SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549









FORM
      10-QSB










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




For
      the
      quarterly period ended September 30, 2006




OR





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




For
      the
      transition period from to





Commission
      File No. 000-32429





GOLDSPRING,
      INC.


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





FLORIDA
              (State
                or other jurisdiction of
              incorporation
                or organization)
            7389
              (Primary
                Standard Industrial
              Classification
                Code Number)
            65-0955118
              (I.R.S.
                Employer
              Identification
                No.)




P.O.
      Box
      1118


Virginia
      City, NV 89440


(775)
      847-5272


(Address,
      including zip code, and telephone number,


including
      area code, of registrant's principal executive offices)





Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
      period that the issuer was required to file such reports), and (2)has been
      subject to such filing requirements for the past 90 days.


Yes x No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of the issuer's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-QSB or any
      amendment to this Form 10-QSB x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12-b2 of the Exchange Act). o Yes x No





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the last practicable date: 800,000,000 shares of Common Stock, $0.000666
      Par Value per share, as of November 10, 2006.









TABLE
      OF
      CONTENTS




PART
                I - FINANCIAL INFORMATIONITEM
                1.
            UNAUDITED
                FINANCIAL STATEMENTS
            
            F-1Consolidated
                Balance Sheet as of September 30, 2006 (Unaudited)
            
            F-1Consolidated
                Statement of Operations (Unaudited)
            
            F-3Consolidated
                Statement of Cash Flows (Unaudited)
            
            F-5Notes
                to Financial Statements
            
            F-6ITEM
                2.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
            
            1ITEM
                3.
            CONTROLS
                AND PROCEDURES
            
            7PART
                II - OTHER INFORMATION
            
            8ITEM
                1.
            LEGAL
                PROCEEDINGS
            
            8ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            
            14ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            
            14ITEM
                4
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            15ITEM
                5.
            OTHER
                INFORMATION
            
            15ITEM
                6
            EXHIBITS
                AND REPORTS ON FORM 8-K
            
            1516SIGNATURES




**Statement
      Regarding Forward-Looking Statements**





*The
      statements contained in this report on Form 10-QSB that are not purely
      historical are forward-looking statements within the meaning of applicable
      securities laws. Forward-looking statements include statements regarding our
      “expectations,” “anticipation,” “intentions,” “beliefs,” or “strategies”
regarding the future. Forward looking statements also include statements
      regarding fluctuations in the price of gold or certain other commodities, (such
      as silver, copper, diesel fuel, and electricity); changes in national and local
      government legislation, taxation, controls, regulations and political or
      economic changes in the United States or other countries in which we may carry
      on business in the future; business opportunities that may be presented to
      or
      pursued by us; our ability to integrate acquisitions successfully; operating
      or
      technical difficulties in connection with exploration or mining activities;
      the
      speculative nature of gold exploration, including risks of diminishing
      quantities or grades of reserves; and contests over our title to properties.
      All
      forward-looking statements included in this report are based on information
      available to us as of the filing date of this report, and we assume no
      obligation to update any such forward-looking statements. Our actual results
      could differ materially from the forward-looking statements. Among the factors
      that could cause actual results to differ materially are the factors discussed
      in Item 1, “Business - Risk Factors” in our Form 10-KSB for the year ended
      December 31, 2005.*













**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1 - FINANCIAL STATEMENTS**





**GOLDSPRING,
      INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**





**September
                30, 2006**
              (Unaudited)**ASSETS**CURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            195,413Accounts
                receivable, net
            
            
            45,619Prepaid
                expenses and other current assets
            
            
            220,008Inventories
            
            
            -Deferred
                financing fees, net
            
            
            868,975TOTAL
                CURRENT ASSETS
            
            
            1,330,015PLANT,
                EQUIPMENT, MINE DEVELOPMENT, AND MINERAL PROPERTIES, NET:Mineral
                Properties
            
            
            1,619,837Plant,
                Equipment, Mine Development
            
            
            1,546,535Accumulated
                Depreciation/Depletion
            
            
            (731,469
            )TOTAL
                PROPERTY AND EQUIPMENT
            
            
            2,434,903OTHER
                ASSETS:Reclamation
                deposit
            
            
            377,169Other
            
            
            -TOTAL
                OTHER ASSETS
            
            
            377,169TOTAL
                ASSETS
            
            $
            4,142,087





The
      accompanying notes are an integral part of these financial
      statements




F-1


**LIABILITIES
      AND SHAREHOLDERS' DEFICIENCY**





CURRENT
                LIABILITIESAccounts
                Payable
            
            $
            293,106Accrued
                Expenses
            
            
            1,311,465Accrued
                liquidated damages
            
            
            1,913,418Accrued
                interest
            
            
            1,490,797Derivative
                Liabilities
            
            
            473,597Short-Term
                Lease Obligations
            
            
            29,401Current
                portion of long-term debt
            
            
            12,990,052TOTAL
                CURRENT LIABILITIES
            
            
            18,501,836LONG-TERM
                DEBT AND OTHER LONG-TERM LIABILITIESLong-term
                debt, net of current portion
            
            
            109,423Long-term
                Lease obligation, net of current portion
            
            
            53,766Long-term
                Asset retirement obligations
            
            
            553,190TOTAL
                LONG-TERM DEBT AND OTHER LONG-TERM LIABILITIES
            
            
            716,379TOTAL
                LIABILITIES
            
            $
            19,218,215SHAREHOLDERS'
                DEFICITCommon
                stock, $.000666 par value, 800,000,000 shares authorized , 800,000,000
                shares issued and outstanding
            
            $
            532,800Treasury
                Stock
            
            
            -Additional
                paid-in capital
            
            
            11,105,751Accumulated
                deficit - Prior years
            
            
            (23,524,302
            )Accumulated
                deficit - Current year
            
            
            (3,190,377
            )TOTAL
                SHAREHOLDERS’ DEFICIENCY
            
            
            (15,076,128
            )TOTAL
                LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
            
            $
            4,142,087





The
      accompanying notes are an integral part of these financial
      statements




F-2


**GOLDSPRING,
      INC.**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**


**For
      the three month periods ended September 30,**




**2006**
            
            **2005**(Unaudited)
            
            (Unaudited)REVENUE
                FROM GOLD SALES
            
            $
            379,845
            
            $
            951,586COSTS
                AND EXPENSESCosts
                Applicable to sales (exclusive of depreciation, depletion and amortization
                shown separately below)
            
            
            -
            
            
            -Depletion,
                depreciation and amortization
            
            
            69,979
            
            
            72,899Reclamation,
                Exploration and Test Mining Expenses
            
            
            668,617
            
            
            1,061,186General
                and administrative
            
            
            112,029
            
            
            102,140Consulting
                and Professional Services
            
            
            52,150
            
            
            55,311TOTAL
                COSTS AND EXPENSES
            
            
            902,774
            
            
            1,291,536OTHER
                INCOME (EXPENSE)Liquidated
                Damages (See Note 6 - Other Items: Liquidated Damages)
            
            
            -
            
            
            (1,758,676
            )Other
                (See Note 6 - Other Items: Litigation)
            
            
            65,000
            
            
            -Derivative
                - Change in Fair Value
            
            
            114,326
            
            
            -Interest
                expense
            
            
            (706,558
            )
            
            (882,216
            )Gain
                on Sale of Fixed Assets
            
            
            1,500
            
            
            -(525,752
            )
            
            (2,640,892
            )NET
                LOSS
            
            $
            (1,048,661
            )
            $
            (2,980,842
            )Net
                loss per common share - basic
            
            $
            (0.0013
            )
            $
            (0.011
            )Basic
                weighted average common shares outstanding
            
            
            800,000,000
            
            
            278,751,210





The
      accompanying notes are an integral part of these financial
      statements





F-3


**GOLDSPRING,
      INC.**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**


**For
      the nine month periods ended September 30,**




**2006**
            
            **2005**(Unaudited)
            
            (Unaudited)REVENUE
                FROM GOLD SALES
            
            $
            991,105
            
            $
            2,155,538COSTS
                AND EXPENSESCosts
                Applicable to sales (exclusive of depreciation, depletion and amortization
                shown separately below)
            
            
            -
            
            
            -Depletion,
                depreciation and amortization
            
            
            216,379
            
            
            229,584Reclamation,
                Exploration and Test Mining Expenses
            
            
            1,384,227
            
            
            3,870,316General
                and administrative
            
            
            369,166
            
            
            779,372Consulting
                and professional services
            
            
            405,338
            
            
            717,774TOTAL
                COSTS AND EXPENSES
            
            
            2,375,110
            
            
            5,597,046OTHER
                INCOME (EXPENSE)Disposal
                of Assets
            
            
            106,897
            
            
            _Liquidated
                Damages (See Note 6 - Other Items: Liquidated Damages)
            
            
            -
            
            
            (4,619,144
            )Other
                (See Note 6 - Other Items: Litigation)
            
            
            85,000
            
            
            -Derivative
                - Change in Fair Value
            
            
            114,326
            
            
            -Interest
                expense
            
            
            (2,097,651
            )
            
            (1,605,587
            )Interest
                income
            
            
            -
            
            
            13,526(1,791,428
            )
            
            (6,211,205
            )NET
                LOSS
            
            
            (3,175,433
            )
            
            (9,652,713
            )Net
                loss per common share - basic
            
            $
            (.005
            )
            $
            (.042
            )Basic
                weighted average common shares outstanding
            
            
            643,483,944
            
            
            232,206,184




The
      accompanying notes are an integral part of these financial
      statements





F-4





**GOLDSPRING,
      INC.**


**CONDENSED STATEMENTS
      OF CASH FLOWS**




For
                the nine month periods ended September 30,**2006**
              (Unaudited)
            
            **2005**
              (Unaudited)Cash
                flows from operating activities:Net
                loss (before taxes)
            
            $
            (3,175,433
            )
            $
            (9,652,713
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation,
                depletion, and amortization
            
            
            460,290
            
            
            229,584Liquidated
                damages from November 2004 restructuring converted into common
                stock
            
            
            -
            
            
            4,619,144Interest
                expense related to the November 2004 restructuring paid with common
                stock
            
            
            1,574,582
            
            
            986,008(Increase)
                Decrease in operating assets:Finished
                goods inventory
            
            
            52,000
            
            
            177,486Inventory
            
            
            -
            
            
            18,961Prepaid
                and other current assets
            
            
            (192,508
            )
            
            115,796Other
                assets
            
            
            (45,619
            )
            
            -Increase
                (decrease) in operating liabilities:Accounts
                payable
            
            
            (973,968
            )
            
            600,148Accrued
                expenses
            
            
            950,579
            
            
            99,441Accrued
                liquidated damages
            
            
            -Accrued
                interest
            
            
            168,878
            
            
            439,712Derivative
                Liabilities
            
            
            (59,634
            )
            
            -Other
            
            
            41,112
            
            
            105,370Total
                Adjustments to Reconcile Net Loss Used in Operating
                Activities
            
            
            1,990,656
            
            
            7,391650Net
                cash used in operating activities
            
            
            (1,199,721
            )
            
            (2,261,063
            )Investing
                activities:Equipment
                deposit
            
            
            -
            
            
            (10,000
            )Acquisition
                of plant, equipment and mineral properties
            
            
            25,969
            
            
            (369,150
            )Net
                cash used in investing activities
            
            
            25,969
            
            
            (379,150
            )Financing
                activities:Proceeds
                from financing, net
            
            
            1,500,000
            
            
            885,410Issuance
                of Note for Acquisition of Mining Claims
            
            
            -
            
            
            160,000Principal
                payment Note Payable
            
            
            (157,700
            )
            
            (244,752
            )Net
                Cash flows provided by financing activities
            
            
            1,342,300
            
            
            800,658Net
                Increase (Decrease) in cash
            
            
            168,548
            
            
            (1,839,555
            )Cash
                - beginning of period
            
            
            26,865
            
            
            1,951,802Cash
                - end of period
            
            $
            195,413
            
            $
            112,247Supplemental
                disclosures of non-cash investing and financing activities:Issuance
                of notes for liquidated damages for failure to deliver
                shares
            
            $
            -
            
            
            403,175Issuance
                of notes for mandatory redemption payment (See Note 6)
            
            $
            -
            
            $
            6,885,184Purchase
                and cancellation of Company’s Common Stock in connection with the
                mandatory redemption payment (See Note 6)
            
            
            -
            
            
            6,801,975Issuance
                of Common Stock for Acquisition of Mining Claims
            
            
            -
            
            
            150,000Issuance
                of Note for Acquisition of Mining Claims
            
            
            -
            
            
            -Conversion
                of debt into common shares
            
            
            4,449,490
            
            
            885,812Issuance
                of common stock for interest expense
            
            
            1,574,582
            
            
            989,008Issuance
                of common stock for liquidated damages
            
            
            -
            
            
            2,983,952





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




F-5




GOLDSPRING,
      INC.


NOTES
      TO
      FINANCIAL STATEMENTS


September
      30, 2006 and 2005





**NOTE
      1 - DESCRIPTION OF BUSINESS, GOING CONCERN, MANAGEMENT PLANS AND BASIS OF
      PRESENTATION**





**Description
      of Business**





We
      are a
      North American precious metals mining company with an operating gold and silver
      test mine in northern Nevada. The primary nature of our business is the
      exploration and development of mineral producing properties. Our Company was
      formed in mid-2003, and we acquired the Plum property in November 2003. In
      our
      relatively short history, we secured permits, built an infrastructure and
      brought the Plum exploration project into test mining production. During 2005,
      we acquired additional properties around the Plum project in Northern Nevada,
      expanding our footprint and creating opportunities for exploration. We are
      an
      emerging company, looking to build on our success through the acquisition of
      other mineral properties in North America with reserves and exploration
      potential that can be efficiently put into near-term production. Our objectives
      are to increase production; increase reserves through exploration and
      acquisitions; expand our footprint at the Plum mine; and maximize cash flow
      and
      the return for our shareholders. We were incorporated in the State of Florida
      effective October 19, 1999 under the name of Click and Call, Inc.. On June
      7,
      2000, we filed an amendment to our Articles of Incorporation changing our name
      to STARTCALL.COM, INC. On March 10, 2003, we changed our name to GoldSpring,
      Inc.





**Going
      Concern**





The
      financial statements are presented on the basis that our company is a going
      concern, which contemplates the realization of assets and the satisfaction
      of
      liabilities in the normal course of business over a reasonable length of time.
      We have incurred operating losses since its inception. This condition raises
      substantial doubt as to our ability to continue as a going concern.





