                                                                                                        essence,
                                                                                                                        the
                                                                                                                        complaint
                                                                                                                        alleges
                                                                                                                        that
                                                                                                                        Stephen
                                                                                                                        Parent
                                                                                                                        misrepresented
                                                                                                                        the
                                                                                                                        value
                                                                                                                        of
                                                                                                                        certain
                                                                                                                        placer
                                                                                                                        mining
                                                                                                                        claims
                                                                                                                        that
                                                                                                                        his
                                                                                                                        company,
                                                                                                                        Ecovery,
                                                                                                                        sold
                                                                                                                        to
                                                                                                                        us
                                                                                                                        in
                                                                                                                        2003
                                                                                                                        in
                                                                                                                        exchange
                                                                                                                        for
                                                                                                                        approximately
                                                                                                                        99,000,000
                                                                                                                        shares
                                                                                                                        of
                                                                                                                        our
                                                                                                                        stock;
                                                                                                                        that
                                                                                                                        Ecovery
                                                                                                                        no
                                                                                                                        longer
                                                                                                                        had
                                                                                                                        good
                                                                                                                        title
                                                                                                                        to
                                                                                                                        the
                                                                                                                        mining
                                                                                                                        claims
                                                                                                                        when
                                                                                                                        they
                                                                                                                        were
                                                                                                                        sold
                                                                                                                        to
                                                                                                                        us;
                                                                                                                        that
                                                                                                                        Mr. Parent
                                                                                                                        and
                                                                                                                        the
                                                                                                                        other
                                                                                                                        named
                                                                                                                        Defendants
                                                                                                                        conspired
                                                                                                                        to
                                                                                                                        defraud
                                                                                                                        us
                                                                                                                        out
                                                                                                                        of
                                                                                                                        approximately
                                                                                                                        24,000,000
                                                                                                                        shares
                                                                                                                        of
                                                                                                                        our
                                                                                                                        stock;
                                                                                                                        and
                                                                                                                        that
                                                                                                                        Mr.
                                                                                                                        Parent
                                                                                                                        misappropriated
                                                                                                                        more
                                                                                                                        than
                                                                                                                        $300,000
                                                                                                                        in
                                                                                                                        company
                                                                                                                        funds.
  On
                                                                                                                        November
                                                                                                                        29,
                                                                                                                        2004,
                                                                                                                        we
                                                                                                                        moved
                                                                                                                        for
                                                                                                                        a
                                                                                                                        temporary
                                                                                                                        restraining
                                                                                                                        order,
                                                                                                                        or
                                                                                                                        TRO,
                                                                                                                        prohibiting
                                                                                                                        Mr.
                                                                                                                        Parent
                                                                                                                        and
                                                                                                                        his
                                                                                                                        spouse
                                                                                                                        from
                                                                                                                        selling,
                                                                                                                        transferring,
                                                                                                                        assigning,
                                                                                                                        or
                                                                                                                        otherwise
                                                                                                                        disposing
                                                                                                                        of
                                                                                                                        up
                                                                                                                        to
                                                                                                                        approximately
                                                                                                                        123,000,000
                                                                                                                        shares
                                                                                                                        of
                                                                                                                        our
                                                                                                                        stock
                                                                                                                        in
                                                                                                                        their
                                                                                                                        possession.
                                                                                                                        After
                                                                                                                        a
                                                                                                                        hearing,
                                                                                                                        at
                                                                                                                        which
                                                                                                                        the
                                                                                                                        Parents
                                                                                                                        appeared
                                                                                                                        through
                                                                                                                        counsel,
                                                                                                                        the
                                                                                                                        Honorable
                                                                                                                        Anna
                                                                                                                        M.
                                                                                                                        Baca
                                                                                                                        granted
                                                                                                                        the
                                                                                                                        motion,
                                                                                                                        conditioned
                                                                                                                        on
                                                                                                                        the
                                                                                                                        posting
                                                                                                                        of
                                                                                                                        an
                                                                                                                        $8
                                                                                                                        million
                                                                                                                        bond.
                                                                                                                        We
                                                                                                                        did
                                                                                                                        not
                                                                                                                        post
                                                                                                                        the
                                                                                                                        bond,
                                                                                                                        and
                                                                                                                        the
                                                                                                                        TRO
                                                                                                                        was
                                                                                                                        subsequently
                                                                                                                        dissolved.
  On
                                                                                                                        or
                                                                                                                        about
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004,
                                                                                                                        Mr.
                                                                                                                        Parent
                                                                                                                        and
                                                                                                                        fellow
                                                                                                                        GoldSpring
                                                                                                                        directors
                                                                                                                        Jerrie
                                                                                                                        W.
                                                                                                                        Gasch
                                                                                                                        and
                                                                                                                        Purnendu
                                                                                                                        K.
                                                                                                                        Rana
                                                                                                                        Medhi
                                                                                                                        purportedly
                                                                                                                        seized
                                                                                                                        control
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company.
                                                                                                                        Afterward,
                                                                                                                        the
                                                                                                                        Parent-led
                                                                                                                        GoldSpring
                                                                                                                        purported
                                                                                                                        to
                                                                                                                        fire
                                                                                                                        Greenberg
                                                                                                                        Traurig,
                                                                                                                        LLP,
                                                                                                                        or
                                                                                                                        GT,
                                                                                                                        as
                                                                                                                        counsel
                                                                                                                        for
                                                                                                                        our
                                                                                                                        company
                                                                                                                        in
                                                                                                                        this
                                                                                                                        litigation
                                                                                                                        and
                                                                                                                        to
                                                                                                                        hire
                                                                                                                        Ronan
&
                                                                                                                        Firestone,
                                                                                                                        PLC,
                                                                                                                        or
                                                                                                                        Ronan,
                                                                                                                        as
                                                                                                                        substitute
                                                                                                                        counsel.
                                                                                                                        Thereafter,
                                                                                                                        on
                                                                                                                        December
                                                                                                                        22,
                                                                                                                        2004,
                                                                                                                        Ronan
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        stipulation
                                                                                                                        to
                                                                                                                        dismiss
                                                                                                                        the
                                                                                                                        lawsuit,
                                                                                                                        purportedly
                                                                                                                        on
                                                                                                                        behalf
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company.
                                                                                                                        Also
                                                                                                                        on
                                                                                                                        December
                                                                                                                        22,
                                                                                                                        2004,
                                                                                                                        the
                                                                                                                        Parents
                                                                                                                        filed
                                                                                                                        their
                                                                                                                        answer,
                                                                                                                        in
                                                                                                                        which
                                                                                                                        they
                                                                                                                        generally
                                                                                                                        denied
                                                                                                                        the
                                                                                                                        allegations
                                                                                                                        of
                                                                                                                        the
                                                                                                                        complaint.
  7
  On
                                                                                                                        December
                                                                                                                        29,
                                                                                                                        2004,
                                                                                                                        GT
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        motion
                                                                                                                        on
                                                                                                                        behalf
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company
                                                                                                                        to
                                                                                                                        strike
                                                                                                                        the
                                                                                                                        stipulation
                                                                                                                        to
                                                                                                                        dismiss
                                                                                                                        that
                                                                                                                        Ronan
                                                                                                                        had
                                                                                                                        filed.
                                                                                                                        Judge
                                                                                                                        Baca
                                                                                                                        heard
                                                                                                                        oral
                                                                                                                        argument
                                                                                                                        on
                                                                                                                        the
                                                                                                                        motion
                                                                                                                        on
                                                                                                                        February
                                                                                                                        2,
                                                                                                                        2005
                                                                                                                        and
                                                                                                                        took
                                                                                                                        the
                                                                                                                        matter
                                                                                                                        under
                                                                                                                        advisement.
                                                                                                                        Further
                                                                                                                        oral
                                                                                                                        argument
                                                                                                                        was
                                                                                                                        heard
                                                                                                                        on
                                                                                                                        March
                                                                                                                        22,
                                                                                                                        2005.
                                                                                                                        In
                                                                                                                        light
                                                                                                                        of
                                                                                                                        the
                                                                                                                        preliminary
                                                                                                                        injunction
                                                                                                                        that
                                                                                                                        was
                                                                                                                        issued
                                                                                                                        in
                                                                                                                        a
                                                                                                                        related
                                                                                                                        shareholder
                                                                                                                        action
                                                                                                                        in
                                                                                                                        federal
                                                                                                                        district
                                                                                                                        court
                                                                                                                        (discussed
                                                                                                                        below),
                                                                                                                        and
                                                                                                                        the
                                                                                                                        resolutions
                                                                                                                        passed
                                                                                                                        by
                                                                                                                        our
                                                                                                                        Board
                                                                                                                        of
                                                                                                                        Directors
                                                                                                                        on
                                                                                                                        February
                                                                                                                        22,
                                                                                                                        2005,
                                                                                                                        Judge
                                                                                                                        Baca
                                                                                                                        granted
                                                                                                                        the
                                                                                                                        motion
                                                                                                                        in
                                                                                                                        an
                                                                                                                        Order
                                                                                                                        dated
                                                                                                                        March
                                                                                                                        22,
                                                                                                                        2005
                                                                                                                        and
                                                                                                                        struck
                                                                                                                        Ronan’s
                                                                                                                        purported
                                                                                                                        stipulation
                                                                                                                        to
                                                                                                                        dismiss.
  In
                                                                                                                        the
                                                                                                                        same
                                                                                                                        ruling,
                                                                                                                        Judge
                                                                                                                        Baca
                                                                                                                        said
                                                                                                                        that
“there
                                                                                                                        are
                                                                                                                        serious
                                                                                                                        conflicts
                                                                                                                        in
                                                                                                                        the
                                                                                                                        continued
                                                                                                                        representation
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Parents
                                                                                                                        in
                                                                                                                        this
                                                                                                                        lawsuit
                                                                                                                        by
                                                                                                                        Gust
                                                                                                                        Rosenfeld.”
                                                                                                                        The
                                                                                                                        Court
                                                                                                                        was
                                                                                                                        referring
                                                                                                                        to
                                                                                                                        the
                                                                                                                        fact
                                                                                                                        that
                                                                                                                        Parent
                                                                                                                        had
                                                                                                                        hired
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        as
                                                                                                                        our
                                                                                                                        counsel
                                                                                                                        after
                                                                                                                        purportedly
                                                                                                                        taking
                                                                                                                        over
                                                                                                                        our
                                                                                                                        company
                                                                                                                        on
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004.
                                                                                                                        The
                                                                                                                        Court
                                                                                                                        therefore
                                                                                                                        ordered
                                                                                                                        further
                                                                                                                        briefing
                                                                                                                        on
                                                                                                                        whether
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        should
                                                                                                                        be
                                                                                                                        disqualified
                                                                                                                        as
                                                                                                                        the
                                                                                                                        Parents’
                                                                                                                        counsel.
                                                                                                                        Shortly
                                                                                                                        thereafter,
                                                                                                                        on
                                                                                                                        March
                                                                                                                        28,
                                                                                                                        2005,
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        voluntarily
                                                                                                                        withdrew
                                                                                                                        as
                                                                                                                        the
                                                                                                                        Parents’
                                                                                                                        counsel.
                                                                                                                        The
                                                                                                                        Parents
                                                                                                                        have
                                                                                                                        since
                                                                                                                        retained
                                                                                                                        new
                                                                                                                        counsel.
                                                                                                                        The
                                                                                                                        discovery
                                                                                                                        process
                                                                                                                        is
                                                                                                                        currently
                                                                                                                        ongoing.
  Mr.
                                                                                                                        Treminio
                                                                                                                        has
                                                                                                                        since
                                                                                                                        been
                                                                                                                        dismissed
                                                                                                                        from
                                                                                                                        the
                                                                                                                        suit
                                                                                                                        in
                                                                                                                        accordance
                                                                                                                        with
                                                                                                                        the
                                                                                                                        terms
                                                                                                                        of
                                                                                                                        a
                                                                                                                        prior
                                                                                                                        settlement
                                                                                                                        agreement
                                                                                                                        between
                                                                                                                        Mr
                                                                                                                        Treminio
                                                                                                                        and
                                                                                                                        GoldSpring,
                                                                                                                        Inc..
                                                                                                                        Mr. Shaw
                                                                                                                        filed
                                                                                                                        an
                                                                                                                        answer,
*in
                                                                                                                        pro
                                                                                                                        per*,
                                                                                                                        on
                                                                                                                        April
                                                                                                                        6,
                                                                                                                        2005,
                                                                                                                        and
                                                                                                                        generally
                                                                                                                        denied
                                                                                                                        the
                                                                                                                        allegations
                                                                                                                        of
                                                                                                                        the
                                                                                                                        complaint.
                                                                                                                        Mr.
                                                                                                                        Haswell
                                                                                                                        and
                                                                                                                        Mr.
                                                                                                                        Doyle
                                                                                                                        have
                                                                                                                        filed
                                                                                                                        answers
                                                                                                                        and
                                                                                                                        generally
                                                                                                                        denied
                                                                                                                        the
                                                                                                                        allegations
                                                                                                                        of
                                                                                                                        the
                                                                                                                        complaint.
                                                                                                                        Ecovery,
                                                                                                                        Inc.
                                                                                                                        has
                                                                                                                        not
                                                                                                                        yet
                                                                                                                        responded
                                                                                                                        to
                                                                                                                        the
                                                                                                                        complaint.
  ***The
                                                                                                                        Federal
                                                                                                                        Court
                                                                                                                        Case***
  *Background*
  Stephen
                                                                                                                        B.
                                                                                                                        Parent
                                                                                                                        and
                                                                                                                        several
                                                                                                                        others
                                                                                                                        purporting
                                                                                                                        to
                                                                                                                        represent
                                                                                                                        a
                                                                                                                        majority
                                                                                                                        of
                                                                                                                        the
                                                                                                                        shareholders
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company
                                                                                                                        adopted
                                                                                                                        Consent
                                                                                                                        Resolutions
                                                                                                                        in
                                                                                                                        Lieu
                                                                                                                        of
                                                                                                                        a
                                                                                                                        Special
                                                                                                                        Meeting
                                                                                                                        of
                                                                                                                        Shareholder’s
                                                                                                                        dated
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004,
                                                                                                                        and
                                                                                                                        Mr. Parent,
                                                                                                                        Jerrie
                                                                                                                        W.
                                                                                                                        Gasch,
                                                                                                                        and
                                                                                                                        Purnendu
                                                                                                                        K.
                                                                                                                        Rana
                                                                                                                        Medhi,
                                                                                                                        each
                                                                                                                        of
                                                                                                                        whom
                                                                                                                        served
                                                                                                                        as
                                                                                                                        a
                                                                                                                        director
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company
                                                                                                                        until
                                                                                                                        Mr.
                                                                                                                        Medhi’s
                                                                                                                        resignation
                                                                                                                        in
                                                                                                                        April
                                                                                                                        2005,
                                                                                                                        adopted
                                                                                                                        Directors’
                                                                                                                        Consent
                                                                                                                        Resolutions
                                                                                                                        (together
                                                                                                                        the
“December
                                                                                                                        Consent
                                                                                                                        Resolutions”)
                                                                                                                        dated
                                                                                                                        December
                                                                                                                        10,
                                                                                                                        2004.
                                                                                                                        Taken
                                                                                                                        together,
                                                                                                                        the
                                                                                                                        December
                                                                                                                        Consent
                                                                                                                        Resolutions,
                                                                                                                        by
                                                                                                                        their
                                                                                                                        purported
                                                                                                                        terms,
                                                                                                                        removed
                                                                                                                        John
                                                                                                                        F.
                                                                                                                        Cook,
                                                                                                                        Robert
                                                                                                                        T.
                                                                                                                        Faber,
                                                                                                                        Leslie
                                                                                                                        L.
                                                                                                                        Cahan,
                                                                                                                        Todd
                                                                                                                        S.
                                                                                                                        Brown,
                                                                                                                        Christopher
                                                                                                                        L.
                                                                                                                        Aguilar,
                                                                                                                        Stanley
                                                                                                                        A.
                                                                                                                        Hirschman,
                                                                                                                        and
                                                                                                                        Phil
                                                                                                                        E.
                                                                                                                        Pearce
                                                                                                                        as
                                                                                                                        directors,
                                                                                                                        rescinded
                                                                                                                        the
                                                                                                                        restructuring
                                                                                                                        of
                                                                                                                        a
                                                                                                                        $10
                                                                                                                        million
                                                                                                                        financing
                                                                                                                        transaction
                                                                                                                        entered
                                                                                                                        into
                                                                                                                        in
                                                                                                                        March
                                                                                                                        2004,
                                                                                                                        removed
                                                                                                                        Mr.
                                                                                                                        Faber
                                                                                                                        as
                                                                                                                        President
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company,
                                                                                                                        named
                                                                                                                        Mr.
                                                                                                                        Parent
                                                                                                                        as
                                                                                                                        President
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company
                                                                                                                        and
                                                                                                                        his
                                                                                                                        wife
                                                                                                                        as
                                                                                                                        Secretary
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company,
                                                                                                                        designated
                                                                                                                        Mr.
                                                                                                                        Parent
                                                                                                                        as
                                                                                                                        the
                                                                                                                        sole
                                                                                                                        signing
                                                                                                                        officer
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company’s
                                                                                                                        bank
                                                                                                                        accounts,
                                                                                                                        and
                                                                                                                        terminated
                                                                                                                        our
                                                                                                                        company’s
                                                                                                                        legal
                                                                                                                        counsel.
  On
                                                                                                                        December
                                                                                                                        22,
                                                                                                                        2004,
                                                                                                                        Robert
                                                                                                                        T.
                                                                                                                        Faber
                                                                                                                        and
                                                                                                                        Leslie
                                                                                                                        L.
                                                                                                                        Cahan
                                                                                                                        (collectively,
                                                                                                                        the
“Plaintiffs”),
                                                                                                                        who
                                                                                                                        are
                                                                                                                        shareholders
                                                                                                                        and
                                                                                                                        directors
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company,
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        lawsuit
                                                                                                                        in
                                                                                                                        the
                                                                                                                        United
                                                                                                                        States
                                                                                                                        District
                                                                                                                        Court
                                                                                                                        for
                                                                                                                        the
                                                                                                                        District
                                                                                                                        of
                                                                                                                        Arizona,
                                                                                                                        entitled
                                                                                                                        Robert
                                                                                                                        T.
                                                                                                                        Faber,
                                                                                                                        et
                                                                                                                        al.
                                                                                                                        v.
                                                                                                                        Stephen
                                                                                                                        B.
                                                                                                                        Parent,
                                                                                                                        et
                                                                                                                        al.,
                                                                                                                        No.
                                                                                                                        CV04-2960-PHX-EHC
                                                                                                                        (“the
                                                                                                                        Litigation”).
                                                                                                                        The
                                                                                                                        Plaintiffs
                                                                                                                        asserted
                                                                                                                        claims
                                                                                                                        in
                                                                                                                        both
                                                                                                                        their
                                                                                                                        individual
                                                                                                                        capacities
                                                                                                                        and
                                                                                                                        derivatively,
                                                                                                                        on
                                                                                                                        behalf
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company,
                                                                                                                        against
                                                                                                                        directors
                                                                                                                        Stephen
                                                                                                                        B.
                                                                                                                        Parent,
                                                                                                                        Jerrie
                                                                                                                        W.
                                                                                                                        Gasch,
                                                                                                                        and
                                                                                                                        Purnendu
                                                                                                                        K.
                                                                                                                        Rana
                                                                                                                        Medhi
                                                                                                                        (collectively,
                                                                                                                        the
“Defendants”),
                                                                                                                        alleging
                                                                                                                        that,
                                                                                                                        by
                                                                                                                        adopting
                                                                                                                        the
                                                                                                                        Consent
                                                                                                                        Resolutions,
                                                                                                                        the
                                                                                                                        Defendants
                                                                                                                        had
                                                                                                                        unlawfully
                                                                                                                        orchestrated
                                                                                                                        an
                                                                                                                        illegal
                                                                                                                        coup
                                                                                                                        to
                                                                                                                        wrest
                                                                                                                        control
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company
                                                                                                                        from
                                                                                                                        its
                                                                                                                        current
                                                                                                                        officers
                                                                                                                        and
                                                                                                                        directors.
                                                                                                                        As
                                                                                                                        discussed
                                                                                                                        below,
                                                                                                                        Messrs.
                                                                                                                        Gasch
                                                                                                                        and
                                                                                                                        Medhi
                                                                                                                        no
                                                                                                                        longer
                                                                                                                        support
                                                                                                                        the
                                                                                                                        Parent-led
                                                                                                                        board.
  *The
                                                                                                                        Temporary
                                                                                                                        Restraining
                                                                                                                        Order*
  Following
                                                                                                                        a
                                                                                                                        hearing
                                                                                                                        on
                                                                                                                        December
                                                                                                                        22,
                                                                                                                        2004,
                                                                                                                        at
                                                                                                                        which
