FORM 10-Q




(Mark
One)


x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the Quarterly Period Ended March 31, 2009




OR





o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
transition period from ______________ to ______________




Commission
File No. 000-32429





GOLDSPRING, INC.


(Exact
name of small business issuer as specified in its charter)





FLORIDA
              1081
              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


(Address
of principal executive offices)


(775)
847-5272


(Registrant’s telephone number,
including area code)





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):





Large
accelerated filer o        Accelerated
filer x


o Non-accelerated
filer       o Smaller reporting
company




Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, everyInteractive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during thepreceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).YesoNooNot applicable.




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes o No x




The
number of shares of Common Stock, $0.000666 par value, of the registrant
outstanding at May 7, 2009 was 3,487,847,312.










Table of
Contents




TABLE OF
CONTENTS





PART
      I.
                3Item
      1. Financial Statements.
                3CONDENSED
      CONSOLIDATED BALANCE SHEETS
                3CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS
                5CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
                6CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
                7NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                9Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
                28Item
      4. Controls and Procedures.
                34PART
      II.
                35Item
      1. Legal Proceedings.
                35Item
      1A. Risk Factors.
                35Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
                41Item
      3. Defaults Upon Senior Securities.
                41Item
      4. Submission of Matter to Vote of Security Holders.
                41Item
      5. Other Information.
                41Item
      6. Exhibits.
                42SIGNATURES
                42EXHIBIT
      INDEXCertification
      of CEO Pursuant to Rule 15d-14(a)Certification
      of CFO Pursuant to Rule 15d-14(a)Certification
      of CEO Pursuant to Section 1350Certification
      of CFO Pursuant to Section 1350





Statement Regarding Forward-Looking
Statements





This
Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. The statements contained in this report on
Form 10-Q 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 1A of Part II, “Risk Factors.”


2





PART I.


Item 1.Financial
Statements.





GOLDSPRING,
INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS




March 31,
                      2009
                    
                    
                    December 31,
                      2008(Unaudited)
                    
                    
                    (Audited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                    
                    $
                    6,504
                    
                    
                    $
                    322,938Other
      current assets, net
                    
                    
                    22,500
                    
                    
                    
                    -Total
      Current Assets
                    
                    
                    29,004
                    
                    
                    
                    322,938MINERAL
      RIGHTS, PLANT AND EQUIPMENTMineral
      rights
                    
                    
                    1,530,547
                    
                    
                    
                    1,530,547Plant
      and equipment, net
                    
                    
                    716,259
                    
                    
                    
                    489,236Total
      Mineral Rights, Plant and Equipment
                    
                    
                    2,246,806
                    
                    
                    
                    2,019,783RECLAMATION
      BOND DEPOSIT
                    
                    
                    766,768
                    
                    
                    
                    766,768OTHER
      LONG-LIVED ASSETS
                    
                    
                    391,182
                    
                    
                    
                    408,190TOTAL
      ASSETS
                    
                    $
                    3,433,760
                    
                    
                    $
                    3,517,679





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





3




GOLDSPRING,
INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS (Continued)




March 31,
                      2009
                    
                    
                    December 31,
                      2008(Unaudited)
                    
                    
                    (Audited)LIABILITIES AND STOCKHOLDERS’
      DEFICIENCYCURRENT
      LIABILITIESAccounts
      payable
                    
                    $
                    1,867,911
                    
                    
                    $
                    1,222,933Accrued
      expenses
                    
                    
                    184,088
                    
                    
                    
                    121,750Accrued
      interest payable
                    
                    
                    4,143,001
                    
                    
                    
                    3,458,734Convertible
      debentures
                    
                    
                    10,187,966
                    
                    
                    
                    10,187,966Other
      debt
                    
                    
                    2,732,579
                    
                    
                    
                    2,660,565Total
      Current Liabilities
                    
                    
                    19,115,545
                    
                    
                    
                    17,651,948LONG-TERM
      DEBT AND OTHER LONG-TERM LIABILITIESLong-term
      convertible debt obligation, net of current portion
                    
                    
                    2,782,563
                    
                    
                    
                    2,782,563Long-term
      debt obligation, net of current portion
                    
                    
                    620,000
                    
                    
                    
                    500,000Derivative
      liability
                    
                    
                    5,368,333
                    
                    
                    
                    5,368,333Long-term
      reclamation liability
                    
                    
                    1,125,748
                    
                    
                    
                    1,105,342Total
      Long-Term Debt and Other Long-Term Liabilities
                    
                    
                    9,896,644
                    
                    
                    
                    9,756,238Total
      Liabilities
                    
                    
                    29,012,189
                    
                    
                    
                    27,408,186COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      DEFICITCommon
      stock, $.000666 par value 3,950,000,000 shares authorized, shares issued
      and outstanding were 3,487,847,312 (March 31, 2009) and 2,743,508,248
      (March 31, 2008)
                    
                    
                    2,322,906
                    
                    
                    
                    2,251,712Additional
      paid-in capital
                    
                    
                    25,012,492
                    
                    
                    
                    22,721,504Accumulated
      deficit
                    
                    
                    (52,913,827
                    )
                    
                    
                    (48,863,723
                    )Total
      Stockholders’ Deficiency
                    
                    
                    (25,578,429
                    )
                    
                    
                    (23,890,507
                    )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICICT
                    
                    $
                    3,433,760
                    
                    
                    $
                    3,517,679





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


4




GOLDSPRING,
INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)




Quarters Ended March 31,2009
                  
                  
                  2008REVENUE
      FROM GOLD SALES, Net
                  
                  $
                  ―
                  
                  
                  $
                  ―COST
      AND EXPENSESDepletion,
      depreciation and amortization
                  
                  
                  38,866
                  
                  
                  
                  60,000Reclamation,
      exploration and test mining expenses
                  
                  
                  1,450,316
                  
                  
                  
                  649,093General
      and administrative
                  
                  
                  382,554
                  
                  
                  
                  300,202Consultants
      and professional fees
                  
                  
                  70,406
                  
                  
                  
                  31,019Total
      Cost and Expenses
                  
                  
                  1,942,142
                  
                  
                  
                  1,040,314LOSS
      FROM OPERATIONS
                  
                  
                  (1,942,142
                  )
                  
                  
                  (1,040,314
                  )OTHER
      INCOME (EXPENSE):Financing
      cost – warrant issuances
                  
                  
                  (1,326,862
                  )
                  
                  
                  ―Other,
      net
                  
                  
                  ―
                  
                  
                  
                  744,385Interest
      expense
                  
                  
                  (781,100
                  )
                  
                  
                  (741,191
                  )Total
      Other Expense
                  
                  
                  (2,107,962
                  )
                  
                  
                  3,194NET
      LOSS
                  
                  $
                  (4,050,104
                  )
                  
                  $
                  (1,037,120
                  )Net
      loss per common share - basic
                  
                  $
                  (0.0012
                  )
                  
                  $
                  (0.0004
                  )Basic
      weighted average common shares outstanding
                  
                  
                  3,421,684,919
                  
                  
                  
                  2,917,703,633





The
accompanying notes are an integral part of these condensed consolidated
financial statements





5




GOLDSPRING,
INC.


CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICICT


For
the Quarter Ended March 31, 2009





(Common
Stock Par value, $.000666 per share; 3,950,000,000 shares
authorized


Preferred
Stock Par Value, per share; 50,000,000 shares authorized)




Common
                          Shares Issued
                        
                        
                        Par value
                          $.000666
                          per share
                        
                        
                        Additional
                          Paid-in
                          Capital
                        
                        
                        Accumulated
                          Deficit
                        
                        
                        TotalDecember
      31, 2007 (Restated)
                        
                        
                        2,743,508,248
                        
                        
                        $
                        1,827,177
                        
                        
                        $
                        12,969,210
                        
                        
                        $
                        (32,376,040
                        )
                        
                        $
                        (17,579,653
                        )Common
      stock issued for:Debenture
      principal
                        
                        
                        196,155,028
                        
                        
                        
                        130,639
                        
                        
                        
                        1,949,634
                        
                        
                        
                        -
                        
                        
                        
                        2,080,273Debenture
      interest
                        
                        
                        151,961,857
                        
                        
                        
                        101,207
                        
                        
                        
                        1,456,497
                        
                        
                        
                        -
                        
                        
                        
                        1,557,704Mineral
      rights
                        
                        
                        3,866,667
                        
                        
                        
                        2,575
                        
                        
                        
                        76,983
                        
                        
                        
                        -
                        
                        
                        
                        79,558Consulting
      services
                        
                        
                        7,166,704
                        
                        
                        
                        4,773
                        
                        
                        
                        106,323
                        
                        
                        
                        -
                        
                        
                        
                        111,096Mining
      software
                        
                        
                        2,434,892
                        
                        
                        
                        1,622
                        
                        
                        
                        8,118
                        
                        
                        
                        -
                        
                        
                        
                        9,740Directors
                        
                        
                        20,000,000
                        
                        
                        
                        13,320
                        
                        
                        
                        221,080
                        
                        
                        
                        -
                        
                        
                        
                        234,400Employees
                        
                        
                        10,665,714
                        
                        
                        
                        7,103
                        
                        
                        
                        132,787
                        
                        
                        
                        -
                        
                        
                        
                        139,890P  Private
      placement
                        
                        
                        137,000,000
                        
                        
                        
                        91,242
                        
                        
                        
                        1,428,758
                        
                        
                        
                        -
                        
                        
                        
                        1,520,000529,250,862
                        
                        
                        
                        352,481
                        
                        
                        
                        5,380,180
                        
                        
                        
                        -
                        
                        
                        
                        5,732,661Warrant
      cost and stocked based option compensation
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,434,323
                        
                        
                        
                        -
                        
                        
                        
                        3,434,323Liquidated
      damages
                        
                        
                        108,189,261
                        
                        
                        
                        72,054
                        
                        
                        
                        937,791
                        
                        
                        
                        -
                        
                        
                        
                        1,009,845Net
      loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (16,487,683
                        )
                        
                        
                        (16,487,683
                        )December
      31, 2008
                        
                        
                        3,380,948,371
                        
                        
                        $
                        2,251,712
                        
                        
                        $
                        22,721,504
                        
                        
                        $
                        (48,863,723
                        )
                        
                        $
                        (23,890,507
                        )Common
      stock issued for:Debenture
      interest
                        
                        
                        6,798,941
                        
                        
                        
                        4,528
                        
                        
                        
                        71,722
                        
                        
                        
                        -
                        
                        
                        
                        76,250Employees
                        
                        
                        1,500,000
                        
                        
                        
                        999
                        
                        
                        
                        20,001
                        
                        
                        
                        -
                        
                        
                        
                        21,000P  Private
      placement
                        
                        
                        98,600,000
                        
                        
                        
                        65,667
                        
                        
                        
                        920,333
                        
                        
                        
                        -
                        
                        
                        
                        986,000106,898,941
                        
                        
                        
                        71,194
                        
                        
                        
                        1,012,056
                        
                        
                        
                        -
                        
                        
                        
                        1,083,250Warrant
      cost and stocked based option compensation
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,278,931
                        
                        
                        
                        -
                        
                        
                        
                        1,278,931Net
      loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (4,050,104
                        )
                        
                        
                        (4,050,104
                        )March
      31, 2009
                        
                        
                        3,487,847,312
                        
                        
                        $
                        2,322,906
                        
                        
                        $
                        25,012,492
                        
                        
                        $
                        (52,913,827
                        )
                        
                        $
                        (25,578,429
                        )





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


6





GOLDSPRING,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Quarters Ended
                    March
                    31,2009
                  
                  
                  2008OPERATING
      ACTIVITIES:Net
      loss
                  
                  $
                  (4,050,104
                  )
                  
                  $
                  (1,037,120
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                  
                  
                  38,866
                  
                  
                  
                  150,625Stock
      warrants and stock based compensation
                  
                  
                  1,299,931
                  
                  
                  
                  234,400Interest
      and liquidated damages paid through the issuance of stock
                  
                  
                  76,250
                  
                  
                  
                  869.966Accretion
      Interest
                  
                  
                  20,406Payments
      through the issuance of company stock
                  
                  
                  ―
                  
                  
                  
                  ―Private
      Placement Financing Fees
                  
                  
                  83,500
                  
                  
                  
                  ―Net
      loss adjusted for non-cash operating activities
                  
                  
                  (2,531,151
                  )
                  
                  
                  217,871Changes
      in operating assets and liabilities:Prepaid
      and other current assets
                  
                  
                  (22,500
                  )
                  
                  
                  54,166Accounts
      payable
                  
                  
                  644,978
                  
                  
                  
                  117,554Accrued
      expenses
                  
                  
                  746,605
                  
                  
                  
                  (1,510,115
                  )Other
      operating assets and liabilities
                  
                  
                  ―
                  
                  
                  
                  ―Other
                  
                  
                  ―
                  
                  
                  
                  207,532NET
      CASH USED IN OPERATING ACTIVITIES
                  
                  
                  (1,162,068
                  )
                  
                  
                  (912,992
                  )INVESTING
      ACTIVITIES:Mineral
      claims
                  
                  
                  ―
                  
                  
                  
                  (52,910
                  )Acquisition
      / sale of plant and equipment
                  
                  
                  (128,880
                  )
                  
                  
                  (16,463
                  )NET
      CASH USED IN INVESTING ACTIVITIES
                  
                  
                  (128,880
                  )
                  
                  
                  (69,373
                  )FINANCING
      ACTIVITIES:Principal
      payments on Note Payable
                  
                  
                  (2,986
                  )
                  
                  
                  (12,297
                  )Net
      proceeds from the issuance of company stock
                  
                  
                  902,500
                  
                  
                  