**Management
      Plans**





Our
      plans
      for the continuation of our company as a going concern include developing our
      Plum Mine into a profitable operation and potentially supplementing financing
      of
      our operations through sales of our unregistered common stock and borrowings
      from affiliates, third parties and other shareholders. There are no assurances,
      however, with respect to the future success of these plans. The financial
      statements do not contain any adjustments, which might be necessary, if we
      are
      unable to continue as a going concern.





**Basis
      of Presentation**





The
      accompanying unaudited condensed financial statements have been prepared in
      accordance with generally accepted accounting principles for interim financial
      information and with the instructions to Form 10-QSB and Article 10 of
      Regulation S-B. Accordingly, they do not include all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements. In our opinion, all adjustments (consisting of normal
      recurring accruals) considered necessary for a fair presentation have been
      included. Operating results for the nine-month period ended September 30, 2006
      are not necessarily indicative of the results that may be expected for the
      year
      ending December 31, 2006. For further information, refer to the financial
      statements and footnotes thereto included in our Form 10-KSB Report for the
      fiscal year ended December 31, 2005.




F-6




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**








*Forward-Looking
      Statements*





The
      following discussion contains, in addition to historical information,
      forward-looking statements regarding GoldSpring, Inc. (“we,” the "Company," or
      "GSPG"), that involve risks and uncertainties. Our actual results could differ
      materially. For this purpose, any statements contained in this Report that
      are
      not statements of historical fact may be deemed to be forward-looking
      statements. Without limiting the generality of the foregoing, words such as
      "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate,"
      or "continue" or the negative or other variations thereof or comparable
      terminology are intended to identify forward-looking statements. Factors that
      could cause or contribute to such differences include possible need for
      additional financing; dependence on management; government regulation; and
      other
      factors discussed in this report and the Company's other filings with the
      Securities and Exchange Commission.





Summarized
      below are the significant accounting policies of GoldSpring, Inc. (“we,”
“GoldSpring,” or the “Company”). Unless otherwise indicated, amounts provided in
      these notes to the financial statements pertain to continuing
      operations.




*Principles
      of Consolidation*




The
      consolidated financial statements include the accounts of our company and its
      wholly owned subsidiaries. All material inter-company transactions and balances
      have been eliminated in consolidation.




*Cash
      and Cash Equivalents*




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




*Convertible
      Notes - Derivative Financial Instruments*





The
      Convertible Notes, both payable and receivable have been accounted for in
      accordance with SFAS 133 and EITF No. 00-19, "Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
      Stock."





The
      Company has identified the following instruments (for which formal loan
      agreement signed as of August 23, 2004) have derivatives requiring evaluation
      and accounting under the relevant guidance applicable to financial
      derivatives:





·
            Winfield
                Debenture Payable issued 5/18/06 in the face amount of
                $300,000


·
            Winfield
                Debenture Payable issued 6/21/06 in the face amount of
                $300,000


·
            Winfield
                Debenture Payable issued 8/23/06 in the face amount of
                $300,000


·
            Longview
                Debenture Payable issued 8/24/06 in the face amount of
                $300,000





The
      Company has identified the above debentures have embedded derivatives. These
      embedded derivatives have been bifurcated from their respective host debt
      contracts and accounted for as derivative assets or liabilities in accordance
      with EITF 00-19. When multiple derivatives exist within the Convertible Notes,
      they have been bundled together as a single hybrid compound instrument in
      accordance with SFAS No. 133 Derivatives Implementation Group Implementation
      Issue No. B-15, "Embedded Derivatives: Separate Accounting for Multiple
      Derivative Features Embedded in a Single Hybrid Instrument."




F-7





The
      embedded derivatives within the Convertible Notes have been recorded at fair
      value at the date of issuance; and are marked-to-market each reporting period
      with changes in fair value recorded to the Company's income statement as "Net
      change in fair value of derivative liabilities." The Company has utilized a
      third party valuation firm to fair value the embedded derivatives using a
      lattice model based on a layered discounted probability-weighted cash flow
      approach.





The
      fair
      value of the derivative liabilities are subject to the changes in the trading
      value of the Company's common stock, as well as other factors. As a result,
      the
      Company's financial statements may fluctuate from quarter-to-quarter based
      on
      factors, such as the price of the Company's stock at the balance sheet date
      and
      the amount of shares converted by the note holders. Consequently, our financial
      position and results of operations may vary from quarter-to-quarter based on
      conditions other than our operating revenues and expenses.





Certain
      instruments, including convertible debt and equity instruments and the
      freestanding options and warrants issued in connection with those convertible
      instruments, may be subject to registration rights agreements, which impose
      penalties for failure to register the underlying common stock by a defined
      date.
      These potential cash penalties may require the Company to account for the debt
      or equity instruments or the freestanding options and warrants as derivative
      financial instrument liabilities, rather than as equity. In addition, when
      the
      ability to physical or net-share settle the conversion option or the exercise
      of
      the freestanding options or warrants is deemed to be not within the control
      of
      the company, the embedded conversion option or freestanding options or warrants
      may be required to be accounted for as a derivative financial instrument
      liability.




*Credit
      Risk*




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




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




In
      August
      2001, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment
      or Disposal of Long-Lived Assets,” which supersedes both SFAS No. 121,
“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
      to
      Be Disposed Of” and the accounting and reporting provisions of Accounting
      Practice Bulletin (“APB”) Opinion No. 30, “Reporting the Results of Operations —
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
      Unusual and Infrequently Occurring Events and Transactions,” for the disposal of
      a segment of a business (as previously defined in that opinion).This statement
      establishes the accounting model for long-lived assets to be disposed of by
      sale
      and applies to all long-lived assets, including discontinued operations. This
      statement requires those long-lived assets be measured at the lower of carrying
      amount or fair value less cost to sell, whether reported in continuing
      operations or discontinued operations. Therefore, discontinued operations will
      no longer be measured at net realizable value or include amounts for operating
      losses that have not yet occurred.




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




F-8




*Inventories*




We
      state
      inventories at the lower of average cost or net realizable value. At September
      30, 2006 and 2005, our inventories consisted of $0 and $32,457, respectively,
      of
      doré and bullion in our accounts at refineries. At September 30, 2006, we had $
      0 of supplies and reagents compared to $29,785 at September 30, 2005. We were
      unable to estimate our in-process inventories at September 30, 2006, as our
      gold
      production processes are still in their inception stage, and we do not yet
      have
      sufficient data available to accurately calculate in-process inventory. We
      value
      inventories at the lower of full cost of production or net realizable value
      based on current metals prices. We determine net realizable value by estimating
      value based on current metals prices, less cost to convert stockpiled and
      in-process inventories to finished products.





*Revenue
      Recognition*




Sales
      of
      gold and silver ore are recorded when title and risk of loss transfer to the
      refiner at current spot metals prices. Sales are calculated based upon assay
      of
      the ore’s precious metal content and its weight. Recorded values are adjusted
      upon final settlement from the refiner that usually occurs within 24 days of
      delivery. If we have reason to believe that the final settlement will materially
      affect our recognition of revenue because of a difference between the refiner’s
      assay of precious metals contained in the dore and ours, we establish a reserve
      against the sale.





*Net
      Loss*





Net
      loss
      numbers in the Statement of Operations do not give effect to any domestic or
      foreign tax benefits.





*Stock
      Issued For Services*




We
      base
      the value of stock issued for services on the market value of our common stock
      at the date of issue or our estimate of the fair value of the services received,
      whichever is more reliably measurable. We have not issued stock for services
      in
      the first three quarters of 2006 and do not intend to do so during the remainder
      of 2006, although we may issue options to an executive officer during the fourth
      quarter of 2006 as a bonus.




*Deferred
      Financing Charges*




During
      the first three quarters of 2006 we recorded deferred financing charges
      associated with the issue of promissory notes payable totaling $107,500. We
      amortize the charges over the respective lives of the promissory notes payable
      as interest expense. During the three and nine month period ended September
      30,
      2006 we recognized $100,273 and $243,909 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 7 years.




F-9




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





*Mineral
      Properties*




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




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




We
      review
      the carrying value of our interest in each property on a quarterly basis to
      determine whether an impairment has incurred in accordance with the Financial
      Accounting Standards Board (FASB) No. 144, “Accounting for the Impairment or
      Disposal of Long-Lived Assets.”




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




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




We
      carry
      our property acquisition and capitalized plant and equipment costs at cost
      less
      accumulated amortization and write-downs.




*Reclamation
      Liabilities and Asset Retirement Obligations*




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




In
      August
      2001, the Financial Accounting Standards Board issued SFAS No. 143, “Accounting
      for Asset Retirement Obligations.”  SFAS
      143
      established a uniform methodology for accounting for estimating reclamation
      and
      abandonment costs. The Standard requires that the fair value of a liability
      for
      an asset retirement obligation be recognized in the period in which it is
      incurred. SFAS No. 143 requires us to record a liability for the present value
      of our estimated environmental remediation costs and the related asset created
      with it when a recoverable asset (long-lived asset) can be realized. In our
      case, the long-lived asset is directly related to the mining infrastructure
      costs being expensed by our Company. Since we do not yet have proven or probable
      reserves as defined by Industry Guide 7, and in accordance with FASB No. 143
      our
      asset retirement obligation was expensed directly to reclamation
      expense.




F-10




*Earnings
      Per Common Share*




In
      calculating earnings per common share, we compute basic earnings per share
      by
      dividing net loss by the weighted average number of common shares outstanding,
      excluding the dilutive effects of common stock equivalents. For the periods
      ended September 30, 2006 and 2005, we had net losses for which the affect of
      common stock equivalents would be anti-dilutive, accordingly only basic loss
      per
      share is presented.




*Recent
      Authoritative Pronouncements*




On
      December 16, 2004, the Financial Accounting Standards Board (the "FASB") issued
      Statement of Financial Accounting Standards, or Statement, No. 123 (revised
      2004), Share-Based Payment ("Statement 123(R)"), which is a revision of FASB
      Statement No. 123, Accounting for Stock-Based Compensation ("Statement 123").
      Statement 123(R) supersedes Accounting Principles Board Opinion No. 25 ("APB
      25"), Accounting for Stock Issued to Employees, and amends FASB Statement No.
      95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is
      similar to the approach described in Statement 123. Statement 123(R) requires
      that all share-based payments to employees, including grants of employee stock
      options, be recognized in the income statement based on their fair values.
      Pro
      forma disclosure is no longer permitted. Statement 123(R) is effective for
      small
      business issuers at the beginning of the first interim or annual period
      beginning after December 15, 2005. As permitted by Statement 123, we currently
      account for share-based payments to employees using APB 25's intrinsic value
      method. We adopted Statement 123(R) on January 1, 2006 using the modified
      prospective method.




In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      (SFAS) 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4." SFAS
      151
      seeks to clarify the accounting for abnormal amounts of idle facility expense,
      freight, handling costs and wasted material (spoilage) in the determination
      of
      inventory carrying costs. The statement requires such costs to be treated as
      a
      current period expense. This statement is effective November 1, 2005 for the
      Company. The Company does not believe that the adoption of SFAS 151 will have
      a
      significant impact on its consolidated financial statements.




In
      May
      2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections -
      a
      Replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS 154 requires
      retrospective application to prior period financial statements of changes in
      accounting principle, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. SFAS 154 also
      redefines "restatement" as the revising of previously issued financial
      statements to reflect the correction of an error. This statement is effective
      for accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005 (or fiscal 2007 for the Company). The Company does
      not
      believe that the adoption of SFAS 154 will have a significant impact on its
      consolidated financial statements.





*Use
      of Estimates*




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




*Risks
      and Uncertainties*




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




F-11




*Income
      Taxes*




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




**NOTE
      3 - NOTES PAYABLE STOCKHOLDERS**




As
      of
      September 30, 2006, the Company is in default of the terms on outstanding notes
      payable with several of its note holders with principal balances due of
      $9,041,625 and accrued interest of $952,198.





**NOTE
      4 - COMMON STOCK**





During
      the three months ended March 31, 2006, the Company issued 212,150,563 shares
      of
      common stock valued at $3,276,100 in connection with the partial conversion
      of
      principal and interest of certain convertible debentures (see Note
      7).





During
      the three months ended June 30, 2006, the Company issued 247,802,225 shares
      of
      common stock valued at $2,747,972 in connection with the partial conversion
      of
      principal and interest of certain convertible debentures (see Note
      7).





During
      the three months ended September 30, 2006, the Company did not issue any shares
      of Common Stock.





**NOTE
      5 - WARRANTS**





Transactions
      involving warrants are summarized as follows:





**Number
                of**
              **Warrants**
            
            **Weighted**
              **Average**
              **Exercise
                Price**Balance
                - January 1, 2006
            
            
            58,190,101
            
            $
            0.155Warrants
                issued during the period
            
            
            12,631,579
            
            
            0.0053Warrants
                expired during the period
            
            
            -
            
            
            -Warrants
                exercised during the period
            
            
            -
            
            
            -Balance
                - September 30, 2006 (all exercisable)
            
            
            70,821,680
            
            $
            0.1283





**NOTE
      6 - OTHER ITEMS**





**LIQUIDATED
      DAMAGES**





For
      the
      first three quarters of 2005 (ended September 30, 2005), we recorded liquidated
      damages expenses due to investors of our March 2004 offering and subsequent
      November 30, 2004 restructuring as follows:




Liquidated
                damages relating to:November
                30, 2004 Non-Registration Provisions
            
            $
            4,520,615Failure
                to timely deliver shares upon notice of converting note
                holders
            
            
            98,529$
            4,619,144




F-12




These
      liquidated damages ceased in October 2005 when our Registration Statement was
      declared effective.








*Non-Registration
      Provisions*




Our
      November 2004 subscription agreement required us to file a registration
      statement with the Securities and Exchange Commission no later than December
      30,
      2004 and to cause the registration statement to be declared effective no later
      than February 14, 2005. Our former Chief Executive Officer withdrew our pending
      registration statement and did not submit a new registration statement during
      the period of his purported control of our company. His failure to submit the
      registration statement to the SEC by December 30, 2004 triggered liquidated
      damages to accrue under the November 2004 subscription agreement. Accordingly,
      at December 31, 2004, we had accrued $222,013 of liquidated damages relating
      to
      Non-Registration Provisions. The liquidated damages continued to accrue in
      the
      amount of $222,013 for each 30-day period after December 30, 2004 until our
      registration statement was declared effective in October 2005.