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        heard
                                                                                                                        evidence
                                                                                                                        and
                                                                                                                        argument
                                                                                                                        of
                                                                                                                        counsel,
                                                                                                                        the
                                                                                                                        Honorable
                                                                                                                        Earl
                                                                                                                        H.
                                                                                                                        Carroll
                                                                                                                        issued
                                                                                                                        a
                                                                                                                        December
                                                                                                                        23,
                                                                                                                        2004
                                                                                                                        Order
                                                                                                                        Granting
                                                                                                                        Plaintiffs’
                                                                                                                        Motion
                                                                                                                        for
                                                                                                                        Temporary
                                                                                                                        Restraining
                                                                                                                        Order,
                                                                                                                        or
                                                                                                                        TRO.
                                                                                                                        The
                                                                                                                        TRO
                                                                                                                        precluded
                                                                                                                        Defendants
                                                                                                                        and
                                                                                                                        their
                                                                                                                        agents
                                                                                                                        from
                                                                                                                        (1)
                                                                                                                        making
                                                                                                                        any
                                                                                                                        withdrawals
                                                                                                                        from
                                                                                                                        any
                                                                                                                        bank
                                                                                                                        accounts
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company,
                                                                                                                        other
                                                                                                                        than
                                                                                                                        reasonable
                                                                                                                        withdrawals
                                                                                                                        necessary
                                                                                                                        to
                                                                                                                        the
                                                                                                                        daily
                                                                                                                        operations
                                                                                                                        of
                                                                                                                        the
                                                                                                                        business;
                                                                                                                        (2)
                                                                                                                        rescinding
                                                                                                                        or
                                                                                                                        interfering
                                                                                                                        in
                                                                                                                        any
                                                                                                                        way
                                                                                                                        with
                                                                                                                        any
                                                                                                                        transactions
                                                                                                                        approved
                                                                                                                        by
                                                                                                                        our
                                                                                                                        company’s
                                                                                                                        Board
                                                                                                                        of
                                                                                                                        Directors
                                                                                                                        prior
                                                                                                                        to
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004;
                                                                                                                        (3)
                                                                                                                        entering
                                                                                                                        into
                                                                                                                        any
                                                                                                                        contracts
                                                                                                                        or
                                                                                                                        agreements
                                                                                                                        with
                                                                                                                        third
                                                                                                                        parties
                                                                                                                        on
                                                                                                                        behalf
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company
                                                                                                                        or
                                                                                                                        disposing
                                                                                                                        of
                                                                                                                        or
                                                                                                                        transferring
                                                                                                                        any
                                                                                                                        property
                                                                                                                        or
                                                                                                                        assets
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company;
                                                                                                                        and
                                                                                                                        (4)
                                                                                                                        issuing
                                                                                                                        or
                                                                                                                        otherwise
                                                                                                                        transferring
                                                                                                                        any
                                                                                                                        stock
                                                                                                                        or
                                                                                                                        debentures.
  The
                                                                                                                        Court
                                                                                                                        subsequently
                                                                                                                        continued
                                                                                                                        the
                                                                                                                        TRO
                                                                                                                        through
                                                                                                                        February
                                                                                                                        15,
                                                                                                                        2005
                                                                                                                        and
                                                                                                                        confirmed
                                                                                                                        that
                                                                                                                        none
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Defendants
                                                                                                                        were
                                                                                                                        to
                                                                                                                        receive
                                                                                                                        any
                                                                                                                        payments
                                                                                                                        from
                                                                                                                        our
                                                                                                                        company
                                                                                                                        during
                                                                                                                        the
                                                                                                                        pendency
                                                                                                                        of
                                                                                                                        the
                                                                                                                        TRO.
                                                                                                                        Despite
                                                                                                                        the
                                                                                                                        Court’s
                                                                                                                        Order,
                                                                                                                        the
                                                                                                                        Defendants
                                                                                                                        have
                                                                                                                        since
                                                                                                                        produced
                                                                                                                        business
                                                                                                                        records
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company
                                                                                                                        demonstrating
                                                                                                                        that,
                                                                                                                        after
                                                                                                                        adopting
                                                                                                                        the
                                                                                                                        December
                                                                                                                        Consent
                                                                                                                        Resolutions,
                                                                                                                        the
                                                                                                                        Defendants
                                                                                                                        arranged
                                                                                                                        for
                                                                                                                        our
                                                                                                                        company
                                                                                                                        to
                                                                                                                        pay
                                                                                                                        them
                                                                                                                        a
                                                                                                                        collective
                                                                                                                        total
                                                                                                                        of
                                                                                                                        $38,721,
                                                                                                                        including
                                                                                                                        $20,869
                                                                                                                        in
                                                                                                                        payments
                                                                                                                        to
                                                                                                                        Stephen
                                                                                                                        Parent.
  8
  *The
                                                                                                                        Preliminary
                                                                                                                        Injunction
                                                                                                                        and
                                                                                                                        Notice
                                                                                                                        of
                                                                                                                        Appeal*
  Following
                                                                                                                        additional
                                                                                                                        hearings
                                                                                                                        in
                                                                                                                        which
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        heard
                                                                                                                        witness
                                                                                                                        testimony
                                                                                                                        and
                                                                                                                        evidence,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        issued
                                                                                                                        an
                                                                                                                        Order
                                                                                                                        on
                                                                                                                        February
                                                                                                                        15,
                                                                                                                        2005
                                                                                                                        granting
                                                                                                                        Plaintiffs’
                                                                                                                        Motion
                                                                                                                        for
                                                                                                                        a
                                                                                                                        Preliminary
                                                                                                                        Injunction.
                                                                                                                        The
                                                                                                                        Preliminary
                                                                                                                        Injunction
                                                                                                                        ordered
                                                                                                                        the
                                                                                                                        reinstatement
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company’s
                                                                                                                        Board
                                                                                                                        of
                                                                                                                        Directors
                                                                                                                        as
                                                                                                                        it
                                                                                                                        existed
                                                                                                                        prior
                                                                                                                        to
                                                                                                                        December
                                                                                                                        10,
                                                                                                                        2004.
                                                                                                                        As
                                                                                                                        a
                                                                                                                        result
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Court’s
                                                                                                                        Order,
                                                                                                                        John
                                                                                                                        F.
                                                                                                                        Cook,
                                                                                                                        Robert
                                                                                                                        T.
                                                                                                                        Faber,
                                                                                                                        Christopher
                                                                                                                        L.
                                                                                                                        Aguilar,
                                                                                                                        Todd
                                                                                                                        S.
                                                                                                                        Brown,
                                                                                                                        Leslie
                                                                                                                        L.
                                                                                                                        Cahan,
                                                                                                                        Stanley
                                                                                                                        A.
                                                                                                                        Hirschman,
                                                                                                                        and
                                                                                                                        Phil
                                                                                                                        E.
                                                                                                                        Pearce
                                                                                                                        have
                                                                                                                        been
                                                                                                                        reinstated
                                                                                                                        as
                                                                                                                        directors.
                                                                                                                        Stephen
                                                                                                                        B.
                                                                                                                        Parent,
                                                                                                                        Jerrie
                                                                                                                        W.
                                                                                                                        Gasch,
                                                                                                                        and
                                                                                                                        Purnendu
                                                                                                                        K.
                                                                                                                        Rana
                                                                                                                        Medhi
                                                                                                                        remained
                                                                                                                        directors
                                                                                                                        until
                                                                                                                        Mr.
                                                                                                                        Medhi’s
                                                                                                                        resignation
                                                                                                                        in
                                                                                                                        April
                                                                                                                        2005.
                                                                                                                        The
                                                                                                                        Court’s
                                                                                                                        February
                                                                                                                        15
                                                                                                                        Order
                                                                                                                        also
                                                                                                                        stayed
                                                                                                                        the
                                                                                                                        implementation
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Consent
                                                                                                                        Resolutions,
                                                                                                                        and
                                                                                                                        directed
                                                                                                                        us
                                                                                                                        to
                                                                                                                        hold
                                                                                                                        a
                                                                                                                        special
                                                                                                                        shareholders
                                                                                                                        meeting
                                                                                                                        within
                                                                                                                        30
                                                                                                                        days.
  In
                                                                                                                        concluding
                                                                                                                        that
                                                                                                                        the
                                                                                                                        Preliminary
                                                                                                                        Injunction
                                                                                                                        should
                                                                                                                        issue,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        stated,
“The
                                                                                                                        Court
                                                                                                                        is
                                                                                                                        specifically
                                                                                                                        concerned
                                                                                                                        about
                                                                                                                        the
                                                                                                                        irreparable
                                                                                                                        injury
                                                                                                                        that
                                                                                                                        would
                                                                                                                        occur
                                                                                                                        to
                                                                                                                        GoldSpring
                                                                                                                        and
                                                                                                                        its
                                                                                                                        shareholders
                                                                                                                        and
                                                                                                                        investors
                                                                                                                        if
                                                                                                                        Defendants
                                                                                                                        [Mr.
                                                                                                                        Parent,
                                                                                                                        his
                                                                                                                        wife,
                                                                                                                        Jerrie
                                                                                                                        W.
                                                                                                                        Gasch,
                                                                                                                        and
                                                                                                                        Purnendu
                                                                                                                        K.
                                                                                                                        Rana
                                                                                                                        Medhi]
                                                                                                                        are
                                                                                                                        permitted
                                                                                                                        to
                                                                                                                        manage
                                                                                                                        the
                                                                                                                        corporation.
                                                                                                                        There
                                                                                                                        is
                                                                                                                        substantial
                                                                                                                        evidence
                                                                                                                        of
                                                                                                                        Parent’s
                                                                                                                        wrongdoing
                                                                                                                        in
                                                                                                                        his
                                                                                                                        former
                                                                                                                        position
                                                                                                                        as
                                                                                                                        CEO
                                                                                                                        of
                                                                                                                        GoldSpring,
                                                                                                                        such
                                                                                                                        as
                                                                                                                        his
                                                                                                                        misappropriation
                                                                                                                        of
                                                                                                                        corporate
                                                                                                                        assets
                                                                                                                        for
                                                                                                                        his
                                                                                                                        personal
                                                                                                                        use.
                                                                                                                        The
                                                                                                                        Defendants’
                                                                                                                        attempt
                                                                                                                        to
                                                                                                                        rescind
                                                                                                                        the
                                                                                                                        [financing]
                                                                                                                        transaction
                                                                                                                        that
                                                                                                                        was
                                                                                                                        approved
                                                                                                                        at
                                                                                                                        the
                                                                                                                        Board
                                                                                                                        of
                                                                                                                        Directors
                                                                                                                        meeting
                                                                                                                        on
                                                                                                                        November
                                                                                                                        30,
                                                                                                                        2004
                                                                                                                        could
                                                                                                                        adversely
                                                                                                                        impact
                                                                                                                        GoldSpring’s
                                                                                                                        ability
                                                                                                                        to
                                                                                                                        meet
                                                                                                                        its
                                                                                                                        obligations
                                                                                                                        under
                                                                                                                        the
                                                                                                                        agreement.
                                                                                                                        Rescission
                                                                                                                        of
                                                                                                                        the
                                                                                                                        refinancing
                                                                                                                        transaction
                                                                                                                        would
                                                                                                                        prove
                                                                                                                        detrimental
                                                                                                                        for
                                                                                                                        GoldSpring
                                                                                                                        because
                                                                                                                        the
                                                                                                                        corporation
                                                                                                                        would
                                                                                                                        be
                                                                                                                        forced
                                                                                                                        to
                                                                                                                        pay
                                                                                                                        the
                                                                                                                        $200,000.00
                                                                                                                        monthly
                                                                                                                        penalty
                                                                                                                        for
                                                                                                                        failing
                                                                                                                        to
                                                                                                                        file
                                                                                                                        the
                                                                                                                        S-1
                                                                                                                        Registration
                                                                                                                        with
                                                                                                                        the
                                                                                                                        SEC
                                                                                                                        within
                                                                                                                        ninety
                                                                                                                        (90)
                                                                                                                        days
                                                                                                                        of
                                                                                                                        the
                                                                                                                        March
                                                                                                                        22,
                                                                                                                        2004
                                                                                                                        agreement
                                                                                                                        between
                                                                                                                        GoldSpring
                                                                                                                        and
                                                                                                                        [various
                                                                                                                        investors].
                                                                                                                        This
                                                                                                                        penalty
                                                                                                                        had
                                                                                                                        accrued
                                                                                                                        to
                                                                                                                        over
                                                                                                                        $1,000,000.00
                                                                                                                        as
                                                                                                                        of
                                                                                                                        November
                                                                                                                        30,
                                                                                                                        2004.”
  Thereafter,
                                                                                                                        the
                                                                                                                        Defendants
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        motion
                                                                                                                        for
                                                                                                                        reconsideration
                                                                                                                        in
                                                                                                                        which
                                                                                                                        they
                                                                                                                        asked
                                                                                                                        that
                                                                                                                        the
                                                                                                                        Preliminary
                                                                                                                        Injunction
                                                                                                                        be
                                                                                                                        dissolved
                                                                                                                        or,
                                                                                                                        alternatively,
                                                                                                                        that
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        clarify
                                                                                                                        the
                                                                                                                        injunction
                                                                                                                        order
                                                                                                                        and
                                                                                                                        require
                                                                                                                        the
                                                                                                                        Plaintiffs
                                                                                                                        to
                                                                                                                        post
                                                                                                                        a
                                                                                                                        bond.
                                                                                                                        On
                                                                                                                        February
                                                                                                                        25,
                                                                                                                        2005,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        held
                                                                                                                        a
                                                                                                                        hearing
                                                                                                                        on
                                                                                                                        the
                                                                                                                        Defendants’
                                                                                                                        motion
                                                                                                                        for
                                                                                                                        reconsideration.
                                                                                                                        The
                                                                                                                        Court
                                                                                                                        denied
                                                                                                                        the
                                                                                                                        Defendants’
                                                                                                                        requests
                                                                                                                        to
                                                                                                                        dissolve
                                                                                                                        the
                                                                                                                        Preliminary
                                                                                                                        Injunction
                                                                                                                        and
                                                                                                                        to
                                                                                                                        require
                                                                                                                        the
                                                                                                                        posting
                                                                                                                        of
                                                                                                                        a
                                                                                                                        bond.
                                                                                                                        In
                                                                                                                        response
                                                                                                                        to
                                                                                                                        Defendants’
                                                                                                                        request
                                                                                                                        for
                                                                                                                        clarification
                                                                                                                        of
                                                                                                                        the
                                                                                                                        injunction
                                                                                                                        order,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        ordered
                                                                                                                        that
                                                                                                                        our
                                                                                                                        company
                                                                                                                        is
                                                                                                                        not
                                                                                                                        to
                                                                                                                        issue
                                                                                                                        additional
                                                                                                                        shares
                                                                                                                        prior
                                                                                                                        to
                                                                                                                        the
                                                                                                                        special
                                                                                                                        shareholders
                                                                                                                        meeting,
                                                                                                                        and
                                                                                                                        that
                                                                                                                        the
                                                                                                                        record
                                                                                                                        date
                                                                                                                        for
                                                                                                                        the
                                                                                                                        special
                                                                                                                        shareholders
                                                                                                                        meeting
                                                                                                                        shall
                                                                                                                        be
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004.
  Our
                                                                                                                        company
                                                                                                                        believed
                                                                                                                        that
                                                                                                                        this
                                                                                                                        ruling
                                                                                                                        would
                                                                                                                        disenfranchise
                                                                                                                        the
                                                                                                                        investors
                                                                                                                        that
                                                                                                                        participated
                                                                                                                        in
                                                                                                                        the
                                                                                                                        November
                                                                                                                        30,
                                                                                                                        2004
                                                                                                                        restructuring
                                                                                                                        transaction
                                                                                                                        by
                                                                                                                        preventing
                                                                                                                        them
                                                                                                                        from
                                                                                                                        receiving
                                                                                                                        and
                                                                                                                        voting
                                                                                                                        the
                                                                                                                        shares
                                                                                                                        they
                                                                                                                        are
                                                                                                                        entitled
                                                                                                                        to
                                                                                                                        receive
                                                                                                                        through
                                                                                                                        the
                                                                                                                        conversion
                                                                                                                        of
                                                                                                                        their
                                                                                                                        notes.
                                                                                                                        A
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004
                                                                                                                        record
                                                                                                                        date
                                                                                                                        would
                                                                                                                        also
                                                                                                                        have
                                                                                                                        disenfranchised
                                                                                                                        all
                                                                                                                        shareholders
                                                                                                                        that
                                                                                                                        acquired
                                                                                                                        their
                                                                                                                        stock
                                                                                                                        on
                                                                                                                        the
                                                                                                                        open
                                                                                                                        market
                                                                                                                        after
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004.
  Therefore,
                                                                                                                        on
                                                                                                                        February
                                                                                                                        28,
                                                                                                                        2005,
                                                                                                                        our
                                                                                                                        company
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        legal
                                                                                                                        memorandum
                                                                                                                        with
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        addressing
                                                                                                                        these
                                                                                                                        issues.
                                                                                                                        In
                                                                                                                        it,
                                                                                                                        we
                                                                                                                        pointed
                                                                                                                        out
                                                                                                                        that
                                                                                                                        applicable
                                                                                                                        federal
                                                                                                                        securities
                                                                                                                        laws
                                                                                                                        require
                                                                                                                        us
                                                                                                                        to
                                                                                                                        provide
                                                                                                                        shareholders
                                                                                                                        with
                                                                                                                        current
                                                                                                                        financial
                                                                                                                        statements,
                                                                                                                        which
                                                                                                                        will
                                                                                                                        not
                                                                                                                        be
                                                                                                                        available
                                                                                                                        until
                                                                                                                        March
                                                                                                                        31,
                                                                                                                        2005,
                                                                                                                        and
                                                                                                                        that
                                                                                                                        Florida
                                                                                                                        law
                                                                                                                        and
                                                                                                                        our
                                                                                                                        company’s
                                                                                                                        bylaws
                                                                                                                        require
                                                                                                                        that
                                                                                                                        a
                                                                                                                        record
                                                                                                                        date
                                                                                                                        be
                                                                                                                        fixed
                                                                                                                        in
                                                                                                                        advance
                                                                                                                        rather
                                                                                                                        than
                                                                                                                        in
                                                                                                                        the
                                                                                                                        past.
                                                                                                                        On
                                                                                                                        March
                                                                                                                        14,
                                                                                                                        2005,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        held
                                                                                                                        a
                                                                                                                        hearing
                                                                                                                        on
                                                                                                                        these
                                                                                                                        issues.
                                                                                                                        After
                                                                                                                        hearing
                                                                                                                        argument
                                                                                                                        of
                                                                                                                        counsel,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        indicated
                                                                                                                        that
                                                                                                                        it
                                                                                                                        agreed
                                                                                                                        with
                                                                                                                        our
                                                                                                                        position.
  Accordingly,
                                                                                                                        on
                                                                                                                        March
                                                                                                                        17,
                                                                                                                        2005,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        vacated
                                                                                                                        its
                                                                                                                        earlier
                                                                                                                        Order
                                                                                                                        directing
                                                                                                                        us
                                                                                                                        to
                                                                                                                        hold
                                                                                                                        a
                                                                                                                        special
                                                                                                                        shareholders
                                                                                                                        meeting
                                                                                                                        and
                                                                                                                        setting
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004
                                                                                                                        as
                                                                                                                        the
                                                                                                                        record
                                                                                                                        date
                                                                                                                        for
                                                                                                                        purposes
                                                                                                                        of
                                                                                                                        that
                                                                                                                        meeting.
                                                                                                                        The
                                                                                                                        Court
                                                                                                                        also
                                                                                                                        vacated
                                                                                                                        the
                                                                                                                        provision
                                                                                                                        of
                                                                                                                        its
                                                                                                                        February
                                                                                                                        25
                                                                                                                        Order
                                                                                                                        prohibiting
                                                                                                                        us
                                                                                                                        from
                                                                                                                        issuing
                                                                                                                        additional
                                                                                                                        shares.
                                                                                                                        Finally,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        reaffirmed
                                                                                                                        its
                                                                                                                        earlier
                                                                                                                        Order
                                                                                                                        reinstating
                                                                                                                        our
                                                                                                                        Board
                                                                                                                        of
                                                                                                                        Directors
                                                                                                                        as
                                                                                                                        it
                                                                                                                        existed
                                                                                                                        prior