                  500,000Proceeds
      from the issuance of note payable to related party
                  
                  
                  75,000
                  
                  
                  
                  1,000,000NET
      CASH PROVIDED BY FINANCING ACIVITIES
                  
                  
                  974,514
                  
                  
                  
                  1,487,703INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALANTS
                  
                  
                  (316,434
                  )
                  
                  
                  505,338CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                  
                  
                  322,938
                  
                  
                  
                  174,996CASH
      AND CASH EQUIVALENTS, END OF YEAR
                  
                  $
                  6,504
                  
                  
                  $
                  680,334SUPPLEMENTAL
      CASH FLOW INFORMATION:INCOME
      TAXES
                  
                  $
                  ―
                  
                  
                  $
                  ―INTEREST
      PAID
                  
                  $
                  ―
                  
                  
                  $
                  ―





7





GOLDSPRING,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)





Supplemental
      disclosure of non-cash investing and financing activities:Issuance
      of company stock for interest
                  
                  $
                  76,250
                  
                  
                  $
                  600,066Issuance
      of company stock for liquidated damages
                  
                  $
                  ―
                  
                  
                  $
                  428,469Conversion
      of debt principal into company’s common shares
                  
                  $
                  ―
                  
                  
                  $
                  770,273Issuance
      of company stock to employees
                  
                  $
                  21,000
                  
                  
                  $
                  ―Issuance
      of company stock for directors’ fees
                  
                  $
                  ―
                  
                  
                  $
                  234,400Seller
      note for acquisition of  land
                  
                  $
                  120,000
                  
                  
                  $
                  ―Issuance
      of company stock for consulting services
                  
                  $
                  ―
                  
                  
                  $
                  25,760Issuance
      of company stock for software
                  
                  
                  ―
                  
                  
                  
                  9,740Issuance
      of company shares for acquisition of mineral claims
                  
                  $
                  ―
                  
                  
                  $
                  28,690





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


8




Table of
Contents


GOLDSPRING,
INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


March 31,
2009 and 2008




Note
1 - Basis of Presentation




We are a
North American precious metals mining company with an operating gold and silver
test mine in northern Nevada. Our Company refocused as a mining company, when we
acquired the Plum property in November 2003. In our relatively short history, we
secured permits, built an infrastructure and brought the Plum exploration
project into test mining production. Beginning in 2005, we started acquiring
additional properties around the Plum project in Northern Nevada, expanding our
footprint and creating opportunities for exploration. We are an emerging company
operating test mine, looking to build on our success through the acquisition of
other mineral properties in North America with reserves and exploration
potential that can be efficiently put into near-term production. Our objectives
are to recommence production; increase reserves through exploration and
acquisitions; expand our footprint at the Plum Mine; and maximize value for our
shareholders.




Note
2 — Interim Financial Statements




The
accompanying interim 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-Q and Article 8 of
Regulation S-X. 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 March 31, 2009 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2009. For further information, refer to the financial
statements and footnotes thereto included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2008.




Note
3 — Going Concern




The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
which contemplate continuation of the Company as a going concern. However, the
Company has year end losses from operations and had minimal revenues from
operations during the three month ended March 31, 2009.   During
the three months ended March 31, 2009, the Company incurred a net loss of
$4,050,104.  Further, the Company has inadequate working capital to
maintain or develop its operations, and is dependent upon funds from private
investors and the support of certain stockholders.





These
factors raise substantial doubt about the ability of the Company to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties. In this regard, Management
is proposing to raise any necessary additional funds through loans and
additional sales of its common stock. There is no assurance that the Company
will be successful in raising additional capital especially given the current
general economic conditions domestically and abroad.




9




Note
4 — Summary of Significant Accounting Policies




Terms
and Definitions




Company
              Goldspring,
      Inc. and SubsidiariesAPB
              Accounting
      Principles BoardARB
              Accounting
      Review BoardEITF
              Emerging
      Issues Task ForceFASB
              Financial
      Accounting Standards BoardFSP
              FASB
      Staff PositionPlum
      LLC
              Plum
      Mining Company, LLCSAB
              SEC
      Staff Accounting BulletinSEC
              Securities
      Exchange CommissionSFAS
      or FAS
              Statement
      of Financial Accounting StandardsSOP
              Statement
      of Position




Summarized
below are the significant accounting policies of Goldspring, Inc.




Principles
of Consolidation




The
consolidated financial statements include the accounts of our company and its
wholly owned subsidiaries: GoldSpring, LLC, Ecovat Copper Nevada, LLC, The Plum
Mining Company, LLC, and the Plum Mine Special Purpose Company LLC. All material
inter-company transactions and balances have been eliminated in
consolidation.  Certain reclassifications have been made in the 2008
results to conform to the presentation used in 2009.




Cash
and Cash Equivalents




We
consider all highly liquid debt securities purchased with original or remaining
maturities of three months or less to be cash equivalents. The carrying value of
cash equivalents approximates fair value.




Fair
Value of Financial Instruments




The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, and accrued expenses approximate fair market value because of the short
maturity of those instruments. Furthermore, convertible debenture and other
notes payable amounts approximate fair value at March 31, 2009 and December 31,
2008.




Credit
Risk




It is our
practice to place our cash equivalents in high-quality money market securities
with a major banking institution. Certain amounts of such funds are not insured
by the Federal Deposit Insurance Corporation. However, we consider our credit
risk associated with cash and cash equivalents to be minimal.




Impairment
of Long Lived Assets and Long Lived Assets to be Disposed Of




In August
2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets,” which supersedes both SFAS No. 121, “Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and the
accounting and reporting provisions of APB Opinion No. 30,“Reporting the Results of
Operations — Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,”for the disposal of a segment of a business (as previously defined in
that opinion). This statement establishes the accounting model for long-lived
assets to be disposed of by sale and applies to all long-lived assets, including
discontinued operations. This statement requires those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or discontinued
operations.




SFAS No.
144 retains the fundamental provisions of SFAS No. 121 for recognizing and
measuring impairment losses on long-lived assets held for use and long-lived
assets to be disposed of by sale, while also resolving significant
implementation issues associated with SFAS No. 121. We adopted SFAS No. 144 in
our evaluation of the fair value of certain assets described in Notes 5 and
6.




10




Revenue
Recognition




The
Company recognizes revenue in accordance with the provisions of SAB 104 “Revenue Recognition in Financial
Statements”, which states that revenue is realized or realizable and
earned when all of the following four criteria are met:




1)
              Persuasive evidence of an
      arrangement exists,


2)
            Delivery has occurred or services
      have been rendered,


3)
            The seller’s price to the buyer
      is fixed or determinable,
and


4)
            Collectability is reasonably
      assured.





Specifically
in our operations, sales of gold and silver dore are recorded when we issue a
sales order to our refiner, Johnson Matthey, to sell a specified quantity of
metals.  Sales orders are typically executed within 48 hours of
receipt.  Upon receipt of the sale order, Johnson-Matthey confirms
quantities available and executes the sale at the current market price of the
metals on the day and time of the sales order.  We record revenues on
the day the Sales order is issued based on the confirmed quantity of metal at
the confirmed market price.  Proceeds from the sale of metals are
typically wired to our bank within twenty-four hours.




Stock
Issued For Services




We base
the value of stock issued for services on the market value of our common stock
at the date of issue or our estimate of the fair value of the services received,
whichever is more reliably measurable.




Deferred
Financing Charges




During
the three month periods ended March 31, 2009 and 2008 we recorded deferred
financing charges associated with the issue of promissory notes payable totaling
$0 and $200,000 respectively. We amortize the charges over the respective lives
of the promissory notes payable as interest expense. During the quarter ended
March 31, 2009 and 2008 we recognized $0 and $90,625 respectively of interest
expense related to the amortization of deferred financing fees.





Plant
and Equipment




We state
plant and equipment at cost. We provide depreciation and amortization in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives or productive value.




We
capitalize expenditures for renewals and improvements that significantly extend
the useful life of an asset. We charge expenditures for maintenance and repairs
to operations when incurred. When assets are sold or retired, the cost of the
asset and the related accumulated depreciation are removed from the accounts and
any gain or loss is recognized at such time. We use the straight-line method of
depreciation for financial reporting purposes, depreciating assets over useful
lives ranging from 3 to 15 years.




We review
the carrying value of our plant and equipment assets on a quarterly basis. Where
information and conditions suggest impairment, we write-down these assets to net
recoverable amount, based on estimated future cash flows that may be attained
from them.




Mineral
Rights




We defer
acquisition costs until we determine the viability of the property. Since we do
not have proven and probable reserves as defined by SEC Industry Guide 7,
exploration expenditures are expensed as incurred.




We
expense holding costs to maintain a property on a care and maintenance basis as
incurred.




11




We review
the carrying value of our interest in each mineral claim on a quarterly basis to
determine whether impairment has incurred in accordance with the SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.”




Where
information and conditions suggest impairment, we write-down these properties to
net recoverable amount, based on estimated future cash flows. Our estimate of
gold price, mineralized materials, operating capital, and reclamation costs are
subject to risks and uncertainties affecting the recoverability of our
investment in property, plant, and equipment. Although we have made our best
estimate of these factors based on current conditions, it is possible that
changes could occur in the near term that could adversely affect our estimate of
net cash flows expected to be generated from our operating properties and the
need for possible asset impairment write-downs.




Where
estimates of future net operating cash flows are not available and where other
conditions suggest impairment, we assess if carrying value can be recovered from
net cash flows generated by the sale of the asset or other means.




Reclamation
Liabilities and Asset Retirement Obligations




Minimum
standards for site reclamation and closure have been established by various
government agencies that affect certain of our operations. We calculate our
estimates of reclamation liability based on current laws and regulations and the
expected undiscounted future cash flows to be incurred in reclaiming, restoring,
and closing our operating mine sites. When we incur reclamation liabilities that
are not related to asset retirements we recognize the obligations in accordance
with SOP No. 96-1.




In August
2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement
Obligations.” SFAS No. 143 established a uniform methodology for
accounting for estimating reclamation and abandonment costs. The Standard
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred. SFAS No. 143 requires us to
record a liability for the present value of our estimated environmental
remediation costs and the related asset created with it when a recoverable asset
(long-lived asset) can be realized.


.


Share
Based Compensation





The
Company accounts for share based compensation in accordance with SFAS 123R,
“Share Based Payments.”  Accordingly, the Company measures the cost of
employee services received in exchange for an award of equity instruments based
on the grant date fair value of the award and recognizes cost over the requisite
service period.




Earnings
Per Common Share




In
calculating earnings per common share, we compute basic earnings per share by
dividing net loss by the weighted average number of common shares outstanding,
excluding the dilutive effects of common stock equivalents. For the quarters
ended March 31, 2009 and 2008, we had net losses for which the affect of common
stock equivalents would be anti-dilutive. Accordingly only basic and dilutive
loss per share is presented.




Use
of Estimates




In
preparing financial statements in conformity with generally accepted accounting
principles, we are required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenditures during the reported periods. Actual results could differ materially
from those estimates. Estimates may include those pertaining to the estimated
useful lives of property and equipment and software, determining the estimated
net realizable value of receivables, and the realization of deferred tax
assets.




12




Risks and
Uncertainties




We
regularly evaluate risks and uncertainties and, when probable that a loss or
expense will be incurred, record a charge to current period
operations.




Income
Taxes




We
recognize deferred tax assets and liabilities based on differences between the
financial reporting and tax bases of assets and liabilities using the enacted
tax rates and laws that are expected to be recovered. We provide a valuation
allowance for deferred tax assets for which we do not consider realization of
such assets to be more likely than not.





Recent
Authoritative Pronouncements




Recent
accounting pronouncements that the Company has adopted or will be required to
adopt in the future are summarized below.





Employers’
Disclosures about Postretirement Benefit Plan Assets





In
December 2008, the FASB issued FSP SFAS No. 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets.”  This FSP amends SFAS No.
132(R), “Employers’
Disclosures about Pensions and Other Postretirement Benefits,” to provide
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other postretirement plan.  FSP SFAS No. 132(R)-1 also
includes a technical amendment to SFAS No. 132(R) that requires a nonpublic
entity to disclose net periodic benefit cost for each annual period for which a
statement of income is presented.  The required disclosures about plan
assets are effective for fiscal years ending after December 15,
2009.  The technical amendment was effective upon issuance of FSP SFAS
No. 132(R)-1.  The Company has assessing the impact of FSP SFAS No.
132(R)-1 on its consolidated financial position and results of
operations.  The impact of the adoption was not material to the
Company’s condensed consolidated financial statements.





Effective
Date of FASB Interpretation No. 48 for Certain Nonpublic
Enterprises





In
December 2008, the FASB issued FSP FIN No. 48-3, “Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises.”  FSP
FIN No. 48-3 defers the effective date of FIN No. 48, “Accounting for Uncertainty in
Income Taxes,” for certain nonpublic enterprises as defined in SFAS No.
109, “Accounting for Income
Taxes.”  However, nonpublic consolidated entities of public
enterprises that apply U.S. generally accepted accounting principles (GAAP) are
not eligible for the deferral.FSP FIN No. 48-3 was
effective upon issuance.  The impact of adoption was not material to
the Company’s condensed consolidated financial condition or results of
operations.





Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities





In
December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46(R) -8, “Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities.”  This FSP amends SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” to
require public entities to provide additional disclosures about transfers of
financials assets.  FSP FAS No. 140-4 also amends FIN No. 46(R)-8,
“Consolidation of Variable
Interest Entities,”to require public enterprises, including sponsors
that have a variable interest entity, to provide additional disclosures about
their involvement with a variable interest entity.  FSP FAS No. 140-4
also requires certain additional disclosures, in regards to variable interest
entities, to provide greater transparency to financial statement
users.  FSP FAS No. 140-4 is effective for the first reporting period
(interim or annual) ending after December 15, 2008, with early application
encouraged.  The Company has assessed the impact of FSP FAS No. 140-4
on its consolidated financial position and results of operations.  The
impact of adoption was not material to the Company’s condensed consolidated
financial condition or results of operations.





13





Accounting
for an Instrument (or an Embedded Feature) with a Settlement Amount That is
Based on the Stock of an Entity’s Consolidated Subsidiary





In
November 2008, the FASB issued FSP EITF No. 08-8, “Accounting for an Instrument (or an
Embedded Feature) with a Settlement Amount That is Based on the Stock of an
Entity’s Consolidated Subsidiary.”  EITF No. 08-8 clarifies
whether a financial instrument for which the payoff to the counterparty is
based, in whole or in part, on the stock of an entity’s consolidated subsidiary
is indexed to the reporting entity’s own stock.  EITF No. 08-8 also
clarifies whether or not stock should be precluded from qualifying for the scope
exception of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” or from being within the scope of
EITF No. 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock.”  EITF No. 08-8 is effective for fiscal
years beginning on or after December 15, 2008, and interim periods within those
fiscal years.  The Company has assessed the impact of EITF No. 08-8 on
its consolidated financial position and results of operations.  The
impact of adoption was not material to the Company’s condensed consolidated
financial condition or results of operations.





Accounting
for Defensive Intangible Assets





In
November 2008, the FASB issued EITF No. 08-7, “Accounting for Defensive Intangible
Assets.”  EITF No. 08-7 clarifies how to account for defensive
intangible assets subsequent to initial measurement.  EITF No. 08-7
applies to all defensive intangible assets except for intangible assets that are
used in research and development activities.  EITF No. 08-7 is
effective for intangible assets acquired on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008.  The
Company has assessed the impact of EITF No. 08-7 on its condensed consolidated
financial position and results of operations and determined it to be
immaterial.





Equity
Method Investment Accounting Considerations





In
November 2008, the FASB issued EITF No. 08-6, “Equity Method Investment
Accounting Considerations.”  EITF No. 08-6 clarifies accounting for
certain transactions and impairment considerations involving the equity
method.  Transactions and impairment dealt with are initial
measurement, decrease in investment value, and change in level of ownership or
degree of influence.  EITF No. 08-6 is effective on a prospective
basis for fiscal years beginning on or after December 15, 2008.  The
Company has assessed the impact of EITF No. 08-6 on its consolidated financial
position and results of operations and determined it to be
immaterial.





Determining
the Fair Value of a Financial Asset When the Market for That Asset is Not
Active





In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not
Active.”  This FSP clarifies the application of SFAS No. 157,
“Fair Value
Measurements,” in a market that is not active.  The FSP also
provides examples for determining the fair value of a financial asset when the
market for that financial asset is not active.  FSP FAS No. 157-3 was
effective upon issuance, including prior periods for which financial statements
have not been issued.  The impact of adoption was not material to the
Company’s condensed consolidated financial condition or results of
operations.




14





Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement





In
September 2008, the FASB issued EITF No. 08-5, “Issuer’s Accounting for Liabilities
Measured at Fair Value with a Third-Party Credit
Enhancement.”  This FSP determines an issuer’s unit of
accounting for a liability issued with an inseparable third-party credit
enhancement when it is measured or disclosed at fair value on a recurring
basis.  FSP EITF No. 08-5 is effective on a prospective basis in the
first reporting period beginning on or after December 15, 2008.  The
Company has assessed the impact of FSP EITF No. 08-5 on its condensed
consolidated financial position and results of operations and determined it to
be immaterial.





Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
of FASB Statement No. 161





In
September 2008, the FASB issued FSP SFAS No. 133-1, “Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and
FASB Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161.”  This FSP amends SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” to require disclosures by sellers of
credit derivatives, including credit derivatives embedded in a hybrid
instrument.  The FSP also amends FASB Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others,” to require and additional disclosure about the
current status of the payment/performance risk of a
guarantee.  Finally, this FSP clarifies the Board’s intent about the
effective date of SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities.”  FSP FAS No. 133-1 is
effective for fiscal years ending after November 15, 2008.  The
Company has assessed the impact of FSP FAS No. 133-1 on its condensed
consolidated financial position and results of operations.





Endowments
of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an
Enacted Version of the Uniform Prudent Management of Institutional Funds Act,
and Enhanced Disclosures for all Endowment Funds





In August
2008, the FASB issued FSP SFAS No. 117-1, “Endowments of Not-for-Profit
Organizations: Net Asset Classification of Funds Subject to an Enacted Version
of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), and
Enhanced Disclosures for all Endowment Funds.”  The intent of
this FSP is to provide guidance on the net asset classification of
donor-restricted endowment funds.  The FSP also improves disclosures
about an organization’s endowment funds, both donor-restricted and
board-designated, whether or not the organization is subject to the
UPMIFA.  FSP FAS No. 117-1 is effective for fiscal years ending after
December 31, 2008.  Earlier application is permitted provided that
annual financial statements for that fiscal year have not been previously
issued.  The Company has assessed the impact for FSP FAS No. 117-1 on
its condensed consolidated financial position and results of operations and
determined it to be immaterial.





Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities





In
June 2008, the FASB issued EITF No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.” EITF No. 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share under the two-class method. The EITF 03-6-1 affects entities
that accrue dividends on share-based payment awards during the awards’ service
period when the dividends do not need to be returned if the employees forfeit
the award. EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008. The Company has assessed the impact of EITF 03-6-1 on
its condensed consolidated financial position and results of operations and
determined it to be immaterial.




15





Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own
Stock





In June
2008, the FASB ratified EITF No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own
Stock.”  EITF 07-5 provides that an entity should use a two
step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the
instrument's contingent exercise and settlement provisions.  It also
clarifies on the impact of foreign currency denominated strike prices and
market-based employee stock option valuation instruments on the
evaluation.  EITF 07-5 is effective for fiscal years beginning after
December 15, 2008.  The Company has assessed the impact of EITF 07-5
on its condensed consolidated financial position and results of operations and
determined it to be immaterial.





Accounting
for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement
No. 60





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No.
60”.  This statement requires that an insurance enterprise
recognize a claim liability prior to an event of default (insured event) when
there is evidence that credit deterioration has occurred in an insured financial
obligation.  SFAS No. 163 also clarifies how SFAS No. 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities to
increase comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises.  SFAS No. 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for some disclosures
about the insurance enterprise’s risk-management activities of the insurance
enterprise be effective for the first period (including interim periods)
beginning after issuance of SFAS No. 163.  Except for those
disclosures, earlier application is not permitted.  The Company has
assessed the impact of SFAS No. 163 on its condensed consolidated financial
position and results of operations and determined it to be
immaterial.




Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)





In
May 2008, the FASB issued FSP APB Opinion No. 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement).” The FSP clarifies the accounting for convertible debt
instruments that may be settled in cash (including partial cash settlement) upon
conversion.  The FSP requires issuers to account separately for the
liability and equity components of certain convertible debt instruments in a
manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing
rate when interest cost is recognized.  The FSP requires bifurcation
of a component of the debt, classification of that component in equity and the
accretion of the resulting discount on the debt to be recognized as part of
interest expense in our consolidated statement of operations.  The FSP
requires retrospective application to the terms of instruments as they existed
for all periods presented.  The FSP is effective for fiscal years
beginning after December 15, 2008 and early adoption is not
permitted.  The Company is currently evaluating the potential impact
of FSP APB 14-1 upon its condensed consolidated financial
statements.




The
Hierarchy of Generally Accepted Accounting Principles




In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles.”  SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements.  SFAS No. 162 is effective 60
days following the SEC's approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles".  The
implementation of this standard will not have a material impact on the Company's
condensed consolidated financial position and results of
operations.




Determination
of the Useful Life of Intangible Assets




In April
2008, the FASB issued FSP SFAS No. 142-3, “Determination of the Useful Life of
Intangible Assets”, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
intangible assets under SFAS No. 142 “Goodwill and Other Intangible
Assets”. The intent of this FSP is to improve the consistency
between the useful life of a recognized intangible asset under SFAS No. 142 and
the period of the expected cash flows used to measure the fair value of the
asset under SFAS No. 141 (revised 2007) “Business Combinations” and
other U.S. generally accepted accounting principles.    The
Company has assessed the potential impact of FSP FAS No. 142-3 on its condensed
consolidated financial statements and determined it to be
immaterial.




16




Disclosure
about Derivative Instruments and Hedging Activities




In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133.” This
statement requires that objectives for using derivative instruments be disclosed
in terms of underlying risk and accounting designation. The Company is required
to adopt SFAS No. 161 on January 1, 2009. The adoption of this pronouncement had
no impact on the Company’s condensed consolidated financial condition or results
of operations.




Delay
in Effective Date




In
February 2008, the FASB issued FSP SFAS No. 157-2, “Effective Date of FASB Statement
No. 157”. This FSP delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The impact of adoption was not material to the
Company’s condensed consolidated financial condition or results of
operations.





Business
Combinations




In
December 2007, the FASB issued SFAS No. 141(R) “Business
Combinations.”  This Statement replaces the original SFAS No.
141.  This Statement retains the fundamental requirements in SFAS
No. 141 that the acquisition method of accounting (which SFAS No. 141
called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. The objective of SFAS No. 141(R) is to
improve the relevance, and comparability of the information that a reporting
entity provides in its financial reports about a business combination and its
effects. To accomplish that, SFAS No. 141(R) establishes principles and
requirements for how the acquirer:




a.
            Recognizes and measures in its
      financial statements the identifiable assets acquired, the liabilities
      assumed, and any noncontrolling interest in the
      acquiree.


b.
            Recognizes and measures the
      goodwill acquired in the business combination or a gain from a bargain
      purchase.


c.
            Determines what information to
      disclose to enable users of the financial statements to evaluate the
      nature and financial effects of the business
      combination.




This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and may not be applied before
that date. The Company has assessed the effect that its adoption of SFAS No.
141(R) will have on its consolidated results of operations and financial
condition and determined it to be immaterial.




Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51




In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No.
51.”  This Statement amends the original ARB No. 51 “Consolidated Financial
Statements” to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. This Statement is effective for fiscal
years and interim periods within those fiscal years, beginning on or after
December 15, 2008 and may not be applied before that date.  The
Company has assessed the effect that its adoption of SFAS No. 160 will have on
its consolidated results of operations and financial condition and determined it
to be immaterial.




17




Fair
Value Option for Financial Assets and Financial Liabilities




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of SFAS No.
115,” which becomes effective for the Company on February 1, 2008,
permits companies to choose to measure many financial instruments and certain
other items at fair value and report unrealized gains and losses in earnings.
Such accounting is optional and is generally to be applied instrument by
instrument. The election of this fair-value option did not have a material
effect on its consolidated financial condition, results of operations, cash
flows or disclosures.




Fair
Value Measurements




In
September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements.”  SFAS No. 157 provides guidance for using fair
value to measure assets and liabilities.  SFAS No. 157 addresses the
requests from investors for expanded disclosure about the extent to which
companies’ measure assets and liabilities at fair value, the information used to
measure fair value and the effect of fair value measurements on earnings. SFAS
No. 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value, and does not expand the use of fair
value in any new circumstances. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and was
adopted by the Company in the first quarter of fiscal year 2008. There was no
material impact on the Company’s consolidated results of operations and
financial condition due to the adoption of SFAS No. 157.





Accounting
for Uncertainty in Income Taxes





In July
2006, the FASB issued FIN No. 48, "Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109". FIN 48
clarifies the accounting for uncertainty in income taxes by prescribing the
recognition threshold a tax position is required to meet before being recognized
in the financial statements. It also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The cumulative effects, if any, of applying FIN 48
will be recorded as an adjustment to retained earnings as of the beginning of
the period of adoption. FIN 48 is effective for fiscal years beginning after
December 15, 2006, and the Company is required to adopt it in the first quarter
of fiscal year 2008. The adoption of FIN 48 did not have a material impact on
the consolidated results of operations and financial condition.




"The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement No.
115".





In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement No.
115". SFAS 159 permits companies to choose to measure many financial
instruments and certain other items at fair value and establishes presentation
and disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. The provisions of SFAS 159 become effective as of the beginning of
our 2009 fiscal year. The adoption of SFAS 159 did not have a material impact on
its consolidated results of operations and financial condition.





Note
5 — Mineral Rights




Mineral
rights at March 31, 2009 and 2008 consisted of the following:




2009
                  
                  
                  2008Comstock
      Placer Claims
                  
                  $
                  100,000
                  
                  
                  $
                  100,000Big
      Mike Copper Claims
                  
                  
                  69,138
                  
                  
                  
                  69,138Comstock
      Lode Claims
                  
                  
                  1,271,409
                  
                  
                  
                  1,088,609Water
      rights
                  
                  
                  90,000
                  
                  
                  
                  90,000$
                  1,530,547
                  
                  
                  $
                  1,347,747




18




Note
6 — Property and Equipment, net




Plant and
equipment at March 31, 2009 and 2008, consisted of the following:





2009
                  
                  
                  2008Land
      and Building
                  
                  $
                  677,443
                  
                  
                  $
                  542,166Vehicle
      and Equipment
                  
                  
                  302,094
                  
                  
                  
                  430,969Processing
      and Lab
                  
                  
                  704,527
                  
                  
                  
                  452,017Furniture
      and Fixtures
                  
                  
                  49,391
                  
                  
                  
                  64,6511,733,455
                  
                  
                  
                  1,489,803Less
      accumulated depreciation
                  
                  
                  (1,017,196
                  )
                  
                  
                  (1,122,300
                  )$
                  716,259
                  
                  
                  $
                  367,503





Depreciation
expense for the three months ended March 31, 2009 and 2008 was $21,858 and
$60,000, respectively.  We use the straight-line method of
depreciation for financial reporting purposes, depreciating buildings over 15
years and other assets over useful lives ranging from 3 to 10
years.