*Failure
      to Timely Deliver Conversion Shares*




On
      December 20, 2004, we received notice from holders of approximately $500,000
      of
      convertible notes payable of their intention to convert into shares of our
      common stock. As a result, we recorded the issuance of 4,243,791 shares on
      December 20, 2004. We were required to deliver certificates representing
      unrestricted, free-trading stock within three business days of our receipt
      of
      the notices of conversion (the “Delivery Date”). The failure to deliver the
      shares by the Delivery Date resulted in liquidated damages of 1% of the Note
      principal amount being converted per business day after the Delivery Date.
      Our
      former Chief Executive Officer did not deliver the stock certificates within
      the
      required period. On March 18, 2005 we delivered the certificates representing
      the shares of common stock to these converting note holders. The 84 -day delay
      in delivering the shares resulted in liquidated damages of $403,175. We
      recognized these damages during the fourth quarter of 2004 and the first quarter
      of 2005. We issued convertible notes for the amount of liquidated damages due.




**MANDATORY
      REDEMPTION PAYMENT**




Under
      the
      terms of the November 2004 subscription agreement, convertible note holders
      have
      the right to a mandatory redemption payment in the event we are prohibited
      or
      otherwise fail to deliver shares of our common stock to converting note holders.
      The mandatory redemption payment is calculated as an amount equal to multiplying
      the number of shares of common stock otherwise deliverable upon conversion
      of
      the note’s principal and interest multiplied by the highest price of our common
      stock for the period beginning with the Deemed Conversion Date (the date the
      holder elects to convert the note) and ending with the payment date. On March
      7,
      2005, we received a mandatory redemption payment demand relating to our failure
      to deliver stock certificates representing 29,573,803 shares of our common
      stock. Under the mandatory redemption payment provisions of the November 2004
      subscription agreement, we repurchased the 29,573,803 shares of common stock
      at
      $0.23 per share, or $6,801,975. We issued a secured convertible note in the
      aggregate amount of $6,885,184 with a 12% interest rate for the 29,573,803
      shares and accrued interest.




F-13




**LITIGATION**




***The
      State Court Case***




On
      November 9, 2004, we filed a lawsuit in Maricopa County (Arizona) Superior
      Court
      against defendants Stephen B. Parent, Ron Haswell, Walter Doyle, Seth Shaw,
      Antonio Treminio, together with their spouses, and Ecovery, Inc., a Nevada
      corporation, or Ecovery.




The
      12-count complaint alleges claims for violations of Arizona’s racketeering act,
      state-law securities fraud (primary and secondary liability), common-law fraud,
      negligent misrepresentation, breach of fiduciary duty, negligence/gross
      negligence, breach of contract, unjust enrichment/restitution, theft/conversion,
      conspiracy liability, and injunctive relief. In essence, the complaint alleges
      that Stephen Parent misrepresented the value of certain placer mining claims
      that his company, Ecovery, sold to us in 2003 in exchange for approximately
      99,000,000 shares of our stock; that Ecovery no longer had good title to the
      mining claims when they were sold to us; that Mr. Parent and the other
      named defendants conspired to defraud us out of approximately 24,000,000 shares
      of our stock; and that Mr. Parent misappropriated more than $300,000 in company
      funds.




On
      November 29, 2004, we moved for a temporary restraining order, or TRO,
      prohibiting Mr. Parent and his spouse from selling, transferring, assigning,
      or
      otherwise disposing of up to approximately 46,000,000 shares of our stock
      in their possession. After a hearing, at which the Parents appeared through
      counsel, the Honorable Anna M. Baca granted the motion, conditioned on the
      posting of an $8 million bond. We did not post the bond, and the TRO was
      subsequently dissolved.




On
      or
      about December 9, 2004, Mr. Parent and fellow GoldSpring directors Jerrie W.
      Gasch and Purnendu K. Rana Medhi purportedly seized control of our company.
      Afterward, the Parent-led GoldSpring purported to fire Greenberg Traurig, LLP,
      or GT, as counsel for our company in this litigation and to hire Ronan &
Firestone, PLC, or Ronan, as substitute counsel. Thereafter, on December 22,
      2004, Ronan filed a stipulation to dismiss the lawsuit, purportedly on behalf
      of
      our company. Also on December 22, 2004, the Parents filed their answer, in
      which
      they generally denied the allegations of the complaint.




On
      December 29, 2004, GT filed a motion on behalf of our company to strike the
      stipulation to dismiss that Ronan had filed. Judge Baca heard oral argument
      on
      the motion on February 2, 2005 and took the matter under advisement. Further
      oral argument was heard on March 22, 2005. In light of the preliminary
      injunction that was issued in a related shareholder action in federal district
      court (discussed below), and the resolutions passed by our Board of Directors
      on
      February 22, 2005, Judge Baca granted the motion in an Order dated March 22,
      2005 and struck Ronan’s purported stipulation to dismiss.




In
      the
      same ruling, Judge Baca said that “there are serious conflicts in the continued
      representation of the Parents in this lawsuit by Gust Rosenfeld.” The Court was
      referring to the fact that Parent had hired Gust Rosenfeld as our counsel after
      purportedly taking over our company on December 9, 2004. The Court therefore
      ordered further briefing on whether Gust Rosenfeld should be disqualified as
      the
      Parents’ counsel. Shortly thereafter, on March 28, 2005, Gust Rosenfeld
      voluntarily withdrew as the Parents’ counsel. The Parents have since retained
      new counsel. The discovery process is currently ongoing.




Mr.
      Treminio has since been dismissed from the suit in accordance with the terms
      of
      a prior settlement agreement between Mr. Treminio and GoldSpring, Inc..
      Mr. Shaw filed an answer, *in
      pro per* ,
      on
      April 6, 2005, and generally denied the allegations of the complaint. Mr.
      Haswell, Mr. Doyle and Ecovery, Inc. have filed answers and generally denied
      the
      allegations of the complaint. Mr. Shaw satisfied his financial obligations,
      related to the terms and conditions of the settlement agreement, in early
      November 2006.





At
      the
      end of June 2006, the Company settled its claims against Mr. Shaw for a $75,000
      settlement and was in negotiations with another defendant for
      settlement.





During
      the third quarter, the Company entered into a settlement with another defendant,
      requiring a cash payment, which has not yet been paid.




F-14





***The
      Federal Court Case***




*Background*




Stephen
      B. Parent and several others purporting to represent a majority of the
      shareholders of our company adopted Consent Resolutions in Lieu of a Special
      Meeting of Shareholder’s dated December 9, 2004, and Mr. Parent, Jerrie W.
      Gasch, and Purnendu K. Rana Medhi, each of whom served as a director of our
      company until Mr. Medhi’s resignation in April 2005, adopted Directors’ Consent
      Resolutions (together the “December Consent Resolutions”) dated December 10,
      2004. Taken together, the December Consent Resolutions, by their purported
      terms, removed John F. Cook, Robert T. Faber, Leslie L. Cahan, Todd S. Brown,
      Christopher L. Aguilar, Stanley A. Hirschman, and Phil E. Pearce as directors,
      rescinded the restructuring of a $10 million financing transaction entered
      into
      in March 2004, removed Mr. Faber as President of our company, named Mr. Parent
      as President of our company and his wife as Secretary of our company, designated
      Mr. Parent as the sole signing officer of our company’s bank accounts, and
      terminated our company’s legal counsel.




On
      December 22, 2004, Robert T. Faber and Leslie L. Cahan (collectively, the
“plaintiffs”), who are shareholders and directors of our company, filed a
      lawsuit in the United States District Court for the District of Arizona,
      entitled Robert T. Faber, et al. v. Stephen B. Parent, et al., No.
      CV04-2960-PHX-EHC (“the Litigation”). The plaintiffs asserted claims in both
      their individual capacities and derivatively, on behalf of our company, against
      directors Stephen B. Parent, Jerrie W. Gasch, and Purnendu K. Rana Medhi
      (collectively, the “defendants”), alleging that, by adopting the Consent
      Resolutions, the defendants had unlawfully orchestrated an illegal coup to
      wrest
      control of our company from its current officers and directors. As discussed
      below, Messrs. Gasch and Medhi no longer support the Parent-led
      board.




*The
      Temporary Restraining Order*




Following
      a hearing on December 22, 2004, at which the Court heard evidence and argument
      of counsel, the Honorable Earl H. Carroll issued a December 23, 2004 Order
      Granting Plaintiffs’ Motion for Temporary Restraining Order, or TRO. The TRO
      precluded defendants and their agents from (1) making any withdrawals from
      any
      bank accounts of our company, other than reasonable withdrawals necessary to
      the
      daily operations of the business; (2) rescinding or interfering in any way
      with
      any transactions approved by our company’s Board of Directors prior to December
      9, 2004; (3) entering into any contracts or agreements with third parties on
      behalf of our company or disposing of or transferring any property or assets
      of
      our company; and (4) issuing or otherwise transferring any stock or debentures.




The
      Court
      subsequently continued the TRO through February 15, 2005 and confirmed that
      none
      of the defendants were to receive any payments from our company during the
      pendency of the TRO. Despite the Court’s Order, the defendants have since
      produced business records of our company demonstrating that, after adopting
      the
      December Consent Resolutions, the defendants arranged for our company to pay
      them a collective total of $38,721, including $20,869 in payments to Stephen
      Parent.





*The
      Preliminary Injunction and Notice of Appeal*




Following
      additional hearings in which the Court heard witness testimony and evidence,
      the
      Court issued an Order on February 15, 2005 granting plaintiffs’ Motion for a
      Preliminary Injunction. The Preliminary Injunction ordered the reinstatement
      of
      our company’s Board of Directors as it existed prior to December 10, 2004. As a
      result of the Court’s Order, John F. Cook, Robert T. Faber, Christopher L.
      Aguilar, Todd S. Brown, Leslie L. Cahan, Stanley A. Hirschman, and Phil E.
      Pearce have been reinstated as directors. Stephen B. Parent, Jerrie W. Gasch,
      and Purnendu K. Rana Medhi remained directors until Mr. Medhi’s resignation in
      April 2005. The Court’s February 15 Order also stayed the implementation of the
      Consent Resolutions, and directed us to hold a special shareholders meeting
      within 30 days.




F-15




In
      concluding that the Preliminary Injunction should issue, the Court stated,
“The
      Court is specifically concerned about the irreparable injury that would occur
      to
      GoldSpring and its shareholders and investors if Defendants [Mr. Parent, his
      wife, Jerrie W. Gasch, and Purnendu K. Rana Medhi] are permitted to manage
      the
      corporation. There is substantial evidence of Parent’s wrongdoing in his former
      position as CEO of GoldSpring, such as his misappropriation of corporate assets
      for his personal use. The Defendants’ attempt to rescind the financing
      transaction that was approved at the Board of Directors meeting on November
      30,
      2004 could adversely impact GoldSpring’s ability to meet its obligations under
      the agreement. Rescission of the refinancing transaction would prove detrimental
      for GoldSpring because the corporation would be forced to pay the $200,000.00
      monthly penalty for failing to file the S-1 Registration with the SEC within
      ninety (90) days of the March 22, 2004 agreement between GoldSpring and various
      investors. This penalty had accrued to over $1,000,000.00 as of November 30,
      2004.”




Thereafter,
      the defendants filed a motion for reconsideration in which they asked that
      the
      Preliminary Injunction be dissolved or, alternatively, that the Court clarify
      the injunction order and require the plaintiffs to post a bond. On February
      25,
      2005, the Court held a hearing on the defendants’ motion for reconsideration.
      The Court denied the defendants’ requests to dissolve the Preliminary Injunction
      and to require the posting of a bond. In response to defendants’ request for
      clarification of the injunction order, the Court ordered that our company is
      not
      to issue additional shares prior to the special shareholders meeting, and that
      the record date for the special shareholders meeting shall be December 9,
      2004.




Our
      company believed that this ruling would disenfranchise the investors that
      participated in the November 30, 2004 restructuring transaction by preventing
      them from receiving and voting the shares they are entitled to receive through
      the conversion of their notes. A December 9, 2004 record date would also have
      disenfranchised all shareholders that acquired their stock on the open market
      after December 9, 2004.




Therefore,
      on February 28, 2005, our company filed a legal memorandum with the Court
      addressing these issues. In it, we pointed out that applicable federal
      securities laws require us to provide shareholders with current financial
      statements, which will not be available until June 30, 2005, and that Florida
      law and our company’s bylaws require that a record date be fixed in advance
      rather than in the past. On March 14, 2005, the Court held a hearing on these
      issues. After hearing argument of counsel, the Court indicated that it agreed
      with our position.




Accordingly,
      on March 17, 2005, the Court vacated its earlier Order directing us to hold
      a
      special shareholders meeting and setting December 9, 2004 as the record date
      for
      purposes of that meeting. The Court also vacated the provision of its February
      25 Order prohibiting us from issuing additional shares. Finally, the Court
      reaffirmed its earlier Order reinstating our Board of Directors as it existed
      prior to December 10, 2004. In doing so, the Court ordered that the reinstated
      board shall remain in place until the Court orders otherwise.




On
      April
      13, 2005, a notice of appeal was filed on behalf of defendants (the Parents,
      the
      Gaschs, and the Medhis) seeking to reverse the Court’s March 17 Order. On April
      21, 2005, the Gaschs moved to dismiss their appeal. On June 10, 2005, the
      defendants (the Parents) filed their opening appellate brief. The plaintiffs
      filed their response brief on August 16, 2005. The defendants’ response brief
      was filed on October 3, 2005. The 9th Circuit Court of Appeals held oral
      arguments on the appeal on January 12, 2006.




On
      January 23, 2006, the United States Court of Appeals for the Ninth Circuit
      issued a Memorandum disposition in the matter of *Faber
      v. Parent* ,
      stating, “We reverse the district court’s decision to grant the preliminary
      injunction for failure to comply with the requirements of Rule 52(a). However,
      the injunction shall remain intact for a reasonable time not to exceed 90 days
      from the date on which this disposition is filed or until an earlier date on
      which the district court enters a succeeding preliminary injunction. During
      this
      time, the district court may issue a new preliminary injunction if, after
      undertaking the required analysis and making the necessary findings, it deems
      such an injunction appropriate.” The preliminary injunction, issued by the
      district court on February 15, 2005, had reinstated GoldSpring’s Board of
      Directors as it existed prior to Mr. Parent’s takeover of GoldSpring on December
      10, 2004. The Memorandum disposition also stated that, “If, after further
      proceedings, the district court does not order a new preliminary injunction,
      we
      leave it to the district court to restore, as near as possible, the situation
      that would have existed if the preliminary injunction had never been granted.”