                                                                                                                        to
                                                                                                                        December
                                                                                                                        10,
                                                                                                                        2004.
                                                                                                                        In
                                                                                                                        doing
                                                                                                                        so,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        ordered
                                                                                                                        that
                                                                                                                        the
                                                                                                                        reinstated
                                                                                                                        board
                                                                                                                        shall
                                                                                                                        remain
                                                                                                                        in
                                                                                                                        place
                                                                                                                        until
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        orders
                                                                                                                        otherwise.
  On
                                                                                                                        April
                                                                                                                        13,
                                                                                                                        2005,
                                                                                                                        a
                                                                                                                        notice
                                                                                                                        of
                                                                                                                        appeal
                                                                                                                        was
                                                                                                                        filed
                                                                                                                        on
                                                                                                                        behalf
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Parents,
                                                                                                                        the
                                                                                                                        Gaschs,
                                                                                                                        and
                                                                                                                        the
                                                                                                                        Medhis
                                                                                                                        seeking
                                                                                                                        to
                                                                                                                        reverse
                                                                                                                        the
                                                                                                                        Court’s
                                                                                                                        March
                                                                                                                        17
                                                                                                                        Order.
                                                                                                                        On
                                                                                                                        April
                                                                                                                        21,
                                                                                                                        2005,
                                                                                                                        the
                                                                                                                        Gaschs
                                                                                                                        moved
                                                                                                                        to
                                                                                                                        dismiss
                                                                                                                        their
                                                                                                                        appeal.
                                                                                                                        On
                                                                                                                        June
                                                                                                                        10,
                                                                                                                        2005,
                                                                                                                        the
                                                                                                                        Parents
                                                                                                                        filed
                                                                                                                        their
                                                                                                                        opening
                                                                                                                        appellate
                                                                                                                        brief.
                                                                                                                        The
                                                                                                                        response
                                                                                                                        to
                                                                                                                        the
                                                                                                                        Parents’
                                                                                                                        opening
                                                                                                                        brief
                                                                                                                        is
                                                                                                                        due
                                                                                                                        on
                                                                                                                        August
                                                                                                                        16,
                                                                                                                        2005.
  *The
                                                                                                                        Investors’
                                                                                                                        Motion
                                                                                                                        to
                                                                                                                        Intervene*
  On
                                                                                                                        March
                                                                                                                        2,
                                                                                                                        2005,
                                                                                                                        Longview
                                                                                                                        Fund
                                                                                                                        LP,
                                                                                                                        Longview
                                                                                                                        Equity
                                                                                                                        Fund,
                                                                                                                        Longview
                                                                                                                        International
                                                                                                                        Equity
                                                                                                                        Fund,
                                                                                                                        and
                                                                                                                        Alpha
                                                                                                                        Capital
                                                                                                                        AG
                                                                                                                        (collectively,
                                                                                                                        the
“Investors”)
                                                                                                                        moved
                                                                                                                        to
                                                                                                                        intervene
                                                                                                                        in
                                                                                                                        the
                                                                                                                        Litigation.
                                                                                                                        In
                                                                                                                        doing
                                                                                                                        so,
                                                                                                                        the
                                                                                                                        Investors
                                                                                                                        sought
                                                                                                                        to
                                                                                                                        dissolve
                                                                                                                        the
                                                                                                                        portion
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Court’s
                                                                                                                        February
                                                                                                                        25,
                                                                                                                        2005
                                                                                                                        Order
                                                                                                                        that
                                                                                                                        prohibited
                                                                                                                        our
                                                                                                                        company
                                                                                                                        from
                                                                                                                        issuing
                                                                                                                        stock
                                                                                                                        to
                                                                                                                        them
                                                                                                                        under
                                                                                                                        the
                                                                                                                        refinancing
                                                                                                                        transaction.
  In
                                                                                                                        their
                                                                                                                        motion
                                                                                                                        to
                                                                                                                        intervene,
                                                                                                                        the
                                                                                                                        Investors
                                                                                                                        alleged
                                                                                                                        that
                                                                                                                        they
                                                                                                                        are
                                                                                                                        holders
                                                                                                                        of
                                                                                                                        more
                                                                                                                        than
                                                                                                                        $3
                                                                                                                        million
                                                                                                                        of
                                                                                                                        Convertible
                                                                                                                        Notes
                                                                                                                        issued
                                                                                                                        by
                                                                                                                        us,
                                                                                                                        which
                                                                                                                        they
                                                                                                                        received
                                                                                                                        pursuant
                                                                                                                        to
                                                                                                                        the
                                                                                                                        transaction
                                                                                                                        in
                                                                                                                        March
                                                                                                                        2004.
                                                                                                                        The
                                                                                                                        Investors
                                                                                                                        further
                                                                                                                        alleged
                                                                                                                        that,
                                                                                                                        under
                                                                                                                        the
                                                                                                                        terms
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Convertible
                                                                                                                        Notes,
                                                                                                                        they
                                                                                                                        are
                                                                                                                        entitled
                                                                                                                        to
                                                                                                                        convert
                                                                                                                        the
                                                                                                                        notes,
                                                                                                                        in
                                                                                                                        whole
                                                                                                                        or
                                                                                                                        in
                                                                                                                        part,
                                                                                                                        into
                                                                                                                        our
                                                                                                                        stock
                                                                                                                        at
                                                                                                                        any
                                                                                                                        time.
                                                                                                                        The
                                                                                                                        Investors
                                                                                                                        contended
                                                                                                                        that,
                                                                                                                        by
                                                                                                                        preventing
                                                                                                                        us
                                                                                                                        from
                                                                                                                        issuing
                                                                                                                        stock,
                                                                                                                        the
                                                                                                                        Court’s
                                                                                                                        February
                                                                                                                        25
                                                                                                                        Order
                                                                                                                        is
                                                                                                                        a
                                                                                                                        de
                                                                                                                        facto
                                                                                                                        preliminary
                                                                                                                        injunction
                                                                                                                        in
                                                                                                                        favor
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Defendants,
                                                                                                                        and
                                                                                                                        effectively
                                                                                                                        deprived
                                                                                                                        the
                                                                                                                        Investors
                                                                                                                        of
                                                                                                                        much
                                                                                                                        of
                                                                                                                        the
                                                                                                                        benefits
                                                                                                                        to
                                                                                                                        which
                                                                                                                        they
                                                                                                                        are
                                                                                                                        contractually
                                                                                                                        entitled.
                                                                                                                        Because
                                                                                                                        the
                                                                                                                        Defendants
                                                                                                                        had
                                                                                                                        not
                                                                                                                        met
                                                                                                                        the
                                                                                                                        requirements
                                                                                                                        for
                                                                                                                        injunctive
                                                                                                                        relief,
                                                                                                                        the
                                                                                                                        Investors
                                                                                                                        argued,
                                                                                                                        that
                                                                                                                        portion
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Court’s
                                                                                                                        Order
                                                                                                                        should
                                                                                                                        be
                                                                                                                        dissolved.
                                                                                                                        Alternatively,
                                                                                                                        the
                                                                                                                        Investors
                                                                                                                        asked
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        to
                                                                                                                        order
                                                                                                                        the
                                                                                                                        Defendants
                                                                                                                        to
                                                                                                                        post
                                                                                                                        a
                                                                                                                        $3.5
                                                                                                                        million
                                                                                                                        bond
                                                                                                                        to
                                                                                                                        protect
                                                                                                                        the
                                                                                                                        Investors
                                                                                                                        against
                                                                                                                        any
                                                                                                                        damages
                                                                                                                        stemming
                                                                                                                        from
                                                                                                                        the
                                                                                                                        de
                                                                                                                        facto
                                                                                                                        injunction.
  9
  On
                                                                                                                        March
                                                                                                                        7,
                                                                                                                        2005,
                                                                                                                        the
                                                                                                                        Defendants
                                                                                                                        filed
                                                                                                                        their
                                                                                                                        response
                                                                                                                        to
                                                                                                                        the
                                                                                                                        Investors’
                                                                                                                        motion.
                                                                                                                        They
                                                                                                                        contended
                                                                                                                        that
                                                                                                                        Judge
                                                                                                                        Carroll’s
                                                                                                                        February
                                                                                                                        25
                                                                                                                        Order
                                                                                                                        was
                                                                                                                        not
                                                                                                                        an
                                                                                                                        injunction
                                                                                                                        and,
                                                                                                                        in
                                                                                                                        any
                                                                                                                        event,
                                                                                                                        that
                                                                                                                        the
                                                                                                                        Investors
                                                                                                                        had
                                                                                                                        failed
                                                                                                                        to
                                                                                                                        meet
                                                                                                                        the
                                                                                                                        requirements
                                                                                                                        for
                                                                                                                        intervention.
                                                                                                                        Accordingly,
                                                                                                                        they
                                                                                                                        argued
                                                                                                                        that
                                                                                                                        the
                                                                                                                        motion
                                                                                                                        should
                                                                                                                        be
                                                                                                                        denied.
  On
                                                                                                                        March
                                                                                                                        18,
                                                                                                                        2005,
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        issued
                                                                                                                        an
                                                                                                                        Order
                                                                                                                        denying
                                                                                                                        the
                                                                                                                        Investors’
                                                                                                                        motion
                                                                                                                        as
                                                                                                                        moot.
                                                                                                                        The
                                                                                                                        Court
                                                                                                                        reasoned
                                                                                                                        that,
                                                                                                                        since
                                                                                                                        its
                                                                                                                        March
                                                                                                                        17
                                                                                                                        Order
                                                                                                                        lifted
                                                                                                                        the
                                                                                                                        prohibition
                                                                                                                        on
                                                                                                                        the
                                                                                                                        issuance
                                                                                                                        of
                                                                                                                        additional
                                                                                                                        shares
                                                                                                                        of
                                                                                                                        our
                                                                                                                        stock,
                                                                                                                        the
                                                                                                                        Investors
                                                                                                                        had,
                                                                                                                        in
                                                                                                                        essence,
                                                                                                                        already
                                                                                                                        received
                                                                                                                        the
                                                                                                                        relief
                                                                                                                        they
                                                                                                                        requested
                                                                                                                        in
                                                                                                                        their
                                                                                                                        motion
                                                                                                                        to
                                                                                                                        intervene.
                                                                                                                        Therefore,
                                                                                                                        the
                                                                                                                        issues
                                                                                                                        raised
                                                                                                                        in
                                                                                                                        that
                                                                                                                        motion
                                                                                                                        had
                                                                                                                        become
                                                                                                                        moot.
  *The
                                                                                                                        Company’s
                                                                                                                        Motion
                                                                                                                        Re:
                                                                                                                        the
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        Retainer*
  After
                                                                                                                        purportedly
                                                                                                                        seizing
                                                                                                                        control
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company
                                                                                                                        on
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004,
                                                                                                                        Stephen
                                                                                                                        Parent,
                                                                                                                        acting
                                                                                                                        as
                                                                                                                        the
                                                                                                                        putative
                                                                                                                        president
                                                                                                                        of
                                                                                                                        GoldSpring,
                                                                                                                        authorized
                                                                                                                        the
                                                                                                                        payment
                                                                                                                        of
                                                                                                                        a
                                                                                                                        $250,000
                                                                                                                        retainer
                                                                                                                        to
                                                                                                                        the
                                                                                                                        law
                                                                                                                        firm
                                                                                                                        of
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        using
                                                                                                                        funds
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company.
                                                                                                                        On
                                                                                                                        March
                                                                                                                        1,
                                                                                                                        2005,
                                                                                                                        we
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        motion
                                                                                                                        for
                                                                                                                        an
                                                                                                                        order
                                                                                                                        requiring
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        to
                                                                                                                        provide
                                                                                                                        a
                                                                                                                        detailed
                                                                                                                        accounting
                                                                                                                        of
                                                                                                                        its
                                                                                                                        use
                                                                                                                        of
                                                                                                                        these
                                                                                                                        funds
                                                                                                                        and
                                                                                                                        to
                                                                                                                        refund
                                                                                                                        the
                                                                                                                        unused
                                                                                                                        portion.
  On
                                                                                                                        March
                                                                                                                        14,
                                                                                                                        2005,
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        sent
                                                                                                                        us
                                                                                                                        a
                                                                                                                        refund
                                                                                                                        check
                                                                                                                        for
                                                                                                                        $83,903.38
                                                                                                                        and
                                                                                                                        a
“ledger”
                                                                                                                        showing
                                                                                                                        how
                                                                                                                        the
                                                                                                                        firm
                                                                                                                        spent
                                                                                                                        the
                                                                                                                        other
                                                                                                                        $166,096.62.
                                                                                                                        Among
                                                                                                                        other
                                                                                                                        things,
                                                                                                                        the
                                                                                                                        ledger
                                                                                                                        revealed
                                                                                                                        that
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        withdrew
                                                                                                                        approximately
                                                                                                                        $109,000
                                                                                                                        as
                                                                                                                        payment
                                                                                                                        for
                                                                                                                        its
                                                                                                                        attorneys’
                                                                                                                        fees
                                                                                                                        and
                                                                                                                        costs.
                                                                                                                        The
                                                                                                                        ledger
                                                                                                                        also
                                                                                                                        showed
                                                                                                                        payments
                                                                                                                        to
                                                                                                                        other
                                                                                                                        lawyers
                                                                                                                        and
                                                                                                                        outside
                                                                                                                        vendors
                                                                                                                        totaling
                                                                                                                        approximately
                                                                                                                        $57,000.
                                                                                                                        Included
                                                                                                                        in
                                                                                                                        this
                                                                                                                        amount
                                                                                                                        were
                                                                                                                        two
“refund”
                                                                                                                        payments
                                                                                                                        to
                                                                                                                        Stephen
                                                                                                                        Parent
                                                                                                                        totaling
                                                                                                                        $21,000.
  We
                                                                                                                        have
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        reply
                                                                                                                        brief
                                                                                                                        asking
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        to
                                                                                                                        order
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        to
                                                                                                                        provide
                                                                                                                        a
                                                                                                                        more
                                                                                                                        detailed
                                                                                                                        accounting
                                                                                                                        of
                                                                                                                        its
                                                                                                                        expenditures,
                                                                                                                        including
                                                                                                                        billing
                                                                                                                        invoices
                                                                                                                        for
                                                                                                                        legal
                                                                                                                        services
                                                                                                                        it
                                                                                                                        purportedly
                                                                                                                        rendered
                                                                                                                        to
                                                                                                                        our
                                                                                                                        company.
                                                                                                                        We
                                                                                                                        have
                                                                                                                        also
                                                                                                                        asked
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        to
                                                                                                                        require
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        to
                                                                                                                        provide
                                                                                                                        a
                                                                                                                        written
                                                                                                                        explanation
                                                                                                                        for
                                                                                                                        the
                                                                                                                        payments
                                                                                                                        to
                                                                                                                        other
                                                                                                                        lawyers
                                                                                                                        and
                                                                                                                        outside
                                                                                                                        vendors,
                                                                                                                        as
                                                                                                                        well
                                                                                                                        as
                                                                                                                        the
                                                                                                                        so-called
                                                                                                                        refund
                                                                                                                        payments
                                                                                                                        to
                                                                                                                        Parent.
  *The
“New”
                                                                                                                        Consent
                                                                                                                        Resolutions*
  On
                                                                                                                        March
                                                                                                                        21,
                                                                                                                        2005,
                                                                                                                        Defendants
                                                                                                                        Stephen
                                                                                                                        and
                                                                                                                        Judith
                                                                                                                        Parent
                                                                                                                        filed
                                                                                                                        a
“Motion
                                                                                                                        for
                                                                                                                        Order”
                                                                                                                        asking
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        to
                                                                                                                        remove
                                                                                                                        certain
                                                                                                                        directors
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company’s
                                                                                                                        Board
                                                                                                                        of
                                                                                                                        Directors.
                                                                                                                        Attached
                                                                                                                        to
                                                                                                                        the
                                                                                                                        motion
                                                                                                                        was
                                                                                                                        a
“Consent
                                                                                                                        in
                                                                                                                        Lieu
                                                                                                                        of
                                                                                                                        a
                                                                                                                        Special
                                                                                                                        Meeting
                                                                                                                        of
                                                                                                                        the
                                                                                                                        Shareholders
                                                                                                                        of
                                                                                                                        GoldSpring,
                                                                                                                        Inc.,”
                                                                                                                        dated
                                                                                                                        March
                                                                                                                        18,
                                                                                                                        2005
                                                                                                                        (the
“March
                                                                                                                        Consent”).
                                                                                                                        The
                                                                                                                        March
                                                                                                                        Consent
                                                                                                                        was
                                                                                                                        nearly
                                                                                                                        identical
                                                                                                                        to
                                                                                                                        the
                                                                                                                        one
                                                                                                                        adopted
                                                                                                                        by
                                                                                                                        the
                                                                                                                        Parents
                                                                                                                        and
                                                                                                                        others
                                                                                                                        on
                                                                                                                        December
                                                                                                                        9,
                                                                                                                        2004.
                                                                                                                        It
                                                                                                                        purported
                                                                                                                        to
                                                                                                                        remove
                                                                                                                        directors
                                                                                                                        Robert
                                                                                                                        T.
                                                                                                                        Faber,
                                                                                                                        John
                                                                                                                        F.
                                                                                                                        Cook,
                                                                                                                        Leslie
                                                                                                                        L.
                                                                                                                        Cahan,
                                                                                                                        Todd
                                                                                                                        S.
                                                                                                                        Brown,
                                                                                                                        Christopher
                                                                                                                        L.
                                                                                                                        Aguilar,
                                                                                                                        Stanley
                                                                                                                        A.
                                                                                                                        Hirschman,
                                                                                                                        and
                                                                                                                        Phillip
                                                                                                                        E.
                                                                                                                        Pierce
                                                                                                                        as
                                                                                                                        directors
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company.
                                                                                                                        The
                                                                                                                        March
                                                                                                                        Consent
                                                                                                                        was
                                                                                                                        signed
                                                                                                                        by
                                                                                                                        shareholders
                                                                                                                        Stephen
                                                                                                                        Parent;
                                                                                                                        Judith
                                                                                                                        Parent;
                                                                                                                        Aztech
                                                                                                                        Environmental
                                                                                                                        Industries,
                                                                                                                        Inc.;
                                                                                                                        Jasmine
                                                                                                                        House,
                                                                                                                        LLC;
                                                                                                                        Frontline
                                                                                                                        2001,
                                                                                                                        LLC;
                                                                                                                        Jubilee
                                                                                                                        Investment
                                                                                                                        Trust
                                                                                                                        PLC;
                                                                                                                        Ronald
                                                                                                                        M.
                                                                                                                        Haswell;
                                                                                                                        Mark
                                                                                                                        and
                                                                                                                        Jennifer
                                                                                                                        Ward;
                                                                                                                        Walter
                                                                                                                        T.
                                                                                                                        Plummer;
                                                                                                                        Lynn
                                                                                                                        Zollinger;
                                                                                                                        Maia
                                                                                                                        Ray;
                                                                                                                        and
                                                                                                                        Rita
                                                                                                                        Hardy.
  On
                                                                                                                        March
                                                                                                                        25,
                                                                                                                        2005,
                                                                                                                        our
                                                                                                                        company
                                                                                                                        and
                                                                                                                        the
                                                                                                                        Plaintiffs
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        joint
                                                                                                                        response
                                                                                                                        to
                                                                                                                        the
                                                                                                                        Parents’
                                                                                                                        Motion
                                                                                                                        for
                                                                                                                        Order.
                                                                                                                        In
                                                                                                                        it,
                                                                                                                        we
                                                                                                                        argued
                                                                                                                        that
                                                                                                                        (1)
                                                                                                                        the
                                                                                                                        shareholders
                                                                                                                        who
                                                                                                                        signed
                                                                                                                        the
                                                                                                                        March
                                                                                                                        Consent
                                                                                                                        did
                                                                                                                        not
                                                                                                                        hold
                                                                                                                        a
                                                                                                                        majority
                                                                                                                        of
                                                                                                                        our
                                                                                                                        company’s
                                                                                                                        stock,
                                                                                                                        which
                                                                                                                        rendered
                                                                                                                        the
                                                                                                                        Consent
                                                                                                                        ineffective;
                                                                                                                        (2)
                                                                                                                        the
                                                                                                                        Parents
                                                                                                                        solicited
                                                                                                                        more
                                                                                                                        than
                                                                                                                        ten
                                                                                                                        shareholders,
                                                                                                                        and
                                                                                                                        therefore
                                                                                                                        violated
                                                                                                                        Securities
                                                                                                                        and
                                                                                                                        Exchange