Note
7 – Reclamation Bond Deposit





We are
generally required to mitigate long-term environmental impacts by stabilizing,
contouring, resloping, and revegetating various portions of a site after mining
and mineral processing operations are completed. These reclamation efforts are
conducted in accordance with detailed plans, which must be reviewed and approved
by the appropriate regulatory agencies.




The
Nevada Revised Statutes and regulations promulgated thereunder by the Nevada
State Environmental Commission and the Nevada Division of Environmental
Protection, Bureau of Mining and Reclamation require a surety bond to be posted
for mining projects to assure we will leave the site safe, stable and capable of
providing for a productive post-mining land use. Pursuant to the approved
Reclamation Plans we have posted surety bonds for the Comstock Mine Project we
posted a surety bond in the amount of $1,106,882 of which $766,768 was in the
form of a cash deposit and the balance was secured from a surety
agent.





Note
8 — Long-term Reclamation Liability





We have
an accrued a long-term liability of $1,125,748 and $553,190 as of March 31, 2009
and 2008 respectively, with regard to our obligations to reclaim our Comstock
Mine facility based on our reclamation plan submitted and approved by the Nevada
State Environmental Commission and Division of Environmental Protection in 2008.
Costs of future expenditures for environmental remediation are discounted to
their present value. Such costs are based on management’s current estimate of
amounts expected to be incurred when the remediation work is performed within
current laws and regulations. It is reasonably possible that, due to
uncertainties associated with the application of laws and regulations by
regulatory authorities and changes in reclamation or remediation technology, the
ultimate cost of reclamation and remediation could change in the future. We
periodically review accrued liabilities for such reclamation and remediation
costs as evidence becomes available indicating that our liabilities have
potentially changed.  The reclamation liability accretion expense for
the three month period ended March 31, 2009 was $20,406 and the amortization of
Long-lived assets was $17,008 for the same period.





19





Following
is a reconciliation of the aggregate retirement liability associated with on our
reclamation plan for our Comstock Project




2009Long-term
      asset retirement obligation 1/1/2009
                    
                    $
                    1,105,342Additional
      obligations incurred
                    
                    
                    ―Increase
      in present value of the reclamation obligation (accretion
      expense)
                    
                    
                    20,406Long-term
      asset retirement obligation 03/31/2009
                    
                    $
                    1,125,478




Note
9 - Notes Payable Stockholders





Mr.
Winfield and his affiliates (“Winfield Group”) held various notes and debentures
issued by the Company that are reported in several different liabilities
accounts March 31, 2009, as follows:





Principal
                  
                  
                  InterestConvertible
      Debentures Payable – Investors  (Note 10)
                  
                  $
                  687,928
                  
                  
                  $
                  103,664Convertible
      Debentures Payable - Mandatory Redemption payment (Note
10)
                  
                  
                  4,412,058
                  
                  
                  
                  1,258,837Convertible
      Notes Payable - 2006 & 2007 (Note 10)
                  
                  
                  1,620,000
                  
                  
                  
                  894,049Promissory
      Notes – July 2005 Financing (Note 11)
                  
                  
                  1,200,000
                  
                  
                  
                  1,043,125Promissory
      Notes – Plum Mine (Note 11)
                  
                  
                  250,000
                  
                  
                  
                  51,440Promissory
      Notes Payable – December 2007 (Note 11)
                  
                  
                  600,000
                  
                  
                  
                  60,823Promissory
      Notes Payable –  February 2008 (Note 11)
                  
                  
                  600,000
                  
                  
                  
                  49,113Convertible
      Notes Payable – 2008 (Note 10)
                  
                  
                  2,500,000
                  
                  
                  
                  162,972$
                  11,869,986
                  
                  
                  $
                  3,624,023





The
Winfield Group consists of Mr. Winfield and Santa Fe Financial Corporation,
Portsmouth Square and InterGroup Corporation, and combined, represent the
Company’s largest creditor and a significant stockholder.  Mr.
Winfield is affiliated with these Companies through a direct controlling
interest and/or as their Chairman of the Board.  As of March 31, 2009,
the Company is in default of the terms on several outstanding notes payable and
accordingly the entire note balances of the defaulted notes have been recorded
as current liabilities.





Note
10 - Convertible Debentures




Convertible
debentures at March 31, 2009 and 2008 were as follows:




2009
                  
                  
                  2008Convertible
      Debentures Payable-Investors
                  
                  $
                  1,105,908
                  
                  
                  $
                  1,105,908Convertible
      Debentures Payable- Mandatory Redemption payment
                  
                  
                  4,412,058
                  
                  
                  
                  5,522,058Convertible
      Notes Payable – 2006 & 2007
                  
                  
                  2,170,000
                  
                  
                  
                  2,170,000Convertible
      Notes Payable – 2008
                  
                  
                  2,500,000
                  
                  
                  
                  ―Embedded
      Derivatives (Note accretion)
                  
                  
                  ―
                  
                  
                  
                  (906,989
                  )Total
                  
                  $
                  10,187,966
                  
                  
                  $
                  7,890,977




Convertible Debentures
Payables - Investors




During
March 2004, we completed a private placement of securities transaction (the
“March Offering”), which generated $10 million in gross proceeds from a group of
accredited institutional and individual investors.





On
November 30, 2004, we restructured the March Offering and entered into a
new subscription agreement. We exchanged 21,739,129 shares of common stock and
21,739,129 warrants issued in the March Offering for:





a)
            8% convertible notes in the
      aggregate principal amount of approximately
      $11.1 million.   The principal amount of the
      convertible notes consist of the original $10.0 million investment
      plus approximately $1.1 million of accrued penalties associated with
      the delay in registration of the common stock held by the investors,
      and


b)
            warrants to purchase
      approximately 27.8 million shares of common stock at an exercise
      price of $0.20 per share, subject to anti-dilution adjustments, which
      expire in 4 years.




20




The 8%
convertible notes mature in November 2006 and call for monthly payments of
102% of 1/20th of the
initial principal amount, together with accrued interest. We have the option to
repay the notes with our common stock at a conversion rate of 85% of the average
of the five lowest closing bid prices during the preceding 20 trading days.
Further, the notes may be prepaid at 115% of their outstanding principal. Each
note may be converted by the holder into common stock at an initial conversion
price of $0.20 per share, which is subject to anti-dilution adjustments. During
the first 20 days following the closing date, the conversion price may be
reduced to 70% of the average of the five lowest closing prices during the 20
trading days preceding the closing date.




On April
1, 2005, we defaulted on our first monthly payment. On December 20, 2004, we
received notice from holders of approximately $3.8 million of convertible notes
of their intention to convert into shares of our common stock. The applicable
conversion rate was approximately $0.11 per share, and accordingly we were
obligated to issue 33,817,594 shares of common stock. Under the terms of the
subscription agreement, we had three business days following receipt of the
conversion notice (the “Delivery Date”) to deliver free-trading common stock
certificates. The shares were due to be delivered in December 2004, however,
they were not delivered until 2005. Our failure to deliver shares, subjected us
to liquidated damages of 1% of the note principal amount being converted for
each late business day.





Convertible Debentures
Payable - Mandatory Redemption Payment




In March
2005, because we did not deliver the share certificates within the period
required in the subscription agreement, John V. Winfield, a major shareholder
and note holder elected to demand payment of approximately $6.9 million pursuant
to the mandatory redemption payment provisions of the subscription agreement and
consequently forfeited his right to receive shares in lieu of
payment.




On March
31, 2005, we entered into a Settlement Agreement (“Settlement”) with the Mr.
Winfield and agreed to convert the mandatory redemption payment into nine
Convertible Debentures (“the Debentures”). Accordingly, we accrued a liability
for approximately $6.9 million and reduced our paid-in-capital account for
approximately $3.5 million. The Debentures are subject to various covenants and
conditions, including, but not limited to anti-dilution rights and protective
rights.  The Debentures accrue interest at 12% per annum and are
payable in monthly installments of principal and interest over a 24 month period
with the remaining entire balance of unpaid principal and interest due on March
31, 2007.   We are currently in default on this
note.





The
debentures are subject to the following terms:




Conversion
Rights


The
Debentures are convertible, in all or in part, into shares of our common stock
(“Conversion Shares”) at any time. The conversion price shall is equal to the
lesser of: (i) eighty-five percent (85%) of the average of the five (5) lowest
closing bid prices of the common stock as reported by Bloomberg L.P. for the
twenty (20) trading days preceding the date the Company was obligated to pay the
mandatory redemption Payment; and (ii) eighty-five percent (85%) of the average
of the five (5) lowest closing bid prices of the common stock as reported by
Bloomberg L.P. for the twenty (20) trading days preceding the date of any such
conversion; provided, however, until the effective date of the registration
statement (see below), the conversion price shall be fifty-percent (50%) of the
average of the five (5) lowest closing bid prices of the Common Stock as
reported by Bloomberg L.P. for the twenty (20) trading days preceding the date
of any such conversion. In no event shall the conversion price be higher than
(i) $0.1131 and (ii) the conversion price of the convertible notes (See Note 6),
as adjusted from time to time, whichever is lower.




Security
Agreement


Pursuant
to the terms of the Settlement Agreement, the Debentures are granted a priority
collateralized position, second only to our note payable to the Brockbank Trust
(See Note 7) in substantially all of our assets.




21




Convertible Debentures
Payable - Failure to Deliver Shares




In March
of 2005, and pursuant to our settlement with investors for our failure to
deliver shares of our common stock upon their conversion of debentures during
2004 (See above), we issued convertible notes payable that accrue interest at 8%
and are payable in equal monthly installments including interest beginning April
1, 2006. In the event of our default on the notes the interest rate increased to
15%.  In February 2008, we satisfied all obligations of these
notes.




Convertible
Notes Payable – 2006 & 2007





The
convertible notes payable as of March 31, 2009 are as follows:





Issued date
                    
                    
                    Face amountWinfield
      Group Debenture Payable
                    
                    5/15/2006
                    
                    
                    $
                    300,000Winfield
      Group Debenture Payable
                    
                    6/21/2006
                    
                    
                    
                    300,000Winfield
      Group Debenture Payable
                    
                    8/23/2006
                    
                    
                    
                    300,000Longview
      Debenture Payable
                    
                    8/24/2006
                    
                    
                    
                    300,000Winfield
      Group Debenture Payable
                    
                    12/12/2006
                    
                    
                    
                    100,000Winfield
      Group Debenture Payable
                    
                    
                    Q1
      2007
                    
                    
                    
                    331,120Winfield
      Group Debenture Payable
                    
                    
                    Q2
      2007
                    
                    
                    
                    288,880Longview
      Debenture Payable
                    
                    3/27/2007
                    
                    
                    
                    250,000$
                    2,170,000




On August
23 and 24, 2006, the Company formally entered into an agreement with several
investors to loan the Company $1,900,000, which was amended in March 2007,
increasing the loan amount to $2,200,000. The notes bear interest at 12% per
annum, payable on the first of each month commencing October 1, 2006, along with
1/24 of the face amount of such notes.  The notes are also convertible
into Common Stock at a 50% discount to market until the underlying shares are
registered and at a 15% discount to market thereafter. As additional
consideration, the investors were issued a total of 20,000,000 warrants to
purchase common stock at exercise prices based upon the same formulas for
conversion of the amounts due under the notes. The notes are secured by a lien
on the assets of Goldspring, Inc. and a pledge of all of the interests in Plum
Mine Special Purpose, LLC, which owns the Plum Mine operation. In connection
with this loan, the lender has agreed to acquire the existing mortgage on the
Plum Mine property from the Brockbank Trust. To date, $2,170,000 of the
$2,200,000 has been funded by the investors.  As of December 31, 2008,
we had failed to make any monthly payments on the notes and they are in
default.





The
“favored nations” rights in several existing notes were triggered by the
issuance of new notes. Since new warrants were not issued, no “favored nations”
rights were triggered in the existing warrants and therefore the accounting for
warrants will be unaffected.  The warrants conversion feature will be
evaluated and adjusted to fair value annually.





Convertible
Notes Payable –2008





In June
2008, the Company entered into a Loan Agreement with John Winfield and
affiliates (“Winfield”) pursuant to which Winfield has agreed to loan the
Company $2,500,000 no later than December 31, 2008 through issuance of a series
of secured notes (“Notes”). The Notes bear interest at the rate of 11% per
annum, and interest is payable quarterly in either cash or Company common stock,
at 85% of market price, at the Company’s option. The term of the Notes is two
years from the date of issuance, and the Notes are convertible into Company
common stock, at a conversion price of $.015 per share. The Notes are secured by
a lien on all of the Company’s assets. In each month, during the five months
ended December 2008, Winfield lent the Company $500,000 pursuant to the Loan
Agreement.