F-16




*The
      Investors’ Motion to Intervene*




On
      March
      2, 2005, Longview Fund LP, Longview Equity Fund, Longview International Equity
      Fund, and Alpha Capital AG (collectively, the “Investors”) moved to intervene in
      the litigation. In doing so, the Investors sought to dissolve the portion of
      the
      Court’s February 25, 2005 Order that prohibited our company from issuing stock
      to them under the refinancing transaction.




In
      their
      motion to intervene, the Investors alleged that they are holders of more than
      $3
      million of Convertible Notes issued by us, which they received pursuant to
      the
      transaction in March 2004. The Investors further alleged that, under the terms
      of the Convertible Notes, they are entitled to convert the notes, in whole
      or in
      part, into our stock at any time. The Investors contended that, by preventing
      us
      from issuing stock, the Court’s February 25 Order is a de facto preliminary
      injunction in favor of the defendants, and effectively deprived the Investors
      of
      much of the benefits to which they are contractually entitled. Because the
      defendants had not met the requirements for injunctive relief, the Investors
      argued, that portion of the Court’s Order should be dissolved. Alternatively,
      the Investors asked the Court to order the defendants to post a $3.5 million
      bond to protect the Investors against any damages stemming from the de facto
      injunction.




On
      March
      7, 2005, the defendants filed their response to the Investors’ motion. They
      contended that Judge Carroll’s February 25 Order was not an injunction and, in
      any event, that the Investors had failed to meet the requirements for
      intervention. Accordingly, they argued that the motion should be denied.




On
      March
      18, 2005, the Court issued an Order denying the Investors’ motion as moot. The
      Court reasoned that, since its March 17 Order lifted the prohibition on the
      issuance of additional shares of our stock, the Investors had, in essence,
      already received the relief they requested in their motion to intervene.
      Therefore, the issues raised in that motion had become moot.




*The
      Company’s Motion Re: the Gust Rosenfeld Retainer*




After
      purportedly seizing control of our company on December 9, 2004, Stephen Parent,
      acting as the putative president of GoldSpring, authorized the payment of a
      $250,000 retainer to the law firm of Gust Rosenfeld using funds of our company.
      On March 1, 2005, we filed a motion for an order requiring Gust Rosenfeld to
      provide a detailed accounting of its use of these funds and to refund the unused
      portion.




On
      March
      14, 2005, Gust Rosenfeld sent us a refund check for $83,903.38 and a “ledger”
showing how the firm spent the other $166,096.62. Among other things, the ledger
      revealed that Gust Rosenfeld withdrew approximately $109,000 as payment for
      its
      attorneys’ fees and costs. The ledger also showed payments to other lawyers and
      outside vendors totaling approximately $57,000. Included in this amount were
      two
“refund” payments to Stephen Parent totaling $21,000.




We
      have
      filed a reply brief asking the Court to order Gust Rosenfeld to provide a more
      detailed accounting of its expenditures, including billing invoices for legal
      services it purportedly rendered to our company. We have also asked the Court
      to
      require Gust Rosenfeld to provide a written explanation for the payments to
      other lawyers and outside vendors, as well as the so-called refund payments
      to
      Parent.




*The
      “New” Consent Resolutions*




On
      March
      21, 2005, defendants Stephen and Judith Parent filed a “Motion for Order” asking
      the Court to remove certain directors of our company’s Board of Directors.
      Attached to the motion was a “Consent in Lieu of a Special Meeting of the
      Shareholders of GoldSpring, Inc.,” dated March 18, 2005 (the “March Consent”).
      The March Consent was nearly identical to the one adopted by the Parents and
      others on December 9, 2004. It purported to remove directors Robert T. Faber,
      John F. Cook, Leslie L. Cahan, Todd S. Brown, Christopher L. Aguilar, Stanley
      A.
      Hirschman, and Phillip E. Pierce as directors of our company. The March Consent
      was signed by shareholders Stephen Parent; Judith Parent; Aztech Environmental
      Industries, Inc.; Jasmine House, LLC; Frontline 2001, LLC; Jubilee Investment
      Trust PLC; Ronald M. Haswell; Mark and Jennifer Ward; Walter T. Plummer; Lynn
      Zollinger; Maia Ray; and Rita Hardy.




F-17




On
      March
      25, 2005, our company and the plaintiffs filed a joint response to the Parents’
Motion for Order. In it, we argued that (1) the shareholders who signed the
      March Consent did not hold a majority of our company’s stock, which rendered the
      Consent ineffective; (2) the Parents solicited more than ten shareholders,
      and
      therefore violated Securities and Exchange Commission Rule 14a; and (3) the
      Parents cannot obtain the relief they seek because they have not asserted an
      affirmative claim in court.




The
      Parents filed a reply and supplemental reply on March 20, 2005, and April 11,
      2005, respectively. In the reply, the Parents argued that the shareholders
      who
      signed the Consent do, in fact, hold a majority of the outstanding shares as
      of
      the date it was executed, and that any shares issued after that date are not
      to
      be counted. They also denied having solicited more than ten persons and denied
      any obligation to state an affirmative claim before seeking the relief asked
      for
      in their motion. In their supplemental reply, the Parents referred to our
      company’s recent Form 8-K filing (the “8-K”) with the Securities and Exchange
      Commission. In the 8-K, we disclosed that our company had issued (1) 59,203,918
      shares of restricted common stock in connection with the Settlement Agreement
      Regarding Failure to File a Registration Statement; (2) six secured convertible
      notes in an aggregate amount of $6,584,005 in connection with the Settlement
      Agreement Regarding Mandatory Redemption Payment; and (3) convertible notes
      in
      the amount of $403,175 in connection with the Settlement Agreement Regarding
      Failure to deliver shares due upon conversion. The Parents contended that the
      transactions referred to in the 8-K constituted an unfair dilution of the
“non-Merriman shareholders’” stock holdings.




On
      April
      20, 2005, we filed a Supplemental Notice to inform the Court that Messrs. Gasch
      and Medhi do not support the March Consent. In addition, we informed the Court
      that Mr. Gasch had signed a Declaration that (1) Mr. Gasch never agreed to
      serve
      on the proposed board of directors contemplated by the March Consent, (2) that
      Mr. Gasch does not support the March Consent and, if the March Consent
      constituted a valid shareholder resolution (which we do not believe) Mr. Gasch
      would immediately vote to reinstate the entire Board of Directors as it
      currently exists, (3) Mr. Gasch denounces and rescinds the purported Director’s
      Consent Resolutions dated December 10, 2004 and no longer supports any of the
      resolutions or purported corporate actions contemplated in that purported
      consent, and (4) Mr. Gasch has terminated Gust Rosenfeld as his counsel because
      he no longer wishes to be associated with or jointed represented by Mr. Parent.
      Mr. Medhi also informed us that he resigned as a director of our Board of
      Directors as currently constituted and as a member of the board of directors
      designated by earlier consent resolution. We informed the Court that these
      developments constitute additional reasons to deny the Parents’
motion.





On
      January 23, 2006, the United States Court of Appeals for the Ninth Circuit
      issued a Memorandum disposition in the matter of *Faber
      v. Parent* ,
      reversing the Preliminary Injunction, which had been granted by the United
      States District Court for the District of Arizona on February 15, 2005 for
      Mr.
      Parent’s failure to comply with the requirements of Rule 52(a). The Court of
      Appeals ordered that the injunction shall remain intact for a reasonable period
      of time not to exceed 90 days or until an earlier date on which the district
      court enters a succeeding preliminary injunction. The Court of Appeals remanded
      the case to the district court to allow the district court to conduct further
      proceedings, which may include issuing a new preliminary
      injunction.





*April
      18, 2006 Order*





On
      April
      18, 2006, the United States District Court for the District of Arizona issued
      an
      Order Granting a Preliminary Injunction in favor of the Plaintiff which finally
      provided firm direction on several of the matters which were the subject of
      motions described above. The Order accomplished the following:




F-18




(i)
      it
      stayed the implementation of the Consent Resolutions purportedly passed on
      December 9, 2004 to effect the attempted takeover of the Company by Stephen
      Parent’s group;




(ii)
      it
      denied Defendants’ motion for an Order removing seven current directors from
      Goldspring’s Board (which would have had the effect of allowing Parent to
      rescind the refinancing transaction dated November 30, 2004 with the Merriman
      investors); and




(iii)
      it
      granted GoldSpring’s Motion for an Order requiring the law firm of Gust
      Rosenfeld PLC to provide a detailed accounting of the unreturned portion of
      the
      $250,000 retainer (namely $166,096.62), given to Gust Rosenfeld PLC by Mr.
      Parent in December 2004.





In
      August
      2006, Defendants Steve and Judy Parent filed a notice of appeal from the Court’s
      order denying defendants’ motion for a new trial on the Preliminary Injunction
      Order to the Ninth Circuit Court of Appeals. Defendants Steve and Judy have
      filed their initial brief, and Plaintiffs’ reply brief is due to be filed by the
      end of November 2006.  The Ninth Circuit will presumably schedule oral
      argument after the appeal is fully briefed, which may occur as early as
      January 2007.




*Degerstrom
      Suit*




On
      April
      11, 2006, in the First Judicial District Court, Storey County, Nevada, wherein
      N.A. Degerstrom, Inc. (“Degerstrom”) sued the Company on various counts,
      including breach of contract, *quantum
      merit* ,
      foreclosure of mechanic's lien, and assertion that the Degerstrom lien has
      priority over all other liens on the Plum Mine property. The plaintiff claims
      damages in excess of $806,000 plus interest. The Company subsequently answered
      the Complaint and counterclaimed for breach of contract, breach of implied
      covenant of good faith and fair dealing, and for negligence, alleging damages
      in
      excess of $10,000.





The
      lawsuit arises out of a dispute as to how much the Company owes the Degerstrom
      for services provided. Pursuant to a December 27, 2005 agreement, the parties
      agreed that the amount to be paid by the Company to Degerstrom would be subject
      to volume reconciliation by aerial survey. According to Company management,
      pursuant to prepared aerial and ground surveys, the Company has been over-billed
      for amounts of ore and waste which have been hauled by Degerstrom. The results
      of the surveys are to be presented to the Court as evidence as to the Company’s
      affirmative defenses that it does not owe the amounts claimed by
      Degerstrom.





Additionally,
      the Company has what it believes to be valid counterclaims, arising out of
      activities of Degerstrom, including, but not limited to, negligent crushing
      of
      ore, failure to accurately measure and charge for waste and ore hauled and
      crushed, and failure to adequately man the job and provide sufficient equipment.
      These activities, as alleged in the Counterclaim, resulted in damages to the
      Company in excess of $10,000.





Degerstrom
      filed a mechanic's lien against the property of Plum, and at the time of filing
      of the Complaint, filed and recorded a lis pendens against the property of
      Plum
      based upon Degerstrom's claim. Counsel has advised management that the Company
      may challenge the lis pendens by asserting that the lis pendens is based upon
      a
      mechanic's lien which is overstated. However, the time is not ripe for the
      bringing of such a motion until the survey results have been presented and
      analyzed. Alternatively, Plum may request the court to establish a bond in
      an
      amount that would secure, pending litigation, Degerstrom's mechanic's lien
      claim. Typically, the court would charge one and one-half times the amount
      it
      found to be the mechanic's lien claim.





Management
      believes the ground and aerial surveys support a much lower amount of ore and
      waste which was processed by Degerstrom than is alleged in the Complaint, and
      if
      the Court accepts that volume reconciliation would be as established by such
      surveys (as is established in the written documentation between the parties),
      there is a reasonable probability of success in reduction, if not elimination,
      of the amount claimed by Degerstrom. However, until the Court rules on the
      method of volume reconciliation, it is premature to predict the probability
      of
      likelihood of success on the merits.




F-19





During
      the third quarter, there was little activity in this lawsuit, other than the
      beginning of discovery by the parties.





SALE
      OF
      ASSETS




On
      March
      21, 2006, the Company completed the sale of its Canadian subsidiaries, Clear
      Hills Iron Ltd. and Peace River Energy Ltd. to CaNev Resources, a Canadian
      Corporation. The assets divested in the transaction include 32 industrial
      (non-energy) mineral permits covering approximately 800 square miles in northern
      Alberta, Canada. In consideration for the assets, GoldSpring will receive
      CDN$1.1 million. CDN$100,000 of the sales price will be paid in cash, and the
      balance will be paid through a three percent production royalty.




EMPLOYMENT
      AGREEMENTS




We
      have
      an employment agreement with Robert T. Faber extending through August 2009.
      The
      employment agreement provides for Mr. Faber to serve as our Chief Financial
      Officer and was not modified after Mr. Faber was appointed President and Chief
      Executive Officer. The employment agreement provides for base compensation
      of
      $120,000 per year, subject to increases to up to $200,000 per year if our
      company achieves designated revenue levels. The employment agreement also
      provides for incentive compensation as determined by our board of directors.
      In
      addition, the employment agreement provides for Mr. Faber to be granted options
      to purchase shares of our common stock at prices ranging from $.50 to $2.00
      per
      share. Mr. Faber is entitled to a use of a company car, contributions to a
      401(k) plan, and life insurance coverage.




The
      employment agreement with Mr. Faber contains a covenant not to compete with
      our
      company for a period of two years immediately following termination of
      employment. We may terminate Mr. Faber for “cause” as defined in the employment
      agreement. We will be required to pay Mr. Faber’s compensation during the term
      of the agreement if we terminate him without cause.




**NOTE
      7 - NOTE FINANCINGS**





***Convertible
      Debentures-Investors***




We
      completed a private placement of securities transaction during March 2004
      (the “March Offering”). In connection with the offering, we received gross
      proceeds of $10 million from a group of accredited institutional and individual
      investors. Subsequent to the closing of the March Offering, we failed to meet
      certain provisions of the offering that required for us to provide for an
      effective registration statement with the Securities and Exchange
      Commission.





As
      a
      result, and effective November 30, 2004, we restructured the private
      placement transaction and entered into a new subscription agreement. In
      connection with the restructuring, we exchanged 8% convertible notes in the
      aggregate principal amount of approximately $11.1 million and four-year
      warrants to purchase approximately 27.8 million shares of common stock at
      an exercise price of $0.20 per share, subject to anti-dilution adjustments,
      for
      21,739,129 shares of common stock and 21,739,129 warrants to purchase shares
      of
      common stock issued in the March Offering. The principal amount of the
      convertible notes consist of the original $10.0 million investment plus
      approximately $1.1 million of accrued penalties associated with the delay
      in effectiveness of our registration statement covering the resale of the shares
      of common stock held by the investors. (See Notes 9 and 12).