                                                                                                                        Commission
                                                                                                                        Rule
                                                                                                                        14a;
                                                                                                                        and
                                                                                                                        (3)
                                                                                                                        the
                                                                                                                        Parents
                                                                                                                        cannot
                                                                                                                        obtain
                                                                                                                        the
                                                                                                                        relief
                                                                                                                        they
                                                                                                                        seek
                                                                                                                        because
                                                                                                                        they
                                                                                                                        have
                                                                                                                        not
                                                                                                                        asserted
                                                                                                                        an
                                                                                                                        affirmative
                                                                                                                        claim
                                                                                                                        in
                                                                                                                        court.
  The
                                                                                                                        Parents
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        reply
                                                                                                                        and
                                                                                                                        supplemental
                                                                                                                        reply
                                                                                                                        on
                                                                                                                        March
                                                                                                                        20,
                                                                                                                        2005,
                                                                                                                        and
                                                                                                                        April
                                                                                                                        11,
                                                                                                                        2005,
                                                                                                                        respectively.
                                                                                                                        In
                                                                                                                        the
                                                                                                                        reply,
                                                                                                                        the
                                                                                                                        Parents
                                                                                                                        argued
                                                                                                                        that
                                                                                                                        the
                                                                                                                        shareholders
                                                                                                                        who
                                                                                                                        signed
                                                                                                                        the
                                                                                                                        Consent
                                                                                                                        do,
                                                                                                                        in
                                                                                                                        fact,
                                                                                                                        hold
                                                                                                                        a
                                                                                                                        majority
                                                                                                                        of
                                                                                                                        the
                                                                                                                        outstanding
                                                                                                                        shares
                                                                                                                        as
                                                                                                                        of
                                                                                                                        the
                                                                                                                        date
                                                                                                                        it
                                                                                                                        was
                                                                                                                        executed,
                                                                                                                        and
                                                                                                                        that
                                                                                                                        any
                                                                                                                        shares
                                                                                                                        issued
                                                                                                                        after
                                                                                                                        that
                                                                                                                        date
                                                                                                                        are
                                                                                                                        not
                                                                                                                        to
                                                                                                                        be
                                                                                                                        counted.
                                                                                                                        They
                                                                                                                        also
                                                                                                                        denied
                                                                                                                        having
                                                                                                                        solicited
                                                                                                                        more
                                                                                                                        than
                                                                                                                        ten
                                                                                                                        persons
                                                                                                                        and
                                                                                                                        denied
                                                                                                                        any
                                                                                                                        obligation
                                                                                                                        to
                                                                                                                        state
                                                                                                                        an
                                                                                                                        affirmative
                                                                                                                        claim
                                                                                                                        before
                                                                                                                        seeking
                                                                                                                        the
                                                                                                                        relief
                                                                                                                        asked
                                                                                                                        for
                                                                                                                        in
                                                                                                                        their
                                                                                                                        motion.
                                                                                                                        In
                                                                                                                        their
                                                                                                                        supplemental
                                                                                                                        reply,
                                                                                                                        the
                                                                                                                        Parents
                                                                                                                        referred
                                                                                                                        to
                                                                                                                        our
                                                                                                                        company’s
                                                                                                                        recent
                                                                                                                        Form
                                                                                                                        8-K
                                                                                                                        filing
                                                                                                                        (the
“8-K”)
                                                                                                                        with
                                                                                                                        the
                                                                                                                        Securities
                                                                                                                        and
                                                                                                                        Exchange
                                                                                                                        Commission.
                                                                                                                        In
                                                                                                                        the
                                                                                                                        8-K,
                                                                                                                        we
                                                                                                                        disclosed
                                                                                                                        that
                                                                                                                        our
                                                                                                                        company
                                                                                                                        had
                                                                                                                        issued
                                                                                                                        (1)
                                                                                                                        59,203,918
                                                                                                                        shares
                                                                                                                        of
                                                                                                                        restricted
                                                                                                                        common
                                                                                                                        stock
                                                                                                                        in
                                                                                                                        connection
                                                                                                                        with
                                                                                                                        the
                                                                                                                        Settlement
                                                                                                                        Agreement
                                                                                                                        Regarding
                                                                                                                        Failure
                                                                                                                        to
                                                                                                                        File
                                                                                                                        a
                                                                                                                        Registration
                                                                                                                        Statement;
                                                                                                                        (2)
                                                                                                                        six
                                                                                                                        secured
                                                                                                                        convertible
                                                                                                                        notes
                                                                                                                        in
                                                                                                                        an
                                                                                                                        aggregate
                                                                                                                        amount
                                                                                                                        of
                                                                                                                        $6,584,005
                                                                                                                        in
                                                                                                                        connection
                                                                                                                        with
                                                                                                                        the
                                                                                                                        Settlement
                                                                                                                        Agreement
                                                                                                                        Regarding
                                                                                                                        Mandatory
                                                                                                                        Redemption
                                                                                                                        Payment;
                                                                                                                        and
                                                                                                                        (3)
                                                                                                                        convertible
                                                                                                                        notes
                                                                                                                        in
                                                                                                                        the
                                                                                                                        amount
                                                                                                                        of
                                                                                                                        $403,175
                                                                                                                        in
                                                                                                                        connection
                                                                                                                        with
                                                                                                                        the
                                                                                                                        Settlement
                                                                                                                        Agreement
                                                                                                                        Regarding
                                                                                                                        Failure
                                                                                                                        to
                                                                                                                        deliver
                                                                                                                        shares
                                                                                                                        due
                                                                                                                        upon
                                                                                                                        conversion.
                                                                                                                        The
                                                                                                                        Parents
                                                                                                                        contended
                                                                                                                        that
                                                                                                                        the
                                                                                                                        transactions
                                                                                                                        referred
                                                                                                                        to
                                                                                                                        in
                                                                                                                        the
                                                                                                                        8-K
                                                                                                                        constituted
                                                                                                                        an
                                                                                                                        unfair
                                                                                                                        dilution
                                                                                                                        of
                                                                                                                        the
“non-Merriman
                                                                                                                        shareholders’”
                                                                                                                        stock
                                                                                                                        holdings.
  10
  On
                                                                                                                        April
                                                                                                                        20,
                                                                                                                        2005,
                                                                                                                        we
                                                                                                                        filed
                                                                                                                        a
                                                                                                                        Supplemental
                                                                                                                        Notice
                                                                                                                        to
                                                                                                                        inform
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        that
                                                                                                                        Messrs.
                                                                                                                        Gasch
                                                                                                                        and
                                                                                                                        Medhi
                                                                                                                        do
                                                                                                                        not
                                                                                                                        support
                                                                                                                        the
                                                                                                                        March
                                                                                                                        Consent.
                                                                                                                        In
                                                                                                                        addition,
                                                                                                                        we
                                                                                                                        informed
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        that
                                                                                                                        Mr.
                                                                                                                        Gasch
                                                                                                                        had
                                                                                                                        signed
                                                                                                                        a
                                                                                                                        Declaration
                                                                                                                        that
                                                                                                                        (1)
                                                                                                                        Mr.
                                                                                                                        Gasch
                                                                                                                        never
                                                                                                                        agreed
                                                                                                                        to
                                                                                                                        serve
                                                                                                                        on
                                                                                                                        the
                                                                                                                        proposed
                                                                                                                        board
                                                                                                                        of
                                                                                                                        directors
                                                                                                                        contemplated
                                                                                                                        by
                                                                                                                        the
                                                                                                                        March
                                                                                                                        Consent,
                                                                                                                        (2)
                                                                                                                        that
                                                                                                                        Mr.
                                                                                                                        Gasch
                                                                                                                        does
                                                                                                                        not
                                                                                                                        support
                                                                                                                        the
                                                                                                                        March
                                                                                                                        Consent
                                                                                                                        and,
                                                                                                                        if
                                                                                                                        the
                                                                                                                        March
                                                                                                                        Consent
                                                                                                                        constituted
                                                                                                                        a
                                                                                                                        valid
                                                                                                                        shareholder
                                                                                                                        resolution
                                                                                                                        (which
                                                                                                                        we
                                                                                                                        do
                                                                                                                        not
                                                                                                                        believe)
                                                                                                                        Mr.
                                                                                                                        Gasch
                                                                                                                        would
                                                                                                                        immediately
                                                                                                                        vote
                                                                                                                        to
                                                                                                                        reinstate
                                                                                                                        the
                                                                                                                        entire
                                                                                                                        Board
                                                                                                                        of
                                                                                                                        Directors
                                                                                                                        as
                                                                                                                        it
                                                                                                                        currently
                                                                                                                        exists,
                                                                                                                        (3)
                                                                                                                        Mr.
                                                                                                                        Gasch
                                                                                                                        denounces
                                                                                                                        and
                                                                                                                        rescinds
                                                                                                                        the
                                                                                                                        purported
                                                                                                                        Director’s
                                                                                                                        Consent
                                                                                                                        Resolutions
                                                                                                                        dated
                                                                                                                        December
                                                                                                                        10,
                                                                                                                        2004
                                                                                                                        and
                                                                                                                        no
                                                                                                                        longer
                                                                                                                        supports
                                                                                                                        any
                                                                                                                        of
                                                                                                                        the
                                                                                                                        resolutions
                                                                                                                        or
                                                                                                                        purported
                                                                                                                        corporate
                                                                                                                        actions
                                                                                                                        contemplated
                                                                                                                        in
                                                                                                                        that
                                                                                                                        purported
                                                                                                                        consent,
                                                                                                                        and
                                                                                                                        (4)
                                                                                                                        Mr.
                                                                                                                        Gasch
                                                                                                                        has
                                                                                                                        terminated
                                                                                                                        Gust
                                                                                                                        Rosenfeld
                                                                                                                        as
                                                                                                                        his
                                                                                                                        counsel
                                                                                                                        because
                                                                                                                        he
                                                                                                                        no
                                                                                                                        longer
                                                                                                                        wishes
                                                                                                                        to
                                                                                                                        be
                                                                                                                        associated
                                                                                                                        with
                                                                                                                        or
                                                                                                                        share
                                                                                                                        joint
                                                                                                                        representation
                                                                                                                        with
                                                                                                                        Mr.
                                                                                                                        Parent.
                                                                                                                        Mr.
                                                                                                                        Medhi
                                                                                                                        also
                                                                                                                        informed
                                                                                                                        us
                                                                                                                        that
                                                                                                                        he
                                                                                                                        resigned
                                                                                                                        as
                                                                                                                        a
                                                                                                                        director
                                                                                                                        of
                                                                                                                        our
                                                                                                                        Board
                                                                                                                        of
                                                                                                                        Directors
                                                                                                                        as
                                                                                                                        currently
                                                                                                                        constituted
                                                                                                                        and
                                                                                                                        as
                                                                                                                        a
                                                                                                                        member
                                                                                                                        of
                                                                                                                        the
                                                                                                                        board
                                                                                                                        of
                                                                                                                        directors
                                                                                                                        designated
                                                                                                                        by
                                                                                                                        earlier
                                                                                                                        consent
                                                                                                                        resolution.
                                                                                                                        We
                                                                                                                        informed
                                                                                                                        the
                                                                                                                        Court
                                                                                                                        that
                                                                                                                        these
                                                                                                                        developments
                                                                                                                        constitute
                                                                                                                        additional
                                                                                                                        reasons
                                                                                                                        to
                                                                                                                        deny
                                                                                                                        the
                                                                                                                        Parents’
                                                                                                                        motion.
  **Item
                                                                                                                        2.**  **Unregistered
                                                                                                                        Sales
                                                                                                                        of
                                                                                                                        Equity
                                                                                                                        Securities
                                                                                                                        and
                                                                                                                        Use
                                                                                                                        of
                                                                                                                        Proceeds**
  Not
                                                                                                                        applicable.
 **Item
                                                                                                                            3.**  **Defaults
                                                                                                                            Upon
                                                                                                                            Senior
                                                                                                                            Securities**
  Under
                                                                                                                              the
                                                                                                                              terms
                                                                                                                              of
                                                                                                                              our
                                                                                                                              November
                                                                                                                              2004
                                                                                                                              subscription
                                                                                                                              agreement,
                                                                                                                              we
                                                                                                                              issued
                                                                                                                              8%
                                                                                                                              convertible
                                                                                                                              notes
                                                                                                                              to
                                                                                                                              an
                                                                                                                              investor
                                                                                                                              group.
                                                                                                                              Under
                                                                                                                              the
                                                                                                                              terms
                                                                                                                              of
                                                                                                                              the
                                                                                                                              notes,
                                                                                                                              our
                                                                                                                              first
                                                                                                                              principal
                                                                                                                              and
                                                                                                                              interest
                                                                                                                              repayment
                                                                                                                              was
                                                                                                                              scheduled
                                                                                                                              for
                                                                                                                              April
                                                                                                                              1,
                                                                                                                              2005.
                                                                                                                              Prior
                                                                                                                              to
                                                                                                                              April
                                                                                                                              1,
                                                                                                                              2005,
                                                                                                                              knowing
                                                                                                                              that
                                                                                                                              we
                                                                                                                              did
                                                                                                                              not
                                                                                                                              have
                                                                                                                              sufficient
                                                                                                                              cash
                                                                                                                              available
                                                                                                                              to
                                                                                                                              meet
                                                                                                                              these
                                                                                                                              obligations,
                                                                                                                              we
                                                                                                                              began
                                                                                                                              negotiations
                                                                                                                              with
                                                                                                                              the
                                                                                                                              major
                                                                                                                              note
                                                                                                                              holders
                                                                                                                              in
                                                                                                                              an
                                                                                                                              effort
                                                                                                                              to
                                                                                                                              delay
                                                                                                                              repayment
                                                                                                                              of
                                                                                                                              both
                                                                                                                              the
                                                                                                                              principal
                                                                                                                              and
                                                                                                                              interest
                                                                                                                              amounts
                                                                                                                              for
                                                                                                                              a
                                                                                                                              12-month
                                                                                                                              period.
                                                                                                                              Our
                                                                                                                              negotiations
                                                                                                                              with
                                                                                                                              these
                                                                                                                              note
                                                                                                                              holders
                                                                                                                              regarding
                                                                                                                              the
                                                                                                                              repayment
                                                                                                                              delay
                                                                                                                              have
                                                                                                                              so
                                                                                                                              far
                                                                                                                              been
                                                                                                                              successful
                                                                                                                              and
                                                                                                                              we
                                                                                                                              have
                                                                                                                              reached
                                                                                                                              a
                                                                                                                              tentative
                                                                                                                              agreement
                                                                                                                              regarding
                                                                                                                              the
                                                                                                                              12-month
                                                                                                                              payment
                                                                                                                              deferral.
                                                                                                                              We
                                                                                                                              remain
                                                                                                                              optimistic
                                                                                                                              that
                                                                                                                              we
                                                                                                                              will
                                                                                                                              reach
                                                                                                                              a
                                                                                                                              definitive
                                                                                                                              agreement.
                                                                                                                              However,
                                                                                                                              in
                                                                                                                              the
                                                                                                                              event
                                                                                                                              we
                                                                                                                              are
                                                                                                                              not
                                                                                                                              successful
                                                                                                                              in
                                                                                                                              achieving
                                                                                                                              a
                                                                                                                              payment
                                                                                                                              deferral,
                                                                                                                              we
                                                                                                                              will
                                                                                                                              be
                                                                                                                              unable
                                                                                                                              to
                                                                                                                              meet
                                                                                                                              the
                                                                                                                              current
                                                                                                                              note
                                                                                                                              obligations.
                                                                                                                              While
                                                                                                                              failure
                                                                                                                              to
                                                                                                                              reach
                                                                                                                              a
                                                                                                                              resolution
                                                                                                                              would
                                                                                                                              likely
                                                                                                                              cause
                                                                                                                              us
                                                                                                                              to
                                                                                                                              seek
                                                                                                                              external
                                                                                                                              funding
                                                                                                                              in
                                                                                                                              order
                                                                                                                              to
                                                                                                                              meet
                                                                                                                              our
                                                                                                                              obligation,
                                                                                                                              there
                                                                                                                              can
                                                                                                                              be
                                                                                                                              no
                                                                                                                              assurance
                                                                                                                              that
                                                                                                                              such
                                                                                                                              funding
                                                                                                                              would
                                                                                                                              be
                                                                                                                              available.
                                                                                                                              If
                                                                                                                              such
                                                                                                                              funding
                                                                                                                              were
                                                                                                                              not
                                                                                                                              available,
                                                                                                                              we
                                                                                                                              might
                                                                                                                              have
                                                                                                                              no
                                                                                                                              alternative
                                                                                                                              other
                                                                                                                              than
                                                                                                                              to
                                                                                                                              default
                                                                                                                              on
                                                                                                                              these
                                                                                                                              notes.
  **Item
                                                                                                                                4.**  **Submission
                                                                                                                                of
                                                                                                                                Matters
                                                                                                                                to
                                                                                                                                a
                                                                                                                                Vote
                                                                                                                                of
                                                                                                                                Security
                                                                                                                                Holders**
  Not
                                                                                                                                  applicable.
  **Item
                                                                                                                                    5.**  **Other
                                                                                                                                    Information**
  Not
                                                                                                                                      applicable.
  **Item
                                                                                                                                        6.**  **Exhibits
                                                                                                                                        and
                                                                                                                                        Reports
                                                                                                                                        on
                                                                                                                                        Form
                                                                                                                                        8-K**
  (a)
                                                                                                                                              The
                                                                                                                                                  following
                                                                                                                                                  documents
                                                                                                                                                  are
                                                                                                                                                  filed
                                                                                                                                                  as
                                                                                                                                                  part
                                                                                                                                                  of
                                                                                                                                                  this
                                                                                                                                                  Report:
  (1)
                                                                                                                                              Financial
                                                                                                                                                  statements
                                                                                                                                                  filed
                                                                                                                                                  as
                                                                                                                                                  part
                                                                                                                                                  of
                                                                                                                                                  this
                                                                                                                                                  Report:
  ·
                                                                                                                                              Consolidated
                                                                                                                                                  Balance
                                                                                                                                                  Sheet
                                                                                                                                                  as
                                                                                                                                                  of
                                                                                                                                                  June
                                                                                                                                                  30,
                                                                                                                                                  2005
                                                                                                                                                  (Unaudited)
  ·
                                                                                                                                              Consolidated
                                                                                                                                                  Statements
                                                                                                                                                  of
                                                                                                                                                  Operations
                                                                                                                                                  for
                                                                                                                                                  the
                                                                                                                                                  three
                                                                                                                                                  month
                                                                                                                                                  periods
                                                                                                                                                  ended
                                                                                                                                                  June
                                                                                                                                                  30,
                                                                                                                                                  2005
                                                                                                                                                  and
                                                                                                                                                  2004
                                                                                                                                                  (Unaudited)
  ·
                                                                                                                                              Consolidated
                                                                                                                                                  Statements
                                                                                                                                                  of
                                                                                                                                                  Operations
                                                                                                                                                  for
                                                                                                                                                  the
                                                                                                                                                  six
                                                                                                                                                  month
                                                                                                                                                  periods
                                                                                                                                                  ended
                                                                                                                                                  June
                                                                                                                                                  30,
                                                                                                                                                  2005
                                                                                                                                                  and
                                                                                                                                                  2004
                                                                                                                                                  (Unaudited)
  ·
                                                                                                                                              Consolidated
                                                                                                                                                  Statements
                                                                                                                                                  of
                                                                                                                                                  Cash
                                                                                                                                                  Flows
                                                                                                                                                  for
                                                                                                                                                  the
                                                                                                                                                  periods
                                                                                                                                                  ended
                                                                                                                                                  June
                                                                                                                                                  30,
                                                                                                                                                  2005
                                                                                                                                                  and
                                                                                                                                                  2004
                                                                                                                                                  (Unaudited)
  ·
                                                                                                                                              Notes
                                                                                                                                                  to
                                                                                                                                                  Financial
                                                                                                                                                  Statements
  11
  (2)  Exhibits
                                                                                                                                        filed
                                                                                                                                        as
                                                                                                                                        part
                                                                                                                                        of
                                                                                                                                        this
                                                                                                                                        Report:
   Exhibit Number
                                                                                                                                              Exhibit10.8(c)
                                                                                                                                              