22




The
Convertible Notes Payable -2008 contain a nondetachable convertible option that
was “in the money” at the commitment dates.  Accordingly, we applied
the accounting guidance of EITF 98-5, EITF 00-27 and EITF 08-4 to determine the
methodology for calculating the value of this embedded conversion
option.   Pursuant to EITF 98-5 and EITF 00-27, we used the
intrinsic value calculation (the difference between the conversion price and the
quoted market price of our shares at the commitment date multiplied by the
number of shares into which the security is convertible) to determine the value
of the convertible feature.  The Convertible Notes provide the
following Conversion Right: “Each Lender shall have the right at any time, and
from time to time, on or prior to the Maturity Date to convert all or any part
of the outstanding unpaid amount of the Note into fully paid and non-assessable
shares of Common Stock.”   In general, the value of the
conversion option is recorded as a debt discount and amortized over the term of
the note, but since the Lender has the right to convert into common shares at
the issuance date, the entire amount was recorded to interest expense in this
reporting period.





Note Principal
                  
                  Unamortized
                    Debt Discount
                  
                  
                  Conversion
                    Price per
                    Share
                  
                  
                  Number of
                    Shares
                    Underlying
                    Convertible
                    Note$    
      2,500,000
                  
                  
                  -
                  
                  
                  $
                  0.015
                  
                  
                  
                  166,666,667




Note
11 —Other Debt




Other
Debt at March 31, 2009 and 2008 are as follows:





2009
                  
                  
                  2008Promissory
      Notes Payable - 2005 through 2008
                  
                  $
                  2,400,000
                  
                  
                  $
                  4,775,000Promissory
      Notes Payable – February 2009
                  
                  
                  75,000
                  
                  
                  
                  ―Debt
      – Plum Mine
                  
                  
                  250,000
                  
                  
                  
                  250,000Equipment
      Financing - current portion
                  
                  
                  7,579
                  
                  
                  
                  10,292$
                  2,732,579
                  
                  
                  $
                  5,035,292




Promissory Notes Payable
–2005 through 2008





Promissory
Notes Payable at March 31, 2009 and 2008 are as follows:




2009
                  
                  
                  2008Promissory
      Notes Payable-July 2005 Financing
                  
                  $
                  1,200,000
                  
                  
                  $
                  1,200,000Promissory
      Notes Payable-September 2005 Financing
                  
                  
                  ―
                  
                  
                  
                  300,000Promissory
      Notes Payable-December 2005 Financing
                  
                  
                  ―
                  
                  
                  
                  575,000Promissory
      Notes Payable-February 2006 Financing
                  
                  
                  ―
                  
                  
                  
                  250,000Promissory
      Notes Payable-March 2006 Financing
                  
                  
                  ―
                  
                  
                  
                  150,000Promissory
      Notes Payable-July 2007 Financing
                  
                  
                  ―
                  
                  
                  
                  300,000Promissory
      Notes Payable-October 2007 Financing
                  
                  
                  ―
                  
                  
                  
                  200,000Promissory
      Notes Payable-March 2008
                  
                  
                  ―
                  
                  
                  
                  600,000Promissory
      Notes Payable-December 2007 Financing
                  
                  
                  600,000
                  
                  
                  
                  600,000Promissory
      Notes Payable-January 2008 Financing
                  
                  
                  600,000
                  
                  
                  
                  600,000$
                  2,400,000
                  
                  
                  $
                  4,775,000





23




Promissory Notes Payable -
July 2005 Financing




In July
of 2005, we borrowed $1.2 million from companies controlled by John V. Winfield,
a major investor. Proceeds from the notes were reduced by a 33.3% original issue
discount and other origination fees. Net proceeds received by the Company from
the borrowing were $740,000. The notes accrue interest at 15% per annum and are
payable in monthly installments of principal and interest over a 24 month period
with the remaining entire balance of unpaid principal and interest due on July
15, 2007.  The notes are collateralized by substantially all of the
Company’s assets subject to the security interest of the Brockbank Trust (See
Note 8). As of December 31, 2006 we had failed to make any monthly payments on
the notes and they are in default.




Promissory Notes Payable –
September 2005 through October 2007 Financing




In July
2008, the Company amended $2,175,000 principal amount of unsecured promissory
notes issued to Longview Fund, L.P. through the issuance of an Amended and
Restated Promissory Note issued by the Company in favor of Longview Fund,
L.P.  These amended notes have been reported as long-term debt (See
Note 9).





Promissory Notes Payable –
December 2007 Financing




In
December 2007, we completed a financing transaction with Mr. Winfield and his
affiliates which provided us with $500,000 in funding. In consideration for the
financing, we issued promissory notes with a face value of $600,000, reflecting
an original discount of sixteen and seventeen hundreds (16.17%) percent. The
notes evidencing the loan bear interest at the rate of 4.9% per annum, payable
on or prior to the one year anniversary of the respective loan
date.




Promissory Notes Payable –
January 2008 Financing




On
January 31, 2008, we completed a financing transaction with Mr. Winfield and his
affiliates which provided us with $500,000 in funding. In consideration for the
financing, we issued promissory notes with a face value of $600,000, reflecting
an original discount of sixteen and seventeen hundreds (16.17%) percent. The
notes evidencing the loan bear interest at the rate of 4.9% per annum, payable
on or prior to the one year anniversary of the respective loan
date.




Promissory Notes Payable –
February 2009





During
February 2009, Mr. Winfield advanced the Company $75,000.  This
advance was later rolled into to a $2 million financing transaction completed on
May 1, 2009 (See Note 20).  The May 2009 convertible notes bear
interest at the rate of  9% per annum, and interest is payable
quarterly in either cash or Company common stock, at 85% of market price. The
term of the Notes is three years from the date of issuance, and the Notes are
convertible into Company common stock, at a conversion price of $.0125 per
share. The Notes are secured by a lien on all of the Company’s assets.





Debt - Plum
Mine




We have a
non-interest bearing note payable note related to our purchase of the Plum
Mining property. The note does include, however, a clause for 5% annual interest
on all past due balances. The note was payable in ten quarterly payments through
June 2006. As of March 31, 2009 we still had a $250,000 note balance
due.





Note
12 — Long-term Convertible Debt Obligation





Convertible
debentures at March 31, 2009 and 2008 were as follows:


2009
                  
                  
                  2008Long-term
      Convertible Notes Payable – July 2008 (Longview Amended and Restated
      Note)
                  
                  $
                  2,782,563
                  
                  
                  $
                  ―Less
      Current Portion
                  
                  
                  ―
                  
                  
                  
                  ―Long-term
      Convertible Notes Payable, net of current portion
                  
                  $
                  2,782,563
                  
                  
                  $
                  -
  24





Long-Term Convertible Notes
– July 2008 (Longview Amended and Restated Note)




On July
10, 2008, the Company amended $2,175,000 principal amount of unsecured
promissory notes issued to Longview Fund, L.P. through the issuance of an
Amended and Restated Promissory Note issued by the Company in favor of Longview
Fund, L.P. The amended terms are as follows:




Expiration
      Date:
              July
      10, 2011Accrued
      Interest:
              Accrued
      interest at July 10, 2008 capitalized into the amended and revised
      note.Interest
      Rate:
              11%,
      payable in arrears in cash or stock (at a 15% discount to market price,
      calculated as a 5 day trailing
VWAP)


Conversion:
              The
      principal amount of the Note and interest thereon is convertible into
      Goldspring Common Stock at a price of $.0175 per share.Term:
              Three
      YearsAnti
      Dilution:
              Full
      ratchet





Longview
Amended and Restated Notes at July 10, 2008 were as follows:




Principal
                  
                  
                  InterestPromissory
      Notes Payable-September 2005 Financing
                  
                  $
                  300,000
                  
                  
                  $
                  172,870Promissory
      Notes Payable-December 2005 Financing
                  
                  
                  375,000
                  
                  
                  
                  211,966Promissory
      Notes Payable-February 2006 Financing
                  
                  
                  250,000
                  
                  
                  
                  98,164Promissory
      Notes Payable-March 2006 Financing
                  
                  
                  150,000
                  
                  
                  
                  56,237Promissory
      Notes Payable-July 2007 Financing
                  
                  
                  300,000
                  
                  
                  
                  58,526Promissory
      Notes Payable-October 2007 Financing
                  
                  
                  200,000
                  
                  
                  
                  -Promissory
      Notes Payable-March 2008 Financing
                  
                  
                  600,000
                  
                  
                  
                  9,800$
                  2,175,000
                  
                  
                  $
                  607,563




On March
10, 2008, we received the $500,000 balance of the financing from the December
11, 2007 financing agreement. In consideration for the financing, we issued
promissory notes with a face value of $600,000, reflecting an original discount
of sixteen and seventeen hundredths (16.17%) percent. The notes evidencing the
loan bear interest at the rate of 4.9% per annum, payable on or prior to the one
year anniversary of the respective loan date. On July 10, 2008, the Company
amended its promissory note with Longview Fund, L.P., which had outstanding
principal of $2,175,000 and related outstanding interest of $607,563 through the
issuance of an Amended and Restated Promissory Note in the aggregate amount of
$2,782,563 as summarized above.





Note
13 — Long-term Debt Obligation





Long-term
debt at March 31, 2009 and 2008 was as follows:




2009
                  
                  
                  2008Long-term
      Debt - Winfield Debenture
                  
                  
                  500,000
                  
                  
                  
                  ―Long-term
      Debt - Equipment Financing
                  
                  
                  7,579
                  
                  
                  
                  19,283Less
      current portion
                  
                  
                  (7,579
                  )
                  
                  
                  (8,991
                  )Long-term
      debt, net of current portion
                  
                  $
                  500,000
                  
                  
                  $
                  10,292





Long-Term Debt – Winfield
Debenture




On
December 8, 2008, we completed a financing transaction with Mr. Winfield and his
affiliates which provided us with $500,000 in funding. In consideration for the
financing, we issued promissory notes with a face value of $500,000 bearing loan
interest of 11% per annum.  The term of loan is for two years
commencing from the date of the loan agreement.




25





Long-Term Debt - Equipment
Financing




During
2004, we purchased certain equipment and financed our purchases through GMAC and
Ford Motor Company credit agencies. Aggregated principal and interest due
pursuant to the financings is due monthly in equal installments of $1,054, at an
average interest rate of 7.2%. The equipment purchased is pledged as collateral
for the debt.




Principal
payments on long-term debt financing for the next four years are as
follows:




2009
                  
                  $
                  7,5792010
                  
                  $
                  ―2011
                  
                  $
                  ―2012
      and thereafter
                  
                  $
                  ―Total
                  
                  $
                  7,579




Note
14 — Stockholders’ Equity




Common
stock was issued during the year ended March 31, 2009 and March 31, 2008 for the
following purposes:




2009 Share
                    Issuances
                  
                  
                  Share Value
                  
                  
                  2008 Share
                    Issuances
                  
                  
                  Share ValueDebenture
      principal
                  
                  
                  ―
                  
                  
                  $
                  ―
                  
                  
                  
                  79,847,173
                  
                  
                  $
                  770,273Debenture
      Interest
                  
                  
                  6,798,941
                  
                  
                  
                  76,250
                  
                  
                  
                  67,145,795
                  
                  
                  
                  600,066Liquidated
      damages
                  
                  
                  ―
                  
                  
                  
                  ―
                  
                  
                  
                  50,051,631
                  
                  
                  
                  428,469Private
      placements
                  
                  
                  98,600,000
                  
                  
                  
                  986,000
                  
                  
                  
                  50,000,000
                  
                  
                  
                  500,000Mineral
      claims
                  
                  
                  ―
                  
                  
                  
                  ―
                  
                  
                  
                  2,000,000
                  
                  
                  
                  28,690Mining
      software
                  
                  
                  ―
                  
                  
                  
                  ―
                  
                  
                  
                  2,434,892
                  
                  
                  
                  9,740Consulting
                  
                  
                  ―
                  
                  
                  
                  ―
                  
                  
                  
                  2,000,000
                  
                  
                  
                  25,760Employees
      and directors
                  
                  
                  1,500,000
                  
                  
                  
                  21,000
                  
                  
                  
                  20,000,000
                  
                  
                  
                  234,400Total
                  
                  
                  106,898,941
                  
                  
                  $
                  1,083,250
                  
                  
                  
                  273,479,491
                  
                  
                  $
                  2,597,398





Debenture Principal,
Debenture Interest and Liquidated Damages





The
following represents principal and interest payments on debt, made during the
three months ended March 31, 2009 with the issuance of our common
stock.




Note Description
                        
                        Interest
                          Payment
                          Number of
                          shares
                        
                        
                        Value of
                          Shares
                        
                        See NoteLong-Term
      Convertible Notes – July 2008 (Longview Amended and Restated
      Note)
                        
                        
                        6,798,941
                        
                        
                        $
                        76,250
                        
                        Note12





26





Private
Placements





The
following private placement transactions raised a total of $950,000 in exchange
for 95,000,000 shares of our unregistered Common stock, were place with
accredited investors.  In general, the proceeds were used to fund
exploratory drilling and for general working capital.





·
            In the first quarter 2009,
      $950,000 for 95,000,000 shares at $0.01 per share and 95,000,000
      warrants. The warrants have an exercise price of $.015 and a term of
      six years.  We also issued 3.6 million shares as a placement
      fee.




Employees and
directors





During
the three month period ended March 31, 2009, the following shares were issued to
employees and Company directors:





·
            In January 2009, pursuant to his
      employment agreement, Larry Martin, the Company’s Chief Geologist, was
      issued a total of one million five hundred thousand of our unregistered
      shares, valued at $21,000 or $0.014 per
  share.