The
      8%
      convertible notes mature in November 2006. We must make monthly payments of
      102% of 1/20 th of the
      initial principal amount, together with accrued interest. We have the option
      to
      repay such amounts in shares of our common stock at a conversion rate equal
      to
      85% of the average of the five lowest closing bid prices of our common stock
      during the 20 trading days preceding each payment date. We may prepay the
      outstanding principal amount by paying the holders of the notes 115% of the
      then-outstanding principal amount. Each holder of notes may convert the notes
      into shares of common stock at an initial conversion price of $0.20 per share,
      which is subject to anti-dilution adjustments. During the first 20 days
      following the closing date, the conversion price may be reduced to a price
      equal
      to 70% of the average of the five lowest closing prices of our common stock
      during the 20 trading days preceding the closing date.




F-20




On
      April
      1, 2005, we failed to make our first payment on the notes and were in default
      of
      the terms of the convertible notes. On December 20, 2004, we received notice
      from holders of approximately $3.8 million of convertible notes of their
      intention to convert into shares of our common stock. The applicable conversion
      rate was approximately $0.11 per share, and we were obligated to issue
      33,817,594 shares of our common stock. Under the terms of the subscription
      agreement, we had three business days following receipt of the notice of
      conversion of notes to deliver to the note holders’ free-trading common stock
      certificates (the “Delivery Date”). Although the shares were due to be delivered
      in December 2004, they were not delivered until 2005. As a result of our failure
      to deliver shares, we were subject to liquidated damages that were settled
      by
      the issuance of notes payable to the investors.





***$1,900,000
      Convertible Debenture Financing***





On
      August
      23 - 24, 2006, the Company formally entered into an agreement with several
      investors to loan $1,900,000 to the Company. The notes evidencing the loan
      bear
      interest at the rate of 12% per annum, payable monthly on the first of each
      month commencing October 1, 2006, along with 1/24 of the principal amount of
      such notes on each repayment date and were issued between May 18, 2006 - August
      24, 2006, with the second quarter notes being treated as “bridge debt” until the
      loan agreement was formally signed.. The notes are also convertible into Common
      Stock at a 50% discount to market until a registration statement registering
      the
      Common Stock underlying the notes is effective and at a 15% discount to market
      thereafter. As additional consideration, the investors are to be issued a total
      of 20,000,000 warrants to purchase common stock at exercise prices based upon
      the same formulas as for conversion of the amounts due under the notes. The
      notes are secured by a lien on the assets of Goldspring, Inc. and a pledge
      of
      all of the interests in Plum Mine Special Purpose, LLC, which owns the Plum
      Mine
      operation. To date, $1,200,000 of the $1,900,000 has been funded by the
      investors.





The
      notes
      issued are as follows:





·
            Winfield
                Debenture Payable issued 5/18/06 in the face amount of
                $300,000


·
            Winfield
                Debenture Payable issued 6/21/06 in the face amount of
                $300,000


·
            Winfield
                Debenture Payable issued 8/23/06 in the face amount of
                $300,000


·
            Longview
                Debenture Payable issued 8/24/06 in the face amount of
                $300,000





In
      addition, the investors were issued the warrants based upon the following
      formula (20,000,000)($face amount of debenture/$1,900,000).





The
      holder shall have the right, but not the obligation, to convert all or any
      portion of the then aggregate outstanding principal amount of the notes into
      shares of common stock.





The
      proceeds from the financing transactions were allocated to the debt features
      and
      to the warrants based upon their fair values. After the latter allocations,
      the
      remaining value, if any, is allocated to the notes on the financial
      statements.





The
      debt
      discount is being accreted using the effective interest method over the term of
      the notes. The value of the discount on the converted notes on the books is
      being accreted over the term of the notes. As of the dates of issuance, the
      Company accreted $579,787 of debt discount, and as of September 30, 2006, the
      Company accreted $533,233 of debt discount. The accretion of debt discount
      amount is adjusted in direct proportion to the conversions of debt to stock
      during the period.




F-21





*Warrants
      Issued*





The
      estimated fair value of the warrants was $99,411 at the date of issue and
      $56,617 as of September 30, 2006. These amounts have been classified as a
      derivative instrument and recorded as a liability on the Company's balance
      sheet
      in accordance with current authoritative guidance. The estimated fair value
      of
      the warrants was determined using the Black-Scholes option-pricing model. The
      model uses several assumptions including: historical stock price volatility,
      risk-free interest rate, remaining time till maturity, and the closing price
      of
      the Company's common stock to determine estimated fair value of the derivative
      liability.





In
      accordance with the provisions of SFAS No. 133, Accounting for Derivative
      Instruments, the Company is required to adjust the carrying value of the
      instrument to its fair value at each balance sheet date and recognize any change
      since the prior balance sheet date as a component of Other Income (Expense).
      The
      recorded value of such warrants can fluctuate significantly based on
      fluctuations in the market value of the underlying securities of the issuer
      of
      the warrants, as well as in the volatility of the stock price during the term
      used for observation and the term remaining for the warrants.





*Debt
      Features*





In
      accordance with Statement of Financial Accounting Standards No. 133, "Accounting
      for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"),
      the
      debt features provision (collectively, the features) contained in the terms
      governing the Notes are not clearly and closely related to the characteristics
      of the Notes. Accordingly, the features qualified as embedded derivative
      instruments at issuance and, because they do not qualify for any scope exception
      within SFAS 133, they were required by SFAS 133 to be accounted for separately
      from the debt instrument and recorded as derivative financial
      instruments.




Pursuant
      to the terms of the Notes, these notes are convertible at the option of the
      holder, at anytime on or prior to maturity. The debt features represents an
      embedded derivative that is required to be accounted for apart from the
      underlying Notes. At issuance of the Notes, the debt features had an estimated
      initial fair value of $488,512.





In
      subsequent periods, if the price of the security changes, the embedded
      derivative financial instrument related to the debt features will be adjusted
      to
      the fair value with the corresponding charge or credit to other expense or
      income. The estimated fair value of the debt features was determined using
      the
      probability weighted average expected cash flows / Lattice Model with the
      closing price on original date of issuance, a conversion price based on the
      terms of the respective contract, a period based on the terms of the notes,
      and
      a volatility factor on the date of issuance. At September 30, 2006, the
      estimated fair value of the debt features was approximately
      $416,980.





The
      recorded value of the debt features related to the Notes can fluctuate
      significantly based on fluctuations in the fair value of the Company's common
      stock, as well as in the volatility of the stock price during the term used
      for
      observation and the term remaining for the warrants.





The
      significant fluctuations can create significant income and expense items on
      the
      financial statements of the company.





Because
      the terms of the convertible notes (“notes”) require such classification, the
      accounting rules required additional convertible notes and non-employee warrants
      to also be classified as liabilities, regardless of the terms of the new notes
      and / or warrants. This presumption has been made due to the company no longer
      having the control to physical or net share settle subsequent convertible
      instruments because it is tainted by the terms of the notes. Were the notes
      to
      not have contained those terms or even if the transactions were not entered
      into, it could have altered the treatment of the other notes and the conversion
      features of the latter agreement may have resulted in a different accounting
      treatment from the liability classification. The notes and warrants, as well
      as
      any subsequent convertible notes or warrants, will be treated as derivative
      liabilities until all such provisions are settled. Derivative financial
      instruments are initially measured at their fair value. For derivative financial
      instruments that are accounted for as liabilities, the derivative instrument
      is
      initially recorded at its fair value and is then re-valued at each reporting
      date, with changes in the fair value reported as charges or credits to income.
      For option-based derivative financial instruments, the Company uses the
      Black-Scholes option pricing model to value the derivative instruments. To
      the
      extent that the initial fair values of the freestanding and/or bifurcated
      derivative instrument liabilities exceed the total proceeds received, an
      immediate charge to income is recognized, in order to initially record the
      derivative instrument liabilities at their fair value.




F-22





The
      discount from the face value of the convertible debt or equity instruments
      resulting from allocating some or all of the proceeds to the derivative
      instruments, together with the stated interest on the instrument, is amortized
      over the life of the instrument through periodic charges to income, usually
      using the effective interest method. When the instrument is convertible
      preferred stock, the dividends payable are recognized as they accrue and,
      together with the periodic amortization of the discount, are charged directly
      to
      retained earnings.





The
      classification of derivative instruments, including whether such instruments
      should be recorded as liabilities or as equity, is re-assessed periodically,
      including at the end of each reporting period. If re-classification is required,
      the fair value of the derivative instrument, as of the determination date,
      is
      re-classified. Any previous charges or credits to income for changes in the
      fair
      value of the derivative instrument are not reversed. Derivative instrument
      liabilities are classified in the balance sheet as current or non-current based
      on whether or not net-cash settlement of the derivative instrument could be
      required within 12 months of the balance sheet date.





***Convertible
      Debentures-Mandatory Redemption Payment***




The
      failure to deliver the shares by the Delivery Date resulted in liquidated
      damages of 1% of the note principal amount being converted per business day
      after the Delivery Date. We did not deliver the share certificates within the
      period required in the subscription agreement and as a result, in March of
      2005,
      John V. Winfield, a major shareholder and note holder elected to demand payment
      of approximately $6.9 million pursuant to the mandatory redemption payment
      provisions of the subscription agreement and forfeit his right to receive the
      shares in favor of the payment.




On
      June
      30, 2005, we entered into a Settlement Agreement (“Settlement”) with the Mr.
      Winfield and agreed to convert the mandatory redemption payment into six
      Convertible Debentures (“the Debentures”). Accordingly, we accrued a liability
      for approximately $6.9 million and reduced our paid-in-capital account for
      approximately $3.5 million (See Note 12). The Debentures are subject to various
      covenants and conditions, including, but not limited to anti-dilution rights
      and
      protective rights.




The
      Debentures accrue interest at 12% per annum and are payable in monthly
      installments of principal and interest over a 24 month period with the remaining
      entire balance of unpaid principal and interest due on June 30, 2007. The
      debentures are subject to the following terms:




*Conversion
      Rights*




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




F-23




*Security
      Agreement*




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




*Mandatory
      Registration Rights*




The
      terms
      of the Debenture agreement require that we must file with the Securities and
      Exchange Commission on a Form SB-2 registration statement, or such other form
      that we are eligible to use, to register the Conversion Shares, together with
      any other shares of Common stock issuable hereunder for resale and distribution
      under the 1933 and cause to be filed not later than April 30, 2005 and declared
      effective not later than June 30, 2005. If we fail to make effective a
      registration statement we are subject to liquidated damages, an amount equal
      to
      two percent (2%) for each thirty (30) days or part thereof, thereafter of the
      principal amount of the Debenture remaining unconverted and purchase price
      of
      Conversion Shares issued upon conversion of the Debenture owned of record by
      the
      holder. The Company must pay the liquidated damages in cash or an
      amount ****** equal
      to
      two hundred percent of such cash liquidated damages if paid in additional shares
      of registered un-legended free ****** trading
      shares of common stock. As of December 31, 2005 we had failed to make any
      monthly payments on the debentures and are in default.




On
      December 20, 2004, we received notice from holders of approximately $500,000
      of
      convertible notes payable of their intention to convert into shares of our
      common stock. As a result, we recorded the issuance of 4,243,791 shares on
      December 20, 2004. We were required to deliver certificates representing
      unrestricted, free-trading stock within three business days of our receipt
      of
      the notices of conversion (the “Delivery Date”). The failure to deliver the
      shares by the Delivery Date resulted in liquidated damages of 1% of the Note
      principal amount being converted per business day after the Delivery Date.
      Our
      former Chief Executive Officer did not deliver the stock certificates within
      the
      required period. On March 18, 2005 we delivered the certificates representing
      the shares of common stock to these converting note holders. The 84 -day delay
      in delivering the shares resulted in liquidated damages of $403,175. We
      recognized these damages during the fourth quarter of 2004 and the first quarter
      of 2005. We issued convertible notes for the amount of liquidated damages
      due




Accordingly,
      at September 30, 2006 and September 30, 2005, we classified the following
      convertible debentures as current liabilities as follows:




**September
                30, 2006**
            
            **September
                30, 2005**Convertible
                Debentures Payable-Investors
            
            $
            2,799,219
            
            
            6,453,591Convertible
                Debentures Payable- Mandatory Redemption payment
            
            $
            5,886,059
            
            
            6,885,184Convertible
                Debentures Payable- Failure to Deliver Shares
            
            $
            356,348
            
            
            356,348Total
            
            $
            9,041,626
            
            
            13,695,123




***Promissory
      Notes Payable—July Financing***




In
      July
      of 2005, we borrowed $1.2 Million from companies controlled by John V. Winfield,
      a major shareholder. Proceeds from the notes were reduced by a 33.3% original
      issue discount and other origination fees. Net proceeds received by the Company
      from the borrowing were $740,000. The notes accrue interest at 15% per annum
      and
      are payable in monthly installments of principal and interest over a 24 month
      period with the remaining entire balance of unpaid principal and interest due
      on
      July 15, 2007.




F-24




The
      notes
      are collateralized by substantially all of the Company’s assets subject to the
      security interest of the Brockbank Trust. As of September 30, 2006 we had failed
      to make any monthly payments on the notes and are in default.







***Promissory
      Notes Payable—September Financing***




In
      September of 2005, we borrowed $300,000 from Longview Fund L.P., a major
      shareholder. Proceeds from the notes were reduced by a 33.3% original issue
      discount and other origination fees. Net proceeds received by the Company from
      the borrowing were $165,500.The notes accrue interest at 15% per annum and
      are
      payable in monthly installments of principal and interest over a 24 month period
      with the remaining entire balance of unpaid principal and interest due on July
      15, 2007. The notes are collateralized by substantially all of the Company’s
      assets subject to the security interest of the Brockbank Trust and the Winfield
      convertible debentures of March 2005.




The
      notes
      share a security interest with the Winfield notes issued in July 2004. As of
      September 30, 2006 we had failed to make any monthly payments on the notes
      and
      are in default.




***Promissory
      Notes Payable—December Financing***




In
      December of 2005, we borrowed $375,000 from Longview Fund L.P., a major
      shareholder, and $200,000 from Merriman Curhan Ford & Company. The notes
      accrue interest at 16% per annum, are uncollateralized and was payable including
      accrued interest on or before March 15, 2006 and has not been
      repaid




***Promissory
      Notes Payable—First Quarter 2006 Financing***




In
      the
      first quarter of 2006, we borrowed $400,000 from Longview Fund L.P., a major
      shareholder. The notes accrue interest at 16% per annum and are unsecured.
      The
      expiration date on the notes has been extended pending closing of a formal
      extension during November 2006.