                                                                                                                                              Funds
                                                                                                                                                Escrow
                                                                                                                                                Agreement,
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                March
                                                                                                                                                31,
                                                                                                                                                2005
                                                                                                                                                among
                                                                                                                                                the
                                                                                                                                                Registrant,
                                                                                                                                                the
                                                                                                                                                subscriber
                                                                                                                                                parties
                                                                                                                                                thereto,
                                                                                                                                                and
                                                                                                                                                the
                                                                                                                                                escrow
                                                                                                                                                agent10.9
                                                                                                                                              
                                                                                                                                              Settlement
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                March
                                                                                                                                                29,
                                                                                                                                                2005
                                                                                                                                                by
                                                                                                                                                and
                                                                                                                                                among
                                                                                                                                                the
                                                                                                                                                Registrant
                                                                                                                                                and
                                                                                                                                                the
                                                                                                                                                subscriber
                                                                                                                                                parties
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                Subscription
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                November
                                                                                                                                                30,
                                                                                                                                                2004
                                                                                                                                                related
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                payment
                                                                                                                                                of
                                                                                                                                                liquidated
                                                                                                                                                damages
                                                                                                                                                incurred
                                                                                                                                                for
                                                                                                                                                Registrant’s
                                                                                                                                                failure
                                                                                                                                                to
                                                                                                                                                have
                                                                                                                                                an
                                                                                                                                                effective
                                                                                                                                                registration
                                                                                                                                                statement10.10
                                                                                                                                              