Note
15- Earnings Per Share




Basic
earnings per share is computed by dividing net income, after deducting preferred
stock dividends accumulated during the period, by the weighted average number of
shares of common stock outstanding. Diluted earnings per share is computed by
dividing net income, after deducting preferred stock dividends accumulated
during the period, by the weighted average number of shares of common stock and
dilutive common stock equivalent shares outstanding. The amount of preferred
stock dividends is zero in all periods presented. For the quarters ended March
31, 2009 and March 31, 2008, there were approximately 1,885 million and 1,260
million, respectively, of common stock equivalent shares excluded from the
dilutive earnings per share calculation because they were anti-dilutive. The
following is a reconciliation of the number of shares used in the basic and
diluted computation of net income per share (in millions):





For the three month period
      ended
                                        March 312009
                                      
                                      
                                      2008Weighted
      average number of common shares outstanding – basic
                                      
                                      
                                      
                                      3,422
                                      
                                      
                                      
                                      2,918Dilution
      from convertible debt, stock options and warrants
                                      
                                      
                                      
                                      1,885
                                      
                                      
                                      
                                      1,260Weighted
      average number of common shares outstanding – diluted
                                      
                                      
                                      
                                      5,307
                                      
                                      
                                      
                                      4,178




Note
16- Embedded Derivatives





“Derivative
liability” totaling $5,368,833 at March 31, 2009 represents the fair value of
the conversion feature (embedded derivatives) included in
debt.    SeeNote 10 - Convertible
Debentures: Embedded Derivatives and Note 12 — Long-term Convertible Debt
Obligation: Embedded Derivatives for additional information.




27




Note
17 - Subsequent Events





On May 1,
2009, the Company secured $2,000,000 of additional convertible debt
financing.  The agreement gives the Company the right, upon 30 days
prior written notice to the Lenders, to request financing of not less than
$250,000 and or more than $500,000 per loan request.  The Company may
request loans at any time between May 1, 2009 and August 28,
2009.   As of the date of the filing the Company has requested
and received $750,000 of financing.





The terms
of the agreement are as follows:




Convertible
      Loan Amount:
              Up
      to $2,000,000Interest
      Rate:
              9%,
      payable in arrears in cash or stock (at a 15% discount to market price,
      calculated as a 5 day trailing VWAP)Conversion:
              The
      principal amount of the Note and interest thereon is convertible into
      Goldspring Common Stock at a price of $.0175 per
  share.


Term:
              Three
      YearsWarrants:
              50%
      Stock warrant coverage (Maximum warrants: 80,000,000) with an exercise
      price of $0.02 and a term of four (4) yearsSecurity:
              Security
      interest in all of the Company’s assets,  pari passu with the
      existing security interests





Note
18 - Unregistered Sales of Securities





During
the first quarter 2009, Goldspring raised $950,000 through a private placement
to six (6) accredited investors. In consideration we issued 95,000,000 shares of
our unregistered Common Stock at $0.01 per share purchase price plus 95,000,000
warrants to purchase Common Stock at $0.015.  The term of the warrants is
six (6) years.  The proceeds from this private placement were used to
fund exploratory drilling and for general working capital.  In
addition, 3.6 million shares were issued as part of a placement
fee.





In
January 2009, pursuant to his employment agreement, Larry Martin, the Company’s
Chief Geologist, was issued a total of one million five hundred thousand of our
unregistered shares, valued at $21,000 or $0.014 per share.




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 also included in this
10-Q.





The
following discussion addresses matters we consider important for an
understanding of our financial condition and results of operations for the three
months ended March 31, 2009, as well as our future results.




Overview




GoldSpring,
Inc. (Company) is a North American precious metals mining company, focused in
Nevada, with an extensive land position of 334 claims that controls 4,300 acres
comprised of 590 acres of patented claims (private lands) and 3,710 acres
unpatented claims subject to various underlying royalties, in the historic
Silver City and Comstock mining districts, Storey County and Lyon County,
Nevada, USA. The Company was formed in mid-2003, and during that year acquired
two properties in the Comstock Lode District. The Company deployed several
million dollars securing permits, building an infrastructure and bringing the
exploration project into test mining production within a year of its
acquisition.





The
Company, in 2005, began consolidating the Comstock Lode District by acquiring
additional properties. The Company successfully expanded our footprint and
creating additional opportunities for exploration and mining.  The
Company's objectives are to create reserves through exploration, resume mining,
optimize its production, and maximize shareholder value.




28





From
September 2004 through 2006 the Company operated its Plum Mine open pit gold and
silver operation located on the patented Billie the Kid claims in the Comstock
District.  During this period, the Plum Mine
operation  produced 11,550 ounces of gold and 45,376 ounces of
silver.  The average recoverable grade for gold was 0.034 ounces per
ton and for silver was 0.13 ounces per ton.  In early 2007 the Company
decided to suspend mining operations and to go into voluntary temporary closure
in order to focus on our footprint in the Comstock,, study the geology of the
District, delineate minerlization and create a drilling strategy and
plan.  The focus shifted from mine operations to exploration and
developmental drilling in order to define mineralization.  In
addition, a comprehensive metallurgical testing program was initiated to ensure
optimum precious metal recovery from future production.





The
majority of 2007 was focused on collecting and analyzing geological information
from our Comstock project in Nevada, the Hartford / Lucerne Complex provided a
unique opportunity to identify significant precious metals mineralization that
would lead us to open pit mine production in a short period of
time.





The
Company’s goal is to reopen The Plum Mine during 2010 by commencing open pit
mining at the Hartford / Lucerne Complex.  To achieve this goal, the
Company contracted Techbase to create a computerized mine modeling and
mineralization estimate and commissioned an in house scoping
study.  The scoping study includes a complete comprehensive mine plan
and mining schedule.  Construction of the new milling facility and new
process ponds as well as the expansion of the processing facilities will require
a diligent, efficient and fully funded effort to achieve production by early
2010.  A mine truck and shovel fleet, and ancillary mine production
equipment will need to be acquired and placed in service by the mine production
team.  The mine production team will supply the ore to the mill and
heap leach pad for processing.  .   Our ability to
resume mining is dependent upon securing sufficient funds to procure the mining
fleet and related assets..


Results
of Operations and Operational Plan





The
Hartford / Lucerne complex area was the focus of the 2008 - January 2009
development drilling program.   The ultimate economic pit
currently being planned trends onto public lands administered by the Bureau of
Land Management (BLM), US Dept of the Interior. The existing production facility
is located on private land. The Nevada Division of Environmental Protection
-Bureau of Mine Regulation and Reclamation (BMRR) is the lead agency in the
regulation of the operation of the Plum Mine.  The planned starter pit
is located on patented lands.





Exploration,
developmental and in-fill drilling since our decision to suspend mining
operation has resulted in definition of new mineable precious metal mineral
reserves (as per SME Guidelines 2007).  The Plum Mine has a State
issued Mine Reclamation Permit (Permit No. NEV 0196) and an Operating Permit
(NEV 2000109).  The Mine Reclamation Permit was updated in 2008
pursuant to a required three year review and modification
program.  Pursuant to the 2008 approved Reclamation Plans, we have
posted surety bonds for the Comstock Mine Project in the amount of $1,106,882 of
which $766,768 was in the form of a cash deposit and the balance was secured
from a surety bond with the Nevada Division of Minerals – Nevada Bond Pool
Program.  This reclamation bond allows mining and processing at the
currently permitted heap leach facility in the Comstock District of Storey
County.





Modification
to the State permits is underway to add changes to the processing system that
will optimize precious metals recovery.  The Air Quality permit
requires modification reflecting equipment modifications, additions and
changes.  The Storey County Special Use Permit must be revisited
before the commencement of mining.  Expected completion of
permitting  should allow  re-opening of the mine in
2010.




29




A
significant part of our success can be attributed to the tier-one team of
experienced mining professionals that has been assembled since late 2007. This
team created a drill campaign based on the results of the geological model they
created from analyzing data for mineralization in the Comstock Mining
District.    We launched this developmental surface drill
program at the  Hartford / Lucerne Complex in December 2007 to
delineate the zones of mineralization. The drill hole depth of this reverse
circulation drill program typically ranged from 600 to 1000
feet.





Our
fifteen month drill program, which ended in February 2009, consisted of 182
Reverse Circulation (RC) drill holes.     The majority
of the 182 drill holes were planned and methodically located to drill Hartford /
Lucerne Complex on adequate spacing to define continuity and grade
..  A small fraction of the allocated budget was used to drill holes on
lease properties that required annual work commitments.  Several of
these exploration drill holes intersected favorable mineralized zones and will
be followed by additional offset drilling.





During
this program the Company contracted two drilling companies:  Orbit
Garant Drilling and George Delong Construction and
Drilling.  The drill rigs were reverse circulation track rigs and one
truck mounted drill rig that performed the exploration and developmental
drilling at the Comstock project. Several experienced mining professionals and
consultants with proven success were added in 2008 to further strengthen and
augment all facets of mining, including metallurgy.  In order to fund
these exploration efforts, the Company raised $5,120,000 in 2008 and $950,000 in
the first fiscal quarter 2009 to finance this developmental and exploratory
drill campaign.





Third-party
consultant Mike Norred, Principle Engineer of Techbase International, modeled
the results of this  Hartford / Lucerne Complex drill program combined
with the historic drill results to estimate gold and silver mineralization. This
statistical model confirmed that the drill spacing selection was
correct.  The model independently confirmed many geologic attributes
which control this mineralized material deposit.





Our
procedures to ensure accurate reporting include:  1.) Surface collars
of the individual drill holes were surveyed and drill holes completed after
October 7, 2008 were surveyed down the hole.  2.) Samples of drilling
were collected every five feet and duplicate samples every 100
feet.  3.)  Drill samples were kept in secured containers
until pickup by American Assay Labs in Sparks,
Nevada.  4.)  American Assay Labs was the principle
certified commercial laboratory used by the Company for assay
analysis.  5.  Check  assay analysis was conducted
by ALS-Chemex Laboratories in Reno, Nevada  6.) Specific selected
samples were assayed by the Company’s in-house analytical lab.





In 2008,
the Company began to execute a mineral exploration and mine development business
model with all activities focused on resumption of mine production in
2010.   The most relevant steps taken are as
follows:





 ̈   Expanding
our footprint in the Comstock Region and other acquisition opportunities through
the entry into of two letters of intent to purchase rights, which upon
consummation, may allow the Company to amass one of the largest land positions
in the Comstock District.





 ̈   Further
exploration in the Comstock Region to accomplish the above, including a decision
to review the geology of the Hartford / Lucerne complex in a more detailed
manner





 ̈   Complete
reserve report for the Hartford / Lucerne complex through a focus on infill
drilling





 ̈   Expanded
the permitted drilling area





 ̈  
Updated  the mine reclamation bond





 ̈   Secured
$3.0 million in financing from a major shareholder to fund our on-going drilling
program in 2008





 ̈   Secured
$1,520,000 in 2008 and $950,000 in the first fiscal quarter 2009 through various
private placements to accredited investors to advance our drilling, permitting
and mine design programs




30





In
addition to our drilling activities ,, we expanded our mineral claim portfolio
in the Comstock District through acquisition and the staking of mineral claims
..  We now control over 4,300 acres of patented and unpatented mining
claims in the Comstock District of Nevada.  Approximately 2,000 acres
of these holdings had been added through the staking new mineral
claims.  We continue  remains focused on expanding its
portfolio of land and mineral holdings in the Comstock
District.





Our
exploration staff is currently planning additional surface geochemical sampling,
detailed geologic mapping and rock chip sampling on previously identified
favorable targets and expanding onto additional targets areas.  We have
consolidated historic exploration and production records using Techbase software
to generate a computer model of the Comstock Mining District with the objective
of delineating additional geologic targets that were previously
untested.





2009
Developments




In the
first quarter of 2009, a modification application to the Water Pollution Control
Permit was submitted to the Nevada Division of Environmental
Protection.  The permit modifications highlight the Company’s newly
designed processing facilities that will optimize recovery of the recently
discovered mill-grade gold and silver ore at the Hartford Complex.





The major
improvements to the processing facilities include the:





·
            Construction and operation of two
      new crushed ore storage
areas;





·
            Implementation of a high-grade
      ore milling circuit in a contained
area;





·
            Expansion of the leach solution
      pumping systems;





·
            Formation of a new pregnant
      solution pond; and





·
            Expansion of the Merrill Crowe
      processing plant.





The
Nevada Division of Environmental Protection, Bureau of Mining Regulations and
Reclamation, has begun its review of the application.  Major
modification applications typically take nearly 180 days to
complete.  Under the modified permit, the Company initially plans to
mine and process at a rate of 720,000 tons of gold and silver ore per
year.  The majority of the ore that will be processed in the milling
circuit will have a high percentage of the contained precious metals recovered
because of efficiencies afforded by the milling process.





Several
other operating permits are also being updated to allow operations to begin in
2010.  Dennis Anderson, Professional Mine Engineer, leads the mine
permitting efforts and is supported by the engineering consultants at Telesto
Nevada, LLC of Reno, Nevada.




In
anticipation of mining resumption, the Company has procured a 300 ton per day
ball mill and related equipment.  The ball mill is being added to
process the high grade gold and silver mineralization, optimizing gold and
silver recovery.  Precious metal recovery using the ball mill and
grinding to 100 Mesh should be around 95% versus 75% for heap
leaching.




Assuming
sufficient funds are raised in a timely manner, the Company’s goal would be to
reopen the Mine during in 2010. In order to resume production, the Company must
complete complete a comprehensive mine plan; and complete a mining schedule, all
of which are dependent upon ability to secure sufficient funds to procure the
mining fleet and related assets. In addition, we will need to construct the
milling facility, process ponds and expand the existing processing facilities. A
haul truck and shovel fleet, and ancillary mine production equipment will need
to be acquired and placed in service by the mine production team.