Accordingly,
      at September 30, 2006 we classified the following notes payable as current
      liabilities as follows:




**September
                30, 2006**Promissory
                Notes Payable-July Financing
            
            $
            1,200,000Promissory
                Notes Payable-September Financing
            
            
            300,000Promissory
                Notes Payable-December Financing
            
            
            575,000Promissory
                Notes Payable-first quarter 2006 Financing
            
            
            400,000Promissory
                Notes Payable-second quarter 2006 Financing
            
            
            600,000Promissory
                Notes Payable - third quarter 2006 Financing
            
            
            600,000Total
            
            $
            3,675,000





***Notes
      Payable- Plum Mine***




We
      have a
      non-interest bearing note payable to a shareholder related to our purchase
      of
      the Plum Mining property. The note is payable in ten quarterly payments through
      September 2006.




F-25





***Notes
      Payable- Seller Note***




In
      connection with our acquisition of the Justice, Woodville and Keystone patented
      claims we issued a promissory note to the seller for $160,000. The note is
      payable in ten quarterly payments through June 2008.





***Notes
      Payable- Equipment Financing***




During
      2004, we purchased certain equipment and financed our purchases through GMAC
      and
      Ford Motor Company credit agencies. Aggregated principal and interest due
      pursuant to the financings is due monthly in equal installments of $1,054,
      at an
      averaged interest rate of 7.2%. The equipment purchased is pledged as collateral
      for the debt. At September 30, 2006 and September 30, 2005, we had the following
      amounts due under the financings as follows:


**September
                  30, 2006**
            
            **September
                30, 2005**Short-term
                Debt-Current Plum Mine
            
            $
            9,426
            
            
            8,649Short-term
                Debt-Current Seller Note
            
            
            264,000
            
            
            464,000Other
                short-term Debt-Current
            
            $
            -
            
            
            -Total
            
            $
            273,426
            
            
            472,649





**September
                  30, 2006**
            
            **September
                  30, 2005**Long-term
                Debt-non current Plum Mine
            
            $
            26,223
            
            
            36,795Long-term
                Debt-non current Seller Note
            
            
            83,200
            
            
            96,000Other
                Long-term Debt -Non-current
            
            
            -
            
            
            -Total
            
            $
            109,423
            
            
            132,795




Principal
      payments on long-term debt related to equipment financing for the next five
      years are as follows:




2006
                (last three months)
            
            $
            2,5552007
            
            
            10,6772008
            
            
            11,4412009
            
            
            10,9762010
                and thereafter
            
            
            0





***Convertible
      Notes Payable-Failure to Deliver Shares***




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




*Conversion
      Rights*




The
      notes
      are convertible, in all or in part, into shares of our common stock at any
      time
      at an initial conversion price of $0.20, subject to certain anti-dilution
      provisions that include the sale of assets, reclassifications of our equity,
      issuance of additional shares and stock splits and dividends.




F-26





*Borrower’s
      Repayment Election* .




The
      Monthly Amount due on a repayment date shall be paid by the Company at its
      election (i) in cash at the rate of 102% of such monthly amount otherwise due
      on
      such repayment date within three (3) business days of the applicable repayment
      date, or (ii) with registered, freely transferable common stock at an applied
      conversion rate equal to eighty-five percent (85%) of the average of the five
      (5) lowest closing bid prices of the common stock as reported by Bloomberg
      L.P.
      for the twenty (20) trading days preceding such repayment date.




On
      April
      1, 2005, we failed to make our first payment on the convertible debentures
      and
      were in default of the terms of the convertible notes. At September 30, 2006
      and
      September 30, 2005 we classified the following notes payable as current
      liabilities as follows:


**September
                30, 2006**
            
            **September
                30, 2005**Convertible
                Notes Payable
            
            $
            9,041,626
            
            
            13,695,123Promissory
                notes
            
            
            3,675,000
            
            
            1,500,000Total
            
            $
            12,716,626
            
            
            15,195,123





***Summary
      of Notes Payable***





At
      September 30, 2006 and September 30, 2005 our notes payable balances were:




**September
                  30, 2006**
            
            **September
                  30, 2005**Convertible
                Debentures
            
            $
            9,041,626
            
            
            13,695,123Promissory
                Notes Payable
            
            
            3,675,000
            
            
            1,500,000Other
                Notes Payable
            
            $
            273,426
            
            
            472,649Total
                Current portion of long-term debt
            
            $
            12,990,052
            
            
            15,667,772





**September
                  30, 2006**
            
            **September
                  30, 2005**Long-term
                Debt-non current Plum Mine
            
            $
            26,223
            
            
            36,795Long-term
                Debt-non current Seller Note
            
            
            83,200
            
            
            96,000Other
                Long-term Debt -Non-current
            
            
            -
            
            
            -Total
                Long-term debt, net of current portion
            
            $
            109,423
            
            
            132,795





**NOTE
      8 - SUBSEQUENT EVENTS**





*Litigation*





The
      Company was successful on three separate motions heard in its State Court
      Lawsuit on October 13, 2006. The Court denied a motion filed by Defendants
      to
      strike the testimony of a key witness, as well as denying Defendants’ motion for
      summary judgment on the conspiracy counts. Lastly, the Plaintiffs’ motion to
      compel key Defendant, Ron Haswell, to turn over various brokerage and banking
      records pertaining to the matters at issue in the lawsuit was granted, further
      ordering Haswell to pay for attorney costs associated with Plaintiff’s request
      for these records. The next key date in the case is hearing is scheduled for
      January 19, 2007 to address several summary judgment and related motions. 
A new trial date has not yet been set in the case.  Also in the State Court
      Lawsuit, Mr. Shaw satisfied his financial obligations, related to the terms
      and
      conditions of the settlement agreement, in early November 2006.




F-27





*Amendment
      to Bylaws*





Effective
      as of October 6, 2006 , the Company has amended Article II, Section 12 of its
      Bylaws so that the record date for the taking of any action by shareholders
      may
      be a date within 180 days of the date of action, as opposed to the 120 day
      limitation previously set forth in the Bylaws.





*Written
      Consent in Lieu of Special Meeting of Shareholders*





On
      or
      about September 10, 2006, the Company caused a Definitive Schedule 14A to be
      delivered to all of its shareholders with regard to the following four matters:
      (i) increase of authorized shares to 5,000,000; (ii) implementation of its
      2006
      Stock Option and Incentive Plan; (iii) reincorporation in the State of Nevada;
      and (iv) approval of a reverse stock split of the Company’s Common Stock, as
      determined by its Board of Directors, in a ratio of 1:200. The Company has
      received the requisite consent to pass all four matters, and will complete
      its
      formal count and announce actual results through a filing on Form 8-K. It
      anticipates amending its Articles of Incorporation to increase its authorized
      shares to 5,000,000,000 on or about November 15, 2006.




F-28


**Item
      2.**  **Management’s
      Discussion and Analysis or Plan of Operations**





The
      following discussion provides information that we believe is relevant to an
      assessment and understanding of the consolidated results of operations and
      financial condition of our company. It should be read in conjunction with the
      Consolidated Financial Statements and accompanying Notes.





The
      following discussion addresses matters we consider important for an
      understanding of our financial condition and results of operations as of and
      for
      the quarter ended September 30, 2006, as well as our future
      results.





*Overview*





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




We
      started to reap the benefits of the operational improvement program that we
      initiated in 2005, including our first reported net profit for the first quarter
      of 2006. This program began with a complete review of every facet of the
      operation to insure maximum efficiency. We have nearly completed our review
      of
      the various processes and have implemented several changes, which have increased
      efficiencies. Most recently, we have made the decision to take over our mining
      operations, which are currently being performed by an outside contractor.
      Although we had planned to have our mining operation completely in place by
      the
      end of May 2006, delays in financing have dictated that we rely on contract
      mining assistance through the end of November. However, when we do take over
      operations, based on our mine plan and internal calculations and reach our
      targeted production numbers, we expect our production cost to be less than
      $350
      per ounce.




Our
      first
      quarter production was hampered by inclement weather in northern Nevada in
      late
      2005 and early 2006. Our Plum Mine received fourteen inches of rain between
      mid-December and the end of February, filling our leach ponds, including our
      one
      hundred year storm pond, nearly to capacity. The high levels of effluents in
      the
      ponds prevented us from adding additional reagents to our leach pads. Because
      we
      were unable to add new material to the pad and put it under leach, we ceased
      mining operations in early-January. Our team at the mine did an excellent job,
      in a challenging situation, to insure the environmental integrity of our
      operation. The team worked closely with the regulatory authorities throughout
      this process. In order to resume mining and processing with the necessary
      reagents, the level of effluents in the ponds must be reduced through
      evaporation. The necessary level was reached in late June, which is when mining
      resumed.





Due
      to
      the five month cessation of mining activities, there was little ore to produce
      in the second quarter, and therefore revenues in the second quarter were
      markedly lower in the first quarter, when there was still a supply of ore,
      mined
      in the fourth quarter of 2005, to process and sell. A lapse in mining typically
      leads to reduced saleable materials in the next fiscal quarter as the
      mining-processing-sales cycle is approximately 60 - 90 days. However, as mining
      activities recommenced in late June, the fourth quarter should yield
      comparatively favorable revenue results. The third quarter marked the
      recommencement of mining activities. Recent focus has including (i) ramping
      up
      of mining and processing on a continued basis; (ii) stockpiling of ore for
      processing during inclement weather; and (iii) transition preparation for
      December 1, 2006 takeover of mining operations by the Company’s own staff.
      Furthermore, significant fluid management steps have been taken to avoid another
      shut down of activity as experienced during the first five months of
      2006.




1




Our
      Company has been involved in litigation with its founder since late 2004 when
      he
      attempted a takeover of the Company through a purported consent solicitation
      in
      violation of federal securities laws. On April 18, 2006, the United States
      District Court for the District of Arizona issued an Order Granting a
      Preliminary Injunction, which stayed the implementation of the Consent
      Resolutions purportedly passed on December 9, 2004 (a subsequent Motion by
      the
      Defendants for reconsideration of the Order was denied on July 31, 2006). The
      Court’s decision also provides clarity to our investors and shareholders
      regarding control and direction of the Company. The Defendants did appeal the
      denial of the reconsideration of the order, and the appeal is pending in the
      9 th Circuit.
      The Company is using its best efforts to not permit the ongoing appeal to
      distract attention from operations and is fairly confident that the appeal
      will
      be denied which should put an end to the litigation. Nonetheless, we continue
      to
      seek financing to meet our working capital needs and fuel our
      growth.




Our
      Company has also been sued by a former mining contractor to the Company for
      unpaid services in an alleged amount exceeding $800,000. The Company’s
      management believes that the results of aerial and ground survey (the method
      stated in writings between the parties for measuring amounts owed to Degerstrom
      for services rendered) demonstrate that Degerstrom’s claims are substantially
      overstated and will present the survey results to the Court to substantiate
      its
      position. Further detail is set forth in Item 1 of Part II below.





There
      are
      also several specific risk factors attendant to operation of a gold mining
      concern which bear repetition here due to events in 2006, although this is
      not
      intended to be a full blown list of risk factors (and we encourage you to review
      our October 11, 2005 424(b)(3) for a further discussion of risk factors
      attendant to our business):





·
            Weather
                - As disclosed in this Quarterly Report, excessive rains has caused
                material delays in our ability to operate as high levels of water
                in our
                leaching ponds and flooding have prevented us from being able to
                leach
                materials, a necessary part of the gold production process. Excessive
                snows, which can occur in the area in which the Plum Mine is located,
                would also hamper mining as the Plum Mine is an open pit
                mine.·
            Current
                Political Instability in the Middle East - Commodities such as gold
                tend
                to have widely fluctuating markets, and the current problems in areas
                such
                as Lebanon and Iraq, which are causing much political and economic
                instability internationally, may very well be a contributing factor
                to the
                volatile gold market.




***Results
      of Operations and Operational Plan***





*Operational
      Improvements*




Our
      Plum
      Mine, which is located in Storey County, Nevada, went into test mining
      production in late third quarter 2004. We did not and have not since established
      reserves on this exploration project; therefore, all of our activities on this
      property are considered test mining or exploratory in nature. One of our top
      priorities is to improve efficiencies and increase test mining production at
      our
      Plum Mine. In March 2005, we initiated a program to improve the operational
      efficiency of our mining operation. As part of this program, we consolidated
      our
      corporate office with the Plum Mine office. We also made improvements to our
      processing plant and took over crushing operations from our third-party
      contractor, reducing costs and increasing our control over the crushing process.
      Our improvement program continued throughout the year and into 2006. In November
      2005, we retained licensed mining engineer Jim Golden (who became COO in 2006)
      to conduct a comprehensive review of all aspects of the Plum Mine operation,
      including the overall mine plan, with the objective of further improving
      efficiency, increasing production, and reducing costs. Our process improvement
      team, led by Jim Golden, is to be commended for their excellent progress to
      date.




2





Furthermore,
      Mine Development and Associates of Reno, Nevada has nearly completed a detailed
      mine plan and a reserve report for the Plum Mine. In the third quarter,
      management determined that its limited resources would be better allocated
      to
      mining activities rather than to the completion of the feasibility report;
      hence, a decision was made to delay completion of the feasibility report until
      such time as sufficient resources exist. In a further effort to reduce costs
      and
      increase efficiencies, we have decided to take over the mining operations from
      our outside contractor. We expect to complete this transition by the end of
      November 2006. We originally targeted May 2006 to take over mining activities,
      but weather problems caused delays in production , thus causing the transition
      to be rescheduled to November / December 2006. We have successfully negotiated
      a
      mutual working arrangement to cover those activities through November 2006,
      and
      we paid the contractor a $350,000 deposit for the initiation of mining and
      as a
      partial down payment for acquisition of the contractor’s mining fleet at the end
      of November 2006. When we do take over operations, based on our mine plan and
      internal calculations and hit our targeted production numbers, we expect our
      production cost to be less than $350 per ounce. All of the aforementioned
      factors should yield more consistent and sustainable operational
      results.




In
      the
      third quarter, we continued to implement changes to our crushing system,
      including:








·
            Changing
                of die designs for our primary crusher to further reduce the nominal
                size
                of material placed on the leach pad resulting in better metal
                recovery.·
            Refurbishment
                of our conveyor stacking system reducing downtime and improving
                efficiencies.





·
            Purchase
                of a previously leased Cat 980B Front End Loader for feeding the
                crushing
                plant, further reducing operating costs at the
                crusher.