                                                                                                                                              Settlement
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                March
                                                                                                                                                31,
                                                                                                                                                2005
                                                                                                                                                by
                                                                                                                                                and
                                                                                                                                                among
                                                                                                                                                the
                                                                                                                                                Registrant
                                                                                                                                                and
                                                                                                                                                certain
                                                                                                                                                subscriber
                                                                                                                                                parties
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                Subscription
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                November
                                                                                                                                                30,
                                                                                                                                                2004
                                                                                                                                                related
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                payment
                                                                                                                                                of
                                                                                                                                                a
                                                                                                                                                mandatory
                                                                                                                                                redemption
                                                                                                                                                payment
                                                                                                                                                demand
                                                                                                                                                incurred
                                                                                                                                                for
                                                                                                                                                Registrant’s
                                                                                                                                                failure
                                                                                                                                                to
                                                                                                                                                deliver
                                                                                                                                                shares
                                                                                                                                                following
                                                                                                                                                Registrant’s
                                                                                                                                                receipt
                                                                                                                                                of
                                                                                                                                                Notices
                                                                                                                                                of
                                                                                                                                                Conversion10.11
                                                                                                                                              
                                                                                                                                              Settlement
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                March
                                                                                                                                                31,
                                                                                                                                                2005
                                                                                                                                                by
                                                                                                                                                and
                                                                                                                                                among
                                                                                                                                                the
                                                                                                                                                Registrant
                                                                                                                                                and
                                                                                                                                                certain
                                                                                                                                                subscriber
                                                                                                                                                parties
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                Subscription
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                November
                                                                                                                                                30,
                                                                                                                                                2004
                                                                                                                                                related
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                payment
                                                                                                                                                of
                                                                                                                                                liquidated
                                                                                                                                                damages
                                                                                                                                                incurred
                                                                                                                                                for
                                                                                                                                                Registrant’s
                                                                                                                                                failure
                                                                                                                                                to
                                                                                                                                                deliver
                                                                                                                                                shares
                                                                                                                                                following
                                                                                                                                                Registrant’s
                                                                                                                                                receipt
                                                                                                                                                of
                                                                                                                                                Notices
                                                                                                                                                of
                                                                                                                                                Conversion10.12
                                                                                                                                              