31





There are
also risks involved in the fact that one individual and his affiliates, as of
March 31, 2009, beneficially own in excess of 24% of our voting stock. Pursuant
to financing agreements, this convertible debt holder and his affiliates with a
61 day notice can waive the 4.9% ownership restriction, allowing him to convert
100% of his convertible debt and related interest, which totals $11,639,508 at
March 31, 200, into our common shares. This group, if they waive the ownership
restriction and convert all convertible debt and related interest into our
voting common stock,may take actions that could conflict with your interests.This includes the election
of Company directors, approval of actions generally requiring the approval of
the holders of our voting stock, including adopting amendments to our articles
of incorporation and bylaws and approving mergers, certain acquisitions or sales
of all or substantially all of our assets, which could delay or prevent someone
from acquiring or merging with us or limit the ability of our other stockholders
to approve transactions that they may deem to be in their best
interests.




DWC Resources Letter of
Intent





On August
13, 2008, Goldspring, Inc. (the “Company”) entered into a binding letter of
intent to purchase certain property owned by DWC Resources, Inc. in Storey
County, Nevada.  The purchase price is $7,500,000, but is subject to
adjustment pursuant to the results of a fairness opinion and/or appraisal to be
obtained by the Company. The purchase price will be paid through issuance of a
$7,500,000 promissory note which shall bear interest at the rate of 9% per year
with quarterly interest payments due throughout the term of the note which is 5
years. The purchased assets include patented and unpatented lode mining claims
owned by DWC Resources, Inc. in the Comstock Lode district. The letter of intent
also provides for the payment of royalties ranging from 2% - 6% of “net smelter
returns” based upon the price of gold per ounce and a 1% royalty to be paid to
the party which sold the subject property to DWC Resources in 2007. There is
also a commitment to expend a minimum of $250,000 per year on exploration by the
Company for five years.  The letters of intent have yet to become
binding agreements and thus we do not own the rights to any of the claims
yet.





Sutro
Tunnel Sublease




The
Company simultaneously entered into a binding letter of intent to sublease the
Sutro Tunnel Lease dated January 1, 2008 between Sutro Tunnel Co. and John
Winfield or his nominee.  The purchase price for the sublease is
$2,000,000 (which is subject to adjustment upon receipt of a third party
fairness opinion/appraisal) payable pursuant to the issuance of a $2,000,000
promissory note which shall bear interest at the rate of 9%per year with
quarterly interest payments due throughout the term of the note which is 5
years. The letter of intent also provides for the payment of royalties ranging
from 6% - 8% of “net smelter returns” based upon the price of gold per ounce and
a 1% royalty to be paid to Winfield if Winfield provides an acceptable buyout of
the Sutro property. The Company is also required to fulfill lessee’s obligations
under the Sutro Tunnel Lease with regard to payment of royalties and exploration
expenditures.  The letters of intent have yet to become binding
agreements and thus we do not own the rights to any of the claims
yet.




Comparative
Financial Information





Below we
set forth a summary of comparative financial information the three months ended
March 31, 2009 and 2008.




32




Comparative
Financial Information





Three
Months Ended March 31, 2009





Quarter
                  ended
                  March31,
                  2009
                
                
                Quarter
                  ended
                  March31,
                  2008
                
                
                DifferenceRevenue
                
                $
                —
                
                
                $
                —
                
                
                $
                —Depletion
      and amortization
                
                
                38,866
                
                
                
                60,000
                
                
                
                (21,134
                )Reclamation,
      Exploration and Test Mining Expense
                
                
                1,450,316
                
                
                
                649,093
                
                
                
                801,223General
      and Administration
                
                
                382,554
                
                
                
                300,202
                
                
                
                82,352Consulting
      and Professional Service
                
                
                70,406
                
                
                
                31,109
                
                
                
                39,297Financing
      cost – warrant issuances
                
                
                1,326,862
                
                
                
                —
                
                
                
                1,362,862Other,
      net
                
                
                —
                
                
                
                (744,385
                )
                
                
                744,385Interest
      Expense
                
                
                781,100
                
                
                
                741,191
                
                
                
                39,909Net
      Loss
                
                $
                (4,050,104
                )
                
                
                (1,037,120
                )
                
                $
                3,012,984




We did
not produce or sell any gold or silver at our Comstock project in Nevada during
the three months ended March 31, 2009 and March 31, 2008.  In February
2007, we shifted our focus to geology and developmental / in-fill drilling and
suspended mining activities.





Reclamation,
Exploration and Test Mining Expenses were $ 801,223 greater for the three month
period ended March 31, 2009 compared to the three month period ended March 31,
2008. The variance reflects the suspension of mining activities in 2007and the
commencement of our developmental / in-fill drilling program at our Comstock
project in December 2007.





The first
calendar quarter 2009 General and administrative expenses increased by $82,352
from the first calendar quarter 2008.  The variance reflects increased
labor costs from the hiring of additional employees and $21,000 of stock based
compensation from a stock grant to an employee.





Consulting
and professional expenses for the three month period ended 2009 were $70,406
compared to $31,109 for the three month ended March 31, 2008, amounting to
$39,297 quarter over quarter increase.  The increase in expenses
reflects higher fees from our outside auditors and a negotiated reduction in
legal fees during the first quarter 2008.





The first
calendar quarter 2009 Financing cost – warrant issuance expense represents the
fair value calculation for the 95 million warrants issued in conjunction with
six (6) private placements during the quarter.  The fair value of each
warrant was estimated at the date of the grant using the Black-Scholes option
pricing model.  Black-Scholes utilizes assumptions related to
volatility, the risk free interest rate, the dividend yield (which is assumed to
be zero, as the Company has not paid, nor anticipates paying any, cash dividends
and employee exercise behavior.  Expected volatilities utilized in the
model are based mainly on the historical volatility of the Company’s stock price
and other factors.





Other,
net of $744,385 in the first calendar quarter 2008 reflects an accrual
adjustment to liquidated damages resulting from the extinguishment of
debt.





Interest
expense for the three month period ended March 31, 2009 increased by $39,909
from March 31, 2008. This variance reflects the issuance of additional interest
bearing notes.




33





Our
Company is a Development Stage enterprise as defined by SEC Industry Guide 7,
and, in accordance with SEC Industry Guide 7, infrastructure expenditures such
as haul roads, leach pads and start-up costs and all drilling were
expensed.





Liquidity
and Capital Resources





We
recognize that our cash resources are limited. Our continued existence and plans
for mining production depend on our ability to obtain the capital necessary to
operate, through the issuance of additional debt, royalty financing or equity.
In the first calendar quarter 2009, we raised an aggregate of $950,000 through
six private placements. In May 2009, we secured formal commitments for
additional debt financing up to $2 million (See Note 17).  While this
additional funding may meet our immediate working capital needs, if we are not
able to generate sufficient revenues and cash flows or obtain additional or
alternative funding, we will be unable to continue as a going concern. We have
yet to realize an operating profit at our Company. As disclosed in the report of
our independent registered public accounting firm in our financial statements
Form 10-K for the year ended December 31, 2008, our recurring losses and
negative cash flow from operations raise substantial doubt about our ability to
continue as a going concern.





As of
March 31, 2009, the Company is in default of the terms on several outstanding
notes payable with the Winfield Group totaling $11,869,986 of principal and
$3,624,023 of interest.  The Winfield Group consists of Mr. Winfield,
Sante Fe Financial Corporation, Portsmouth Square and InterGroup Corporation,
Combined, the Winfield Group represent the Company’s largest creditor and a
significant stockholder.  Mr. Winfield is affiliated with these
Companies through a direct controlling interest and/or as their Chairman of the
Board.  Because we are in default, the entire note balances of the
defaulted notes have been recorded as current liabilities.




Item 3. Quantitative and Qualitative
Disclosures About Market Risks





An
investment in our common stock involves risk. You should carefully consider the
following risk factors.





Our
exposure to market risk for changes in interest rates relates primarily to the
market-driven increase or decrease in interest rates, and the impact of those
changes on the Company’s ability to realize a return on invested or available
funds. We ensure the safety and preservation of our invested principal funds by
limiting default risk, market risk and reinvestment risk. We mitigate default
risk by investing in short term high-credit investment grade securities and/or
commercial checking and savings accounts.





ITEM
4. CONTROLS AND PROCEDURES




A. 
Disclosure




As of the
end of the period covered by this Annual Report on Form 10-Q, management
performed, with the participation of our Chief Executive Officer and Chief
Financial Officer, an evaluation of the effectiveness of our disclosure controls
and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.
Our disclosure controls and procedures are designed to ensure that information
required to be disclosed in the report we file or submit under the Exchange Act
is recorded, processed, summarized, and reported within the time periods
specified in the SEC’s forms, and that such information is accumulated and
communicated to our management including our Chief Executive Officer and our
Chief Financial Officer, to allow timely decisions regarding required
disclosures. Based on the evaluation as described above, our internal control
over disclosure controls and procedures as of March 31, 2009 are
effective.




34





B.
 Internal Control over Financial Reporting




Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the company in accordance with as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control
over financial reporting includes those policies and procedures
that:





(i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our assets;





(ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements; and





(iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized transactions.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In making
this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated
Frameworkand Internal
Control over Financial Reporting-Guidance for Smaller Public
Companies.





We
believe that internal control over financial reporting is effective as of
December 31, 2008. This annual report does not include an attestation report of
the company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only management's report in this annual
report.





There
have been no changes during the quarter ended March 31, 2009 in our Company's
internal control over financial reporting identified in connection with the
evaluation required by Exchange Act Rules 13a-15(d) and 15d-15(d) that have
material affected, or are reasonably likely to materially affect, our internal
controls over our financial reporting.




PART
II - OTHER INFORMATION





Item 1. Legal Proceedings





From time
to time, we are involved in lawsuits, claims, investigations and proceedings
that arise in the ordinary course of business. There are no matters pending that
we expect to have a material adverse impact on our business, results of
operations, financial condition or cash flows.




Item
1A.  Risk
Factors





An
investment in our common stock involves risk. You should carefully consider the
following risk factors, in addition to those discussed elsewhere in this report,
in evaluating our company, its business, and prospects. The following risks
could cause our business, financial condition, and operating results to be
materially and adversely affected.




35




We
have limited resources and our inability to obtain additional financing could
negatively affect our growth and success.




We have
incurred substantial losses since our inception, and we are currently
experiencing a cash flow deficiency from operations. Our current cash flow and
capital resources are limited, and we may require additional funds to pursue our
business. We may not be able to secure further financing in the future. If we
are not able to obtain additional financing on reasonable terms, we may not be
able to execute our business strategy, conduct our operations at the level
desired, or even to continue business.




We
have received a qualified report from our independent auditors




Our
independent auditors report on our financial statements indicates that our
recurring losses from operations and working capital deficit raise substantial
doubt about our ability to continue as a going concern





Inability
to raise sufficient funds to increase growth





Our
recent financings have only provided capital to continue existing operations but
not to continue significant exploration and growth. Without the ability to
attract sufficient amounts of capital at any one time, it is unlikely that we
can achieve profitability in the foreseeable future.




We have invested capital in high-risk
mineral projects where we have not conducted sufficient exploration and
engineering studies.




We have
invested capital in various mineral properties and projects in Nevada where we
may not have conducted sufficient exploration and engineering studies to
minimize the risk of project failure to the extent that is typical in the mining
industry. Our mineral projects involve high risks because we have not invested
substantial sums in the characterization of mineralized material, geologic
analysis, metallurgical testing, mine planning, and economic analysis to the
same extent that other mining companies might deem reasonable. Standard industry
practice calls for a mining company to prepare a formal mine plan and mining
schedule and have these documents reviewed by a third party specialist. We do
not have a formal mine plan that has been reviewed by a third party specialist.
Because we have not established proven or probable reserves, there can be no
assurance that we will be able to produce sufficient gold to recover our
investment and operating costs.




We
will not be successful unless we recover precious metals and sell them for a
profit.




Our
success depends on our ability to recover precious metals, process them, and
successfully sell them for more than the cost of production. The success of this
process depends on the market prices of metals in relation to our costs of
production. We may not always be able to generate a profit on the sale of gold
or other minerals because we can only maintain a level of control over our costs
and have no ability to control the market prices. The total cash costs of
production at any location are frequently subject to great variation from year
to year as a result of a number of factors, such as the changing composition of
ore grade or mineralized material production, and metallurgy and exploration
activities in response to the physical shape and location of the ore body or
deposit. In addition costs are affected by the price of commodities, such as
fuel and electricity. Such commodities are at times subject to volatile price
movements, including increases that could make production at certain operations
less profitable. A material increase in production costs or a decrease in the
price of gold or other minerals could adversely affect our ability to earn a
profit on the sale of gold or other minerals.




We
do not have proven or probable reserves, and there is no assurance that the
quantities of precious metals we produce will be sufficient to recover our
investment and operating costs.




Our
success depends on our ability to produce sufficient quantities of precious
metals to recover our investment and operating costs. We do not have proven or
probable reserves. There can be no assurance that our exploration activities
will result in the discovery of sufficient quantities of mineralized material to
lead to a commercially successful operation.




36




The cost of our exploration and
acquisition activities is substantial, and there is no assurance that the
quantities of minerals we discover or acquire will justify commercial operations
or replace reserves established in the future.