The
      third
      quarter also brought changes to the processing systems, including:





·
            Modification
                of the fluid management system to ensure normal plant operations
                during
                the Winter and Spring of 2007.·
            Initiation
                of steps to replace the electric furnace in the refinery with an
                efficient
                propane gas furnace. This change, which is scheduled to be completed
                in
                the fourth quarter, will reduce electrical demand and downtime due
                to
                electrical part failures.





*Operational
      Details*




The
      third
      quarter recommencement of processing, after a five month hiatus in the ability
      to add cyanide to the leach pad, yielded 656 ounces of gold and 2,829 ounces
      of
      silver sold.





The
      major
      operational goal for the third quarter was to stabilize mining operations and
      prepare for the takeover of mining from the third-party contractor on December
      1, 2006. During the quarter, the two 35 ton Wabco hauling vehicles were replaced
      by four 50 ton Euclid hauling vehicles allowing us to increase the daily tons
      mined. In September, we concluded an agreement with our contractor to purchase
      the mining fleet consisting of these four R-50 Euclid Trucks, one Cat 988B
      Front
      End Loader and one Drilltech D25k Blast Hole Drill, thus rounding out a major
      portion of our equipment needs. As part of the purchase, the contractor is
      responsible for the cost of all maintenance and repairs performed on the
      equipment prior to December 1, 2006. We believe this planned change will
      stabilize the mining activities, reduce costs, maximize efficiencies and enhance
      production. Furthermore, we are cross training our employees to be able to
      perform both crushing and mining operations in an effort to reduce duplication
      of personnel and improve overall productivity.




In
      September 2006, we began pre-stripping an estimated 200,000 tons of waste from
      the “Lucerne” Pit. We expect drilling, and blasting to remove this waste
      material from the “Lucerne” Pit to continue through the balance of the fourth
      quarter. By January 2007, we anticipate reaching the mineralized zone which
      should ensure mining at a sustainable and predictable rate for the next few
      years based on the most recent mine plan received from Mine Development
      Associates of Reno, Nevada. All of our efforts in exploration, mining, crushing,
      and processing are focused on attaining our goal to reach a sustainable level
      of
      mining to reach production of 1,000 ounces of gold per month beginning in later
      part of the first quarter or the second quarter of 2007. We continue to upgrade
      personnel and deploy professional consultants on an as-need basis to improve
      our
      operations with the longer term effect of goal achievement.




3





We
      continue to look for opportunities to expand our footprint and leverage our
      assets at the Plum mine. We are in ongoing negotiations with a company for
      which
      we would crush and process ores from their nearby pit on a “put or pay” contract
      basis. We anticipate completing negotiations and entering into a formal contract
      before the end of December, 2006.





*Exploration
      Details*




The
      Company continues to make favorable progress, with the help of its consultants
      and staff, in exploration efforts with respect to its claims and Comstock Mining
      District. Ongoing mapping of the Plum Mine pit confirms that a large amount
      of
      mineralized material should exist between the Billie the Kid Pit and the Lucerne
      Pit, where there has been no previous drilling. We will be converting our Blast
      Hole Drill to reverse circulation drilling capabilities (which allow for drill
      holes to depths of 1,000 feet) to enhance exploration capabilities.





*Placer
      Claims, Water Rights, and Mineral Permits*




We
      originally became a mineral company through an acquisition of unpatented placer
      mineral claims and the Big Mike copper claims in June 2003 from Ecovery, Inc.
      Specifically, that acquisition provided us with a number of Nevada-based placer
      claims, including the Gold Canyon and Spring Valley claims, and 17 unpatented
      lode claims called the Big Mike Copper property. This acquisition did not
      include any real property rights. In November 2003, we acquired the Plum mine
      facility as well as water rights that are usable at Plum Mine and the Gold
      Canyon and Spring Valley placer claims. In a separate transaction, we obtained
      mineral permits in Alberta, Canada in May 2004.  The
      Big
      Mike Copper property is located in Pershing County, Nevada. It covers a total
      of
      310 acres and consists of 17 unpatented lode claims and one placer claim. We
      have not established any proven or probable reserves that meet the requirements
      of SEC Industry Guide 7. The property includes an open pit, mineralized material
      in a stockpile and waste dumps. At the end of September 2006, it entered into
      a
      ten year lease with a local company, controlled by a former GoldSpring director,
      for a 10 year lease of all of its mining claims for its Big Mike copper mine.
      The Lease calls for a $50,000 initial payment, which is scheduled to be made
      at
      the beginning of this week to cover royalty payments due for the first two
      years
      of the lease term. Additionally, the lessee must pay Goldspring $75,000 when
      a
      production permit is awarded, and $125,000 when commercial mining commences.
      Additionally, the lessee agrees to a work expenditure of $300,000 for
      environmental and engineering matters in the first twelve months of the lease
      During the term of the lease, Goldspring will also receive a production royalty
      of between 3% and 5% of net returns from copper mining, dependent on the price
      of copper.




4





***Comparative
      Financial Information***




**Nine****Months**
              **ended**
              **September
                30, 2006**
            
            **Nine****Months**
              **ended**
              **September
                30, 2005**
            
            **Difference**Revenue
            
            $
            991,105
            
            $
            2,155,538
            
            $
            (1,164,433
            )Reclamation,
                Exploration and Test Mining Expense
            
            
            1,384,227
            
            
            3,870,316
            
            
            (2,486,089
            )General
                and Administration
            
            
            369,166
            
            
            779,372
            
            
            (410,206
            )Consulting
                and Professional Service
            
            
            405,338
            
            
            717,774
            
            
            (312,436
            )Liquidated
                Damages
            
            
            -
            
            
            4,619,144
            
            
            (4,619,444
            )Interest
                Expense
            
            
            (2,097,651
            )
            
            (1,605,587
            )
            
            492,064Derivative
                - Change in Fair Value
            
            
            114,326
            
            
            -
            
            
            114,326Net
                Loss
            
            
            ($3,175,433
            )
            
            ($9,652,713
            )
            $
            6,477,280







**Three****Months**
              **ended**
              **September
                30, 2006**
            
            **Three****Months**
              **ended**
              **September
                30, 2005**
            
            **Difference**Revenue
            
            $
            379,845
            
            $
            951,586
            
            $
            (571,741
            )Reclamation,
                Exploration and Test Mining Expense
            
            
            668,616
            
            
            1,061,186
            
            
            (392,570
            )General
                and Administration
            
            
            112,029
            
            
            102,140
            
            
            9,889Consulting
                and Professional Service
            
            
            52,150
            
            
            55,311
            
            
            (3,161
            )Liquidated
                Damages
            
            
            -
            
            
            (1,758,676
            )
            
            (1,758,676
            )Interest
                Expense
            
            
            (706,558
            )
            
            (882,216
            )
            
            175,658Derivative
                - Change in Fair Value
            
            
            114,326
            
            
            -
            
            
            114,326Net
                Loss
            
            
            ($1,048,661
            )
            
            ($2,980,842
            )
            $
            1,932,181





During
      the first nine months of 2006, we sold 1779 ounces of gold at an average price
      of $572.42 per ounce compared to gold sales of 8057 ounces at an average price
      of $576.61 per ounce for the same period of 2005. Our gold production for the
      first nine months of 2006 was adversely impacted by the weather conditions
      from
      mid December 2005 through February 2006. The accumulation of precipitation
      during this period filled our leach ponds, including our one hundred year storm
      pond, to capacity preventing us from adding additional reagents to our leach
      pads, which slowed production. In early January, we ceased mining since we
      could
      not efficiently leach any new material further reducing production. We did
      not
      have significant production in the second quarter as in the first because the
      cessation of mining in January left us with no raw product available, and all
      of
      our stockpiled ore was depleted during the first quarter of 2006.




5





Test
      Mining Expenses in the third quarter of 2006 were $392,570 less than for the
      third quarter of 2005. Test Mining Expenses for the first nine months of 2006
      were $2,486,091 less than for the first nine months of 2005. In early 2005
      we
      initiated an operational improvement program. This program focused on enhancing
      the efficiencies of **e** ach
      of
      our processes as well as insuring we had the right personnel. **** We
      believe we are now starting to experience the benefits of the operational
      improvement program. We expect to realize further improvements in the upcoming
      months.




General
      and administrative expenses in the third quarter of 2006 were $9,889 more than
      in the third quarter of 2005. General and administrative expenses for the first
      nine months of 2006 were $410,206 less than for the first nine months of 2005.
      The marked decrease in general and administrative expenses for the nine month
      comparison period, with essential equal numbers for the three month comparison
      period, is based primarily upon the relocation of our corporate office to the
      Plum Mine and the consolidation of functions reducing the number of corporate
      employees, which took effect in the third quarter of 2005.




The
      $312,436 variance in consulting and professional services between the period
      consisting of the first nine months of 2006 compared to the period consisting
      of
      the first nine months of 2005 reflects a reduction in legal fees. In the first
      quarter 2005, we expensed approximately $180,000 of legal fees incurred by
      our
      Company’s founder during his purported takeover of our Company in December 2004.





The
      liquidated damages included in the tables above stemmed from Non-Registration
      Events Provisions in our November 2004 Subscription Agreement (“Non-Registration
      Provisions”). The Non-Registration Provisions required us to file a registration
      statement with the Securities and Exchange Commission no later than December
      30,
      2004 and to cause the registration statement to be declared effective no later
      than February 14, 2005. Our former Chief Executive Officer withdrew our pending
      registration statement and did not submit a new registration statement. His
      failure to submit the registration statement to the SEC by December 30, 2004
      triggered liquidated damages to be incurred at a rate of two percent (2%) of
      the
      principal amount of the Debenture for each thirty day period or part thereof
      for
      not having an effective Registration Statement. We have the option to pay the
      liquidated damages in cash or common stock. If we choose to pay in stock, we
      are
      required to pay 200% of the liquidated damages amount. Because our Company
      does
      not currently have sufficient funds to pay in cash, we intend to meet this
      obligation by issuing common shares. Thus, the total amount of liquidated
      damages recorded for the third quarter represents 200% of the cash total. The
      liquidated damages ceased when our registration statement became effective
      on
      October 3, 2005.




Interest
      expense for the third quarter of 2006 was $230,348 lower than the same quarter
      of 2005, and interest expense for the first nine months of 2006 was $437,374
      higher than for the first nine months of 2005. This variance reflects the
      issuance of $6,885,184 interest bearing note issued in March 2005 pursuant
      to
      the November 2004 subscription agreement. Specifically, we received a mandatory
      redemption payment demand relating to our failure to deliver stock certificates
      representing 29,573,803 shares of our common stock. Under the mandatory
      redemption payment provisions of the November 2004 subscription agreement,
      we
      repurchased the 29,573,803 shares of common stock at $0.23 per share, or
      $6,801,975. We issued a secured convertible note in the aggregate amount of
      $6,885,184 with a 18% interest rate for the 29,573,803 shares and accrued
      interest. The incremental interest recognized on this note for the third quarter
      2006 was approximately $274,765. At September 30, 2006, our Company had
      approximately $13,099,476 of outstanding debt bearing an average interest rate
      of 21.6%, and at September 30, 2005, our Company had approximately $15,800,537
      of outstanding debt bearing an average interest rate of 22%.




***Liquidity
      and Capital Resources***




We
      continue to actively seek additional capital to meet our working capital needs
      and to grow our business. We recognize that our cash resources are limited.
      Our
      continued existence and plans for future growth depend on our ability to obtain
      the capital necessary to operate, through the generation of revenue or the
      issuance of additional debt or equity. In 2005, we raised an aggregate of
      $1,575,000 through five financing transactions. In the first nine months of
      2006, we completed several additional financing transactions, which provided
      us
      with $1,600,000 in funding. While this additional funding may meet our immediate
      working capital needs, if we are not able to generate sufficient revenues and
      cash flows or obtain additional or alternative funding, we will be unable to
      continue as a going concern. We have yet to realize an operating profit at
      our
      Plum Mine location. As disclosed in the report of our independent registered
      public accounting firm in our financial statements included in this Form 10-KSB
      for the year ended December 31, 2005, our recurring losses and negative cash
      flow from operations raise substantial doubt about our ability to continue
      as a
      going concern.




6




Furthermore,
      the litigation in which our Company has been involved since late 2004 has
      strained the Company’s financial resources. (See Part II, Item 1, “Legal
      Proceedings,” for a detailed discussion.) If we are unable to resolve the
      litigation in the near future, the ongoing legal costs may impact our ability
      to
      continue as a going concern. In the first quarter of 2006, we completed
      additional financing transactions, which provided us with $400,000 in funding.
      In consideration for the funding, we issued promissory notes with a term of
      ninety (90) days and an interest rate of sixteen percent (16%) per annum. The
      default interest rate on the note is twenty-two percent (22%). The funds were
      used for working capital and general corporate purposes.




In
      April
      2006, we obtained a financing commitment in the amount of $2.2 million from
      a
      group of our existing investors, which ended in a $1.9 million financing of
      which $1,200,000 has been advanced. We expect to close the transaction in the
      next 90 days, subject to completion of certain closing conditions. Upon closing,
      the funds will be deployed to expand our Plum Mine operation in northern Nevada.
      Specifically, we plan to take over the mining operations from our contract
      miner
      and have committed $500,000 to conduct further exploration at the Plum property.
      We believe, with this additional financing, that we have sufficient resources
      to
      operate throughout the next twelve months.




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




**Item
      3.****Controls
      and Procedures**




Based
      on
      the most recent evaluation, which was completed as of the end of the period
      covered by this Form 10-QSB, we believe our company’s disclosure controls and
      procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) are
      effective to ensure that information required to be disclosed by us in this
      report is accumulated and communicated to our management, including our
      principal executive officer and principal financial officer, as appropriate,
      to
      allow timely decisions regarding required disclosure. We do not believe that
      any
      internal control deficiencies due to lack of segregated accounting functions
      and
      limited accounting staff constitute material weaknesses because of the use
      of
      accounting personnel from the consolidated offices with our Plum Mine operation
      and use of outside consultants, along with oversight from our Audit Committee.
      We are also in the process of taking further corrective measures to remedy
      the
      deficiencies in future periods.





There
      have been no changes during the quarter ended September 30, 2006 in our
      Company's internal control over financial reporting identified in connection
      with the evaluation required by Exchange Act Rules 13a-15(d) and 15d-15(d)
      that
      have materially affected, or are reasonably likely to materially affect, our
      internal controls over our financial reporting.