                                                                                                                                              Security
                                                                                                                                                Agreement,
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                March
                                                                                                                                                31,
                                                                                                                                                2005,
                                                                                                                                                by
                                                                                                                                                and
                                                                                                                                                among
                                                                                                                                                the
                                                                                                                                                Registrant
                                                                                                                                                and
                                                                                                                                                the
                                                                                                                                                parties
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                Settlement
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                March
                                                                                                                                                31,
                                                                                                                                                2005
                                                                                                                                                related
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                payment
                                                                                                                                                of
                                                                                                                                                a
                                                                                                                                                mandatory
                                                                                                                                                redemption
                                                                                                                                                payment
                                                                                                                                                demand
                                                                                                                                                incurred
                                                                                                                                                for
                                                                                                                                                Registrant’s
                                                                                                                                                failure
                                                                                                                                                to
                                                                                                                                                deliver
                                                                                                                                                shares
                                                                                                                                                following
                                                                                                                                                Registrant’s
                                                                                                                                                receipt
                                                                                                                                                of
                                                                                                                                                Notices
                                                                                                                                                of
                                                                                                                                                Conversion10.13
                                                                                                                                              
                                                                                                                                              Form
                                                                                                                                                of
                                                                                                                                                Secured
                                                                                                                                                Convertible
                                                                                                                                                Debenture,
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                March
                                                                                                                                                31,
                                                                                                                                                2005
                                                                                                                                                issued
                                                                                                                                                by
                                                                                                                                                the
                                                                                                                                                Registrant
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                subscribers10.14
                                                                                                                                              