Mineral
exploration, particularly for gold and other precious metals, is highly
speculative in nature, involves many risks, and frequently is nonproductive.
There can be no assurance that our exploration and acquisition activities will
be commercially successful. Once gold mineralization is discovered, it may take
a number of years from the initial phases of drilling until production is
possible, during which time the economic feasibility of production may change.
Substantial expenditures are required to acquire existing gold properties, to
establish ore reserves through drilling and analysis, to develop metallurgical
processes to extract metal from the ore, and in the case of new properties, to
develop the processing facilities and infrastructure at any site chosen for
mineral exploration. There can be no assurance that any gold reserves or
mineralized material that may be discovered or acquired in the future will be in
sufficient quantities or of adequate grade to justify commercial operations or
that the funds required for mineral production operation can be obtained on a
timely or reasonable basis. Mineral exploration companies must continually
replace mineralized material or reserves depleted by production. As a result,
there can be no assurance that we will be successful in replacing any reserves
or mineralized material acquired or established in the future.




The
price of gold fluctuates on a regular basis and a downturn in price could
negatively impact our operations and cash flow.




Our
operations are significantly affected by changes in the market price of gold.
Gold prices can fluctuate widely and may be affected by numerous factors, such
as expectations for inflation, levels of interest rates, currency exchange
rates, central bank sales, forward selling or other hedging activities, demand
for precious metals, global or regional political and economic crises, and
production costs in major gold-producing regions, such as South Africa and the
former Soviet Union. The aggregate effect of these factors, all of which are
beyond our control, is impossible for us to predict. The demand for and supply
of gold affect gold prices, but not necessarily in the same manner as supply and
demand affect the prices of other commodities. The supply of gold consists of a
combination of new mineral production and existing stocks of bullion and
fabricated gold held by governments, public and private financial institutions,
industrial organizations, and private individuals. As the amount produced in any
single year constitutes a small portion of the total potential supply of gold,
normal variations in current production do not have a significant impact on the
supply of gold or on its price. If gold prices decline substantially, it could
adversely affect the realizable value of our assets and potential future results
of operations and cash flow.





The use of hedging instruments may
not prevent losses being realized on subsequent price decreases or may prevent
gains being realized from subsequent price increases.




We may
from time to time sell some future production of gold pursuant to hedge
positions. If the gold price rises above the price at which future production
has been committed under these hedge instruments, we will have an opportunity
loss. However, if the gold price falls below that committed price, our revenues
will be protected to the extent of such committed production. In addition, we
may experience losses if a hedge counterparty defaults under a contract when the
contract price exceeds the gold price. As of the date of filing of this report,
we have no open hedge positions.




Since
our business consists of exploring for or acquiring gold prospects, the drop in
the price of gold will negatively affect our asset values, cash flows, potential
revenues and profits.




We plan
to pursue opportunities to acquire properties with gold mineralized material or
reserves with exploration potential. The price that we pay to acquire these
properties will be influenced, in large part, by the price of gold at the time
of the acquisition. Our potential future revenues are expected to be derived
from the production and sale of gold from these properties or from the sale of
some of these properties. The value of any gold reserves and other mineralized
material, and the value of any potential mineral production therefrom, will vary
in direct proportion to variations in those mineral prices. The price of gold
has fluctuated widely as a result of numerous factors beyond our control. The
effect of these factors on the price of gold, and therefore the economic
viability of any of our projects, cannot accurately be predicted. Any drop in
the price of gold would negatively affect our asset values, cash flows,
potential revenues, and profits.




37




We
compete with other mineral exploration and mining companies




We
compete with other mineral exploration and mining companies or individuals,
including large, established mining companies with substantial capabilities and
financial resources, to acquire rights to mineral properties containing gold and
other minerals. There is a limited supply of desirable mineral lands available
for claim staking, lease, or other acquisition. There can be no assurance that
we will be able to acquire mineral properties against competitors with
substantially greater financial resources than we have.




Our
activities are inherently hazardous and any exposure may exceed our insurance
limits or may not be insurable.




Mineral
exploration and operating activities are inherently hazardous. Operations in
which we have direct or indirect interests will be subject to all the hazards
and risks normally incidental to exploration and production of gold and other
metals, any of which could result in work stoppages, damage to property, and
possible environmental damage. The nature of these risks is such that
liabilities might exceed any liability insurance policy limits. It is also
possible that the liabilities and hazards might not be insurable, or we could
elect not to insure ourselves against such liabilities because of the high
premium costs, in which event, we could incur significant costs that could have
a material adverse effect on our financial condition.




We
do not have proven or probable reserves, and our mineral calculations are only
estimates; any material change may negatively affect the economic viability of
our properties.




Substantial
expenditures are required to acquire existing gold properties with established
reserves or to establish proven or probable reserves through drilling and
analysis. We do anticipate expending sums for additional drilling and analysis
to establish proven or probable reserves on our properties. While we estimate
the amount of mineralized material we believe exists on our properties, our
calculations are estimates only, subject to uncertainty due to factors,
including the quantity and grade of ore, metal prices, and recoverability of
minerals in the mineral recovery process. There is a great degree of uncertainty
attributable to the calculation of any mineralized material, particularly where
there has not been significant drilling, mining, and processing. Until the
mineralized material located on our properties is actually mined and processed,
the quantity and quality of the mineralized material must be considered as an
estimate only. In addition, the quantity of mineralized material may vary
depending on metal prices. Any material change in the quantity of mineralized
material may negatively affect the economic viability of our properties. In
addition, there can be no assurance that we will achieve the same recoveries of
metals contained in the mineralized material as in small-scale laboratory tests
or that we will be able to duplicate such results in larger scale tests under
on-site conditions or during production.




Our
operations are subject to strict environmental regulations, which result in
added costs of operations and operational delays.




Our
operations are subject to environmental regulations, which could result in
additional costs and operational delays. All phases of our operations are
subject to environmental regulation. Environmental legislation is evolving in
some countries and jurisdictions in a manner that may require stricter standards
and enforcement, increased fines and penalties for non-compliance, more
stringent environmental assessments of proposed projects, and a heightened
degree of responsibility for companies and their officers, directors, and
employees. There is no assurance that any future changes in environmental
regulation will not negatively affect our projects.




We
have no insurance for environmental problems.




Insurance
against environmental risks, including potential liability for pollution or
other hazards as a result of the disposal of waste products occurring from
exploration and production, has not been available generally in the mining
industry. We have no insurance coverage for most environmental risks. In the
event of a problem, the payment of environmental liabilities and costs would
reduce the funds available to us for future operations. If we are unable to fund
fully the cost of remedying an environmental problem, we might be required to
enter into an interim compliance measure pending completion of the required
remedy.




38




We
are subject to federal laws that require environmental assessments and the
posting of bonds, which may add significant costs to our operations and delays
in our projects.




The
Bureau of Land Management requires that mining operations on lands subject to
its regulation obtain an approved plan of operations subject to environmental
impact evaluation under the National Environmental Policy Act. Any significant
modifications to the plan of operations may require the completion of an
environmental assessment or Environmental Impact Statement prior to approval.
Mining companies must post a bond or other surety to guarantee the cost of
post-mining reclamation. These requirements could add significant additional
cost and delays to any mining project undertaken by us. Our mineral exploration
operations are required to be covered by reclamation bonds deemed adequate by
regulators to cover these risks. We believe we currently maintain adequate
reclamation bonds for our operations.




Changes
in state laws, which are already strict and costly, can negatively affect our
operations by becoming stricter and costlier.




At the
state level, mining operations in Nevada are regulated by the Nevada Division of
Environmental Protection, or NDEP. Nevada state law requires our Nevada projects
to hold Nevada Water Pollution Control Permits, which dictate operating controls
and closure and post-closure requirements directed at protecting surface and
ground water. In addition, we are required to hold Nevada Reclamation Permits
required under Nevada law. These permits mandate concurrent and post-mining
reclamation of mines and require the posting of reclamation bonds sufficient to
guarantee the cost of mine reclamation. Other Nevada regulations govern
operating and design standards for the construction and operation of any source
of air contamination and landfill operations. Any changes to these laws and
regulations could have a negative impact on our financial performance and
results of operations by, for example, requiring changes to operating
constraints, technical criteria, fees or surety requirements.





Title
claims against our properties could require us to compensate parties, if
successful, and divert management’s time from operations.




There may
be challenges to our title in the properties in which we hold material
interests. If there are title defects with respect to any of our properties, we
might be required to compensate other persons or perhaps reduce our interest in
the effected property. The validity of unpatented mineral claims, which
constitute most of our holdings in the United States, is often uncertain and may
be contested by the federal government and other parties. The validity of an
unpatented mineral claim, in terms of both its location and its maintenance,
depends on strict compliance with a complex body of federal and state statutory
and decisional law. Although we have attempted to acquire satisfactory title to
our properties, we have not obtained title opinions or title insurance with
respect to the acquisition of the unpatented mineral claims. While we have no
pending claims or litigation pending contesting title to any of our properties,
there is nothing to prevent parties from challenging our title to any of our
properties. While we believe we have satisfactory title to our properties, some
risk exists that some titles may be defective or subject to challenge. Also, in
any such case, the investigation and resolution of title issues would divert
management’s time from ongoing exploration programs.




We
have never paid a cash dividend on our common stock and do not expect to pay
cash dividends in the foreseeable future.




We have
never paid cash dividends, and we do not plan to pay cash dividends in the
foreseeable future. Consequently, your only opportunity to achieve a return on
your investment in us will be if the market price of our common stock
appreciates and you sell your shares at a profit. There is no assurance that the
price of our common stock that will prevail in the market after this offering
will ever exceed the price that you pay.




39




Our business depends on a limited
number of key personnel, the loss of whom could negatively affect
us.




Robert
Faber, Chief Executive Officer, President and acting-Chief Financial Officer and
Jim Golden, our COO, are important to our success. If either becomes unable or
unwilling to continue in his present position, our business and financial
results could be materially negatively affected.




If we fail to adequately manage our
growth, we may not be successful in growing our business and becoming
profitable.




We plan
to expand our business and the number of employees over the next 12 months. In
particular, we intend to hire additional operational personnel. Our inability to
hire and retain additional qualified employees could have a negative impact on
our chances of success.




The issuance of securities by us may
not have complied with or violated federal and state securities laws and, as a
result, the holders of these shares and warrants may have rescission
rights.




Securities
issued by us may not have complied with applicable federal and state securities
laws, the result of which is that the holders of these securities may have
rescission rights that could require us to reacquire the
securities.




Outstanding
convertible securities and warrants may result in substantial
dilution.




At March
31, 2009 we had outstanding 3, 487,847,312 shares of common stock. In addition,
we had outstanding convertible notes and related interest plus various common
stock purchase warrants. At March 31, 2009, these notes, related interest and
warrants were convertible into or exercisable for a total of approximately 1.9
billion additional shares of our common stock, subject to further anti-dilution
provisions.




Our
stock is a penny stock and trading of our stock may be restricted by the SEC’s
penny stock regulations, which may limit a stockholder’s ability to buy and sell
our stock.




Our stock
is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9,
which generally defines “penny stock” to be any equity security that has a
market price (as defined) less than $5.00 per share or an exercise price of less
than $5.00 per share, subject to certain exceptions. Our securities are covered
by the penny stock rules, which impose additional sales practice requirements on
broker-dealers that sell to persons other than established customers and
“accredited investors.” The term “accredited investor” refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC, which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules
require that, prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock. NASD sales practice
requirements may also limit a stockbroker’s ability to buy or sell our
stock.




40




In
addition to the “penny stock” rules promulgated by the Securities and Exchange
Commission, the NASD has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer’s financial status, tax status, investment objectives, and
other information. Under interpretation of these rules, the NASD believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The NASD requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy or sell our stock and have an adverse
effect on the market for our shares.




Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds





The
following private placement transactions raised a total of $950,000 in exchange
for 95,000,000 shares of our unregistered Common stock, were place with
accredited investors.  In general, the proceeds were used to fund
exploratory drilling and for general working capital.





·
            In the first quarter 2009,
      $950,000 for 95,000,000 shares at $0.01 per share and 95,000,000
      warrants. The warrants have an exercise price of $.015 and a term of
      six years




Employees and
directors





During
the three month period ended March 31, 2009, the following shares were issued to
employees and Company directors:





·
            In January 2009, pursuant to his
      employment agreement, Larry Martin, the Company’s Chief Geologist, was
      issued a total of one million five hundred thousand of our unregistered
      shares, valued at $21,000 or $0.014 per
  share.





.





Item 3. Defaults Upon Senior
Securities





As of
March 31, 2009, the Company is in default of the terms on several outstanding
notes payable with the Winfield Group with principal balance due of $11,869,986
and accrued interest of $3,624,023 (See Note 8). Because we are in default, the
entire note balances of the defaulted notes have been recorded as current
liabilities.




Item 4. Submission of Matters to a Vote of
Security Holders





Not
applicable.





Item 5. Other Information




None.




41




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 March 31 ,2009 (Unaudited)Consolidated
      Statement of Operations for the three-month periods ended March 31, 2009
      and 2008 (Unaudited)Consolidated
      Statement of Cash Flows for the three-month periods ended March 31, 2009
      and 2008 (Unaudited)Notes
      to Financial Statements




(2) Exhibits
filed as part of this Report:





Exhibit
                  Number
                
                Exhibit31.1
                
                Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Rule
      13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange
      Act of 1934, as amended.32.1
                
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002




(b)  Reports filed on Form 8-K
during the quarter ended March 31 2009:


Current
Report of Form 8-K filed on January 15, 2009





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.





GOLDSPRING,
      INC.
                          (Registrant)Date:
      May 18, 2009
                        By:
                        /s/ Robert T.
FaberName:
                        Robert
      T. FaberTitle:
                        President
      and Chief Executive OfficerBy:
                        /s/ Robert T.
FaberName:
                        Robert
      T. FaberTitle:
                        Chief
      Financial
Officer




42