                                                                                                                                              Form
                                                                                                                                                of
                                                                                                                                                Convertible
                                                                                                                                                Note,
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                March
                                                                                                                                                31,
                                                                                                                                                2005
                                                                                                                                                issued
                                                                                                                                                by
                                                                                                                                                Registrant
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                subscribers10.15
                                                                                                                                              
                                                                                                                                              Loan
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                July
                                                                                                                                                15,
                                                                                                                                                2005
                                                                                                                                                by
                                                                                                                                                and
                                                                                                                                                among
                                                                                                                                                the
                                                                                                                                                Registrant
                                                                                                                                                and
                                                                                                                                                the
                                                                                                                                                subscriber
                                                                                                                                                parties
                                                                                                                                                thereto10.16
                                                                                                                                              
                                                                                                                                              Security
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                July
                                                                                                                                                15,
                                                                                                                                                2005
                                                                                                                                                by
                                                                                                                                                and
                                                                                                                                                among
                                                                                                                                                the
                                                                                                                                                Registrant
                                                                                                                                                and
                                                                                                                                                the
                                                                                                                                                subscriber
                                                                                                                                                parties
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                Loan
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                July
                                                                                                                                                15,
                                                                                                                                                200510.17
                                                                                                                                              
                                                                                                                                              Form
                                                                                                                                                of
                                                                                                                                                Promissory
                                                                                                                                                Note,
                                                                                                                                                dated
                                                                                                                                                as
                                                                                                                                                of
                                                                                                                                                July
                                                                                                                                                15,
                                                                                                                                                2005
                                                                                                                                                issued
                                                                                                                                                by
                                                                                                                                                the
                                                                                                                                                Registrant
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                subscribers
                                                                                                                                                to
                                                                                                                                                the
                                                                                                                                                Loan
                                                                                                                                                Agreement
                                                                                                                                                dated
                                                                                                                                                July
                                                                                                                                                15,
                                                                                                                                                200531.1
                                                                                                                                              
                                                                                                                                              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
                                                                                                                                                amended31.2
                                                                                                                                              
                                                                                                                                              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
                                                                                                                                                amended32.1
                                                                                                                                              
                                                                                                                                              Certification
                                                                                                                                                pursuant
                                                                                                                                                to
                                                                                                                                                18
                                                                                                                                                U.S.C.
                                                                                                                                                Section
                                                                                                                                                1350,
                                                                                                                                                as
                                                                                                                                                adopted
                                                                                                                                                pursuant
                                                                                                                                                to
                                                                                                                                                Section
                                                                                                                                                906
                                                                                                                                                of
                                                                                                                                                the
                                                                                                                                                Sarbanes-Oxley
                                                                                                                                                Act
                                                                                                                                                of
                                                                                                                                                200232.2
                                                                                                                                              
                                                                                                                                              Certification
                                                                                                                                                pursuant
                                                                                                                                                to
                                                                                                                                                18
                                                                                                                                                U.S.C.
                                                                                                                                                Section
                                                                                                                                                1350,
                                                                                                                                                as
                                                                                                                                                adopted
                                                                                                                                                pursuant
                                                                                                                                                to
                                                                                                                                                Section
                                                                                                                                                906
                                                                                                                                                of
                                                                                                                                                the
                                                                                                                                                Sarbanes-Oxley
                                                                                                                                                Act
                                                                                                                                                of
                                                                                                                                                2002
  (b)  Reports
                                                                                                                                        filed
                                                                                                                                        on
                                                                                                                                        Form
                                                                                                                                        8-K
                                                                                                                                        during
                                                                                                                                        the
                                                                                                                                        quarter
                                                                                                                                        ended
                                                                                                                                        June
                                                                                                                                        30,
                                                                                                                                        2005:
  (1)
                                                                                                                                              A
                                                                                                                                                  Report
                                                                                                                                                  on
                                                                                                                                                  Form
                                                                                                                                                  8-K
                                                                                                                                                  was
                                                                                                                                                  filed
                                                                                                                                                  with
                                                                                                                                                  the
                                                                                                                                                  Securities
                                                                                                                                                  and
                                                                                                                                                  Exchange
                                                                                                                                                  Commission
                                                                                                                                                  on
                                                                                                                                                  April
                                                                                                                                                  6,
                                                                                                                                                  2005
                                                                                                                                                  under
                                                                                                                                                  Item
                                                                                                                                                  1.01
                                                                                                                                                  relating
                                                                                                                                                  to
                                                                                                                                                  our
                                                                                                                                                  entry
                                                                                                                                                  into
                                                                                                                                                  three
                                                                                                                                                  settlement
                                                                                                                                                  agreements
                                                                                                                                                  concerning
                                                                                                                                                  liquidated
                                                                                                                                                  damages
                                                                                                                                                  owed
                                                                                                                                                  to
                                                                                                                                                  certain
                                                                                                                                                  investors
                                                                                                                                                  pursuant
                                                                                                                                                  to
                                                                                                                                                  our
                                                                                                                                                  November
                                                                                                                                                  30,
                                                                                                                                                  2004
                                                                                                                                                  subscription
                                                                                                                                                  agreement.
                                                                                                                                                  A
                                                                                                                                                  disclosure
                                                                                                                                                  was
                                                                                                                                                  also
                                                                                                                                                  made
                                                                                                                                                  in
                                                                                                                                                  this
                                                                                                                                                  report
                                                                                                                                                  under
                                                                                                                                                  Item
                                                                                                                                                  3.02
                                                                                                                                                  relating
                                                                                                                                                  to
                                                                                                                                                  our
                                                                                                                                                  issuance
                                                                                                                                                  of
                                                                                                                                                  securities
                                                                                                                                                  in
                                                                                                                                                  connection
                                                                                                                                                  with
                                                                                                                                                  the
                                                                                                                                                  settlement
                                                                                                                                                  agreements.
  (2)
                                                                                                                                              A
                                                                                                                                                  Report
                                                                                                                                                  on
                                                                                                                                                  Form
                                                                                                                                                  8-K
                                                                                                                                                  was
                                                                                                                                                  filed
                                                                                                                                                  with
                                                                                                                                                  the
                                                                                                                                                  Securities
                                                                                                                                                  and
                                                                                                                                                  Exchange
                                                                                                                                                  Commission
                                                                                                                                                  on
                                                                                                                                                  April
                                                                                                                                                  14,
                                                                                                                                                  2005
                                                                                                                                                  under
                                                                                                                                                  Item
                                                                                                                                                  5.02
                                                                                                                                                  relating
                                                                                                                                                  to
                                                                                                                                                  the
                                                                                                                                                  resignation
                                                                                                                                                  of
                                                                                                                                                  one
                                                                                                                                                  of
                                                                                                                                                  our
                                                                                                                                                  directors,
                                                                                                                                                  P.K.
                                                                                                                                                  Rana
                                                                                                                                                  Medhi.
                                                                                                                                                  Mr. Medhi
                                                                                                                                                  expressed
                                                                                                                                                  no
                                                                                                                                                  disagreements
                                                                                                                                                  with
                                                                                                                                                  the
                                                                                                                                                  Company
                                                                                                                                                  in
                                                                                                                                                  tendering
                                                                                                                                                  his
                                                                                                                                                  resignation.
  12
 **SIGNATURES**
 Pursuant
                                                                                                                                              to
                                                                                                                                              the
                                                                                                                                              requirements
                                                                                                                                              of
                                                                                                                                              the
                                                                                                                                              Securities
                                                                                                                                              Exchange
                                                                                                                                              Act
                                                                                                                                              of
                                                                                                                                              1934,
                                                                                                                                              the
                                                                                                                                              registrant
                                                                                                                                              has
                                                                                                                                              duly
                                                                                                                                              caused
                                                                                                                                              this
                                                                                                                                              report
                                                                                                                                              to
                                                                                                                                              be
                                                                                                                                              signed
                                                                                                                                              on
                                                                                                                                              its
                                                                                                                                              behalf
                                                                                                                                              by
                                                                                                                                              the
                                                                                                                                              undersigned,
                                                                                                                                              thereunto
                                                                                                                                              duly
                                                                                                                                              authorized.
  Date:August
                                                                                                                                                      15,
                                                                                                                                                      2005
                                                                                                                                                    
                                                                                                                                                    GOLDSPRING,
                                                                                                                                                      INC.(Registrant)By:/s/
                                                                                                                                                      Robert
                                                                                                                                                      T.
                                                                                                                                                      FaberName:Robert
                                                                                                                                                      T.
                                                                                                                                                      FaberTitle:President
                                                                                                                                                      and
                                                                                                                                                      Chief
                                                                                                                                                      Executive
                                                                                                                                                      OfficerBy:/s/
                                                                                                                                                      Robert
                                                                                                                                                      T.
                                                                                                                                                      FaberName:Robert
                                                                                                                                                      T.
                                                                                                                                                      FaberTitle:Chief
                                                                                                                                                      Financial
                                                                                                                                                      Officer
 
 13