7




**PART
      II - OTHER INFORMATION**





**Item
      1.**  **Legal
      Proceedings**





***The
      State Court Case***




On
      November 9, 2004, we filed a lawsuit in Maricopa County (Arizona) Superior
      Court
      against defendants Stephen B. Parent, Ron Haswell, Walter Doyle, Seth Shaw,
      Antonio Treminio, together with their spouses, and Ecovery, Inc., a Nevada
      corporation, or Ecovery.




The
      12-count complaint alleges claims for violations of Arizona’s racketeering act,
      state-law securities fraud (primary and secondary liability), common-law fraud,
      negligent misrepresentation, breach of fiduciary duty, negligence/gross
      negligence, breach of contract, unjust enrichment/restitution, theft/conversion,
      conspiracy liability, and injunctive relief. In essence, the complaint alleges
      that Stephen Parent misrepresented the value of certain placer mining claims
      that his company, Ecovery, sold to us in 2003 in exchange for approximately
      99,000,000 shares of our stock; that Ecovery no longer had good title to the
      mining claims when they were sold to us; that Mr. Parent and the other
      named defendants conspired to defraud us out of approximately 24,000,000 shares
      of our stock; and that Mr. Parent misappropriated more than $300,000 in company
      funds.




On
      November 29, 2004, we moved for a temporary restraining order, or TRO,
      prohibiting Mr. Parent and his spouse from selling, transferring, assigning,
      or
      otherwise disposing of up to approximately 46,000,000 shares of our stock
      in their possession. After a hearing, at which the Parents appeared through
      counsel, the Honorable Anna M. Baca granted the motion, conditioned on the
      posting of an $8 million bond. We did not post the bond, and the TRO was
      subsequently dissolved.





On
      or
      about December 9, 2004, Mr. Parent and fellow GoldSpring directors Jerrie W.
      Gasch and Purnendu K. Rana Medhi purportedly seized control of our company.
      Afterward, the Parent-led GoldSpring purported to fire Greenberg Traurig, LLP,
      or GT, as counsel for our company in this litigation and to hire Ronan &
Firestone, PLC, or Ronan, as substitute counsel. Thereafter, on December 22,
      2004, Ronan filed a stipulation to dismiss the lawsuit, purportedly on behalf
      of
      our company. Also on December 22, 2004, the Parents filed their answer, in
      which
      they generally denied the allegations of the complaint.




On
      December 29, 2004, GT filed a motion on behalf of our company to strike the
      stipulation to dismiss that Ronan had filed. Judge Baca heard oral argument
      on
      the motion on February 2, 2005 and took the matter under advisement. Further
      oral argument was heard on March 22, 2005. In light of the preliminary
      injunction that was issued in a related shareholder action in federal district
      court (discussed below), and the resolutions passed by our Board of Directors
      on
      February 22, 2005, Judge Baca granted the motion in an Order dated March 22,
      2005 and struck Ronan’s purported stipulation to dismiss.




In
      the
      same ruling, Judge Baca stated that “there are serious conflicts in the
      continued representation of the Parents in this lawsuit by Gust Rosenfeld.” The
      Court was referring to the fact that Parent had hired Gust Rosenfeld as our
      counsel after purportedly taking over our company on December 9, 2004. The
      Court
      therefore ordered further briefing on whether Gust Rosenfeld should be
      disqualified as the Parents’ counsel. Shortly thereafter, on March 28, 2005,
      Gust Rosenfeld voluntarily withdrew as the Parents’ counsel. The Parents have
      since retained new counsel. The discovery process is currently
      ongoing.  Mr.
      Treminio has since been dismissed from the suit in accordance with the terms
      of
      a prior settlement agreement between Mr. Treminio and GoldSpring, Inc..
      Mr. Shaw filed an answer, *in
      pro per* ,
      on
      April 6, 2005, and generally denied the allegations of the complaint. Mr.
      Haswell, Mr. Doyle and Ecovery, Inc. have filed answers and generally denied
      the
      allegations of the complaint.




8





At
      the
      end of June 2006, the Company settled its claims against Mr. Shaw for a $75,000
      settlement and was in negotiations with another defendant for settlement. Mr.
      Shaw satisfied his financial obligations, related to the terms and conditions
      of
      the settlement agreement, in early November 2006.





During
      the third quarter, the Company entered into a settlement with another defendant,
      requiring a cash payment, which has not yet been paid.





***The
      Federal Court Case***




*Background*




Stephen
      B. Parent and several others purporting to represent a majority of the
      shareholders of our company adopted Consent Resolutions in Lieu of a Special
      Meeting of Shareholder’s dated December 9, 2004, and Mr. Parent, Jerrie W.
      Gasch, and Purnendu K. Rana Medhi, each of whom served as a director of our
      company until Mr. Medhi’s resignation in April 2005, adopted Directors’ Consent
      Resolutions (together the “December Consent Resolutions”) dated December 10,
      2004. Taken together, the December Consent Resolutions, by their purported
      terms, removed John F. Cook, Robert T. Faber, Leslie L. Cahan, Todd S. Brown,
      Christopher L. Aguilar, Stanley A. Hirschman, and Phil E. Pearce as directors,
      rescinded the restructuring of a $10 million financing transaction entered
      into
      in March 2004, removed Mr. Faber as President of our company, named Mr. Parent
      as President of our company and his wife as Secretary of our company, designated
      Mr. Parent as the sole signing officer of our company’s bank accounts, and
      terminated our company’s legal counsel.




On
      December 22, 2004, Robert T. Faber and Leslie L. Cahan (collectively, the
“plaintiffs”), who are shareholders and directors of our company, filed a
      lawsuit in the United States District Court for the District of Arizona,
      entitled Robert T. Faber, et al. v. Stephen B. Parent, et al., No.
      CV04-2960-PHX-EHC (“the Litigation”). The plaintiffs asserted claims in both
      their individual capacities and derivatively, on behalf of our company, against
      directors Stephen B. Parent, Jerrie W. Gasch, and Purnendu K. Rana Medhi
      (collectively, the “defendants”), alleging that, by adopting the Consent
      Resolutions, the defendants had unlawfully orchestrated an illegal coup to
      wrest
      control of our company from its current officers and directors. As discussed
      below, Messrs. Gasch and Medhi no longer support the Parent-led
      board.




*The
      Temporary Restraining Order*




Following
      a hearing on December 22, 2004, at which the Court heard evidence and argument
      of counsel, the Honorable Earl H. Carroll issued a December 23, 2004 Order
      Granting Plaintiffs’ Motion for Temporary Restraining Order, or TRO. The TRO
      precluded defendants and their agents from (1) making any withdrawals from
      any
      bank accounts of our company, other than reasonable withdrawals necessary to
      the
      daily operations of the business; (2) rescinding or interfering in any way
      with
      any transactions approved by our company’s Board of Directors prior to December
      9, 2004; (3) entering into any contracts or agreements with third parties on
      behalf of our company or disposing of or transferring any property or assets
      of
      our company; and (4) issuing or otherwise transferring any stock or debentures.




The
      Court
      subsequently continued the TRO through February 15, 2005 and confirmed that
      none
      of the defendants were to receive any payments from our company during the
      pendency of the TRO. Despite the Court’s Order, the defendants have since
      produced business records of our company demonstrating that, after adopting
      the
      December Consent Resolutions, the defendants arranged for our company to pay
      them a collective total of $38,721, including $20,869 in payments to Stephen
      Parent.




*The
      Preliminary Injunction and Notice of Appeal*




Following
      additional hearings in which the Court heard witness testimony and evidence,
      the
      Court issued an Order on February 15, 2005 granting plaintiffs’ Motion for a
      Preliminary Injunction. The Preliminary Injunction ordered the reinstatement
      of
      our company’s Board of Directors as it existed prior to December 10, 2004. As a
      result of the Court’s Order, John F. Cook, Robert T. Faber, Christopher L.
      Aguilar, Todd S. Brown, Leslie L. Cahan, Stanley A. Hirschman, and Phil E.
      Pearce have been reinstated as directors. Stephen B. Parent, Jerrie W. Gasch,
      and Purnendu K. Rana Medhi remained directors until Mr. Medhi’s resignation in
      April 2005. The Court’s February 15 Order also stayed the implementation of the
      Consent Resolutions, and directed us to hold a special shareholders meeting
      within 30 days.




9




In
      concluding that the Preliminary Injunction should issue, the Court stated,
“The
      Court is specifically concerned about the irreparable injury that would occur
      to
      GoldSpring and its shareholders and investors if Defendants [Mr. Parent, his
      wife, Jerrie W. Gasch, and Purnendu K. Rana Medhi] are permitted to manage
      the
      corporation. There is substantial evidence of Parent’s wrongdoing in his former
      position as CEO of GoldSpring, such as his misappropriation of corporate assets
      for his personal use. The Defendants’ attempt to rescind the [financing]
      transaction that was approved at the Board of Directors meeting on November
      30,
      2004 could adversely impact GoldSpring’s ability to meet its obligations under
      the agreement. Rescission of the refinancing transaction would prove detrimental
      for GoldSpring because the corporation would be forced to pay the $200,000.00
      monthly penalty for failing to file the S-1 Registration with the SEC within
      ninety (90) days of the March 22, 2004 agreement between GoldSpring and [various
      investors]. This penalty had accrued to over $1,000,000.00 as of November 30,
      2004.”




Thereafter,
      the defendants filed a motion for reconsideration in which they asked that
      the
      Preliminary Injunction be dissolved or, alternatively, that the Court clarify
      the injunction order and require the plaintiffs to post a bond. On February
      25,
      2005, the Court held a hearing on the defendants’ motion for reconsideration.
      The Court denied the defendants’ requests to dissolve the Preliminary Injunction
      and to require the posting of a bond. In response to defendants’ request for
      clarification of the injunction order, the Court ordered that our company is
      not
      to issue additional shares prior to the special shareholders meeting, and that
      the record date for the special shareholders meeting shall be December 9,
      2004.




Our
      company believed that this ruling would disenfranchise the investors that
      participated in the November 30, 2004 restructuring transaction by preventing
      them from receiving and voting the shares they are entitled to receive through
      the conversion of their notes. A December 9, 2004 record date would also have
      disenfranchised all shareholders that acquired their stock on the open market
      after December 9, 2004.




Therefore,
      on February 28, 2005, our company filed a legal memorandum with the Court
      addressing these issues. In it, we pointed out that applicable federal
      securities laws require us to provide shareholders with current financial
      statements, which will not be available until June 30, 2005, and that Florida
      law and our company’s bylaws require that a record date be fixed in advance
      rather than in the past. On March 14, 2005, the Court held a hearing on these
      issues. After hearing argument of counsel, the Court indicated that it agreed
      with our position.




Accordingly,
      on March 17, 2005, the Court vacated its earlier Order directing us to hold
      a
      special shareholders meeting and setting December 9, 2004 as the record date
      for
      purposes of that meeting. The Court also vacated the provision of its February
      25 Order prohibiting us from issuing additional shares. Finally, the Court
      reaffirmed its earlier Order reinstating our Board of Directors as it existed
      prior to December 10, 2004. In doing so, the Court ordered that the reinstated
      board shall remain in place until the Court orders otherwise.




On
      April
      13, 2005, a notice of appeal was filed on behalf of defendants (the Parents,
      the
      Gaschs, and the Medhis) seeking to reverse the Court’s March 17 Order. On April
      21, 2005, the Gaschs moved to dismiss their appeal. On June 10, 2005, the
      defendants (the Parents) filed their opening appellate brief. The plaintiffs
      filed their response brief on August 16, 2005. The defendants’ response brief
      was filed on October 3, 2005. The 9th Circuit Court of Appeals held oral
      arguments on the appeal on January 12, 2006.




On
      January 23, 2006, the United States Court of Appeals for the Ninth Circuit
      issued a Memorandum disposition in the matter of *Faber
      v. Parent* ,
      stating, “We reverse the district court’s decision to grant the preliminary
      injunction for failure to comply with the requirements of Rule 52(a). However,
      the injunction shall remain intact for a reasonable time not to exceed 90 days
      from the date on which this disposition is filed or until an earlier date on
      which the district court enters a succeeding preliminary injunction. During
      this
      time, the district court may issue a new preliminary injunction if, after
      undertaking the required analysis and making the necessary findings, it deems
      such an injunction appropriate.” The preliminary injunction, issued by the
      district court on February 15, 2005, had reinstated GoldSpring’s Board of
      Directors as it existed prior to Mr. Parent’s takeover of GoldSpring on December
      10, 2004. The Memorandum disposition also stated that, “If, after further
      proceedings, the district court does not order a new preliminary injunction,
      we
      leave it to the district court to restore, as near as possible, the situation
      that would have existed if the preliminary injunction had never been granted.”




10




*The
      Investors’ Motion to Intervene*




On
      March
      2, 2005, Longview Fund LP, Longview Equity Fund, Longview International Equity
      Fund, and Alpha Capital AG (collectively, the “Investors”) moved to intervene in
      the litigation. In doing so, the Investors sought to dissolve the portion of
      the
      Court’s February 25, 2005 Order that prohibited our company from issuing stock
      to them under the refinancing transaction.




In
      their
      motion to intervene, the Investors alleged that they are holders of more than
      $3
      million of Convertible Notes issued by us, which they received pursuant to
      the
      transaction in March 2004. The Investors further alleged that, under the terms
      of the Convertible Notes, they are entitled to convert the notes, in whole
      or in
      part, into our stock at any time. The Investors contended that, by preventing
      us
      from issuing stock, the Court’s February 25 Order is a de facto preliminary
      injunction in favor of the defendants, and effectively deprived the Investors
      of
      much of the benefits to which they are contractually entitled. Because the
      defendants had not met the requirements for injunctive relief, the Investors
      argued, that portion of the Court’s Order should be dissolved. Alternatively,
      the Investors asked the Court to order the defendants to post a $3.5 million
      bond to protect the Investors against any damages stemming from the de facto
      injunction.




On
      March
      7, 2005, the defendants filed their response to the Investors’ motion. They
      contended that Judge Carroll’s February 25 Order was not an injunction and, in
      any event, that the Investors had failed to meet the requirements for
      intervention. Accordingly, they argued that the motion should be denied.




On
      March
      18, 2005, the Court issued an Order denying the Investors’ motion as moot. The
      Court reasoned that, since its March 17 Order lifted the prohibition on the
      issuance of additional shares of our stock, the Investors had, in essence,
      already received the relief they requested in their motion to intervene.
      Therefore, the issues raised in that motion had become moot.




*The
      Company’s Motion Re: the Gust Rosenfeld Retainer*




After
      purportedly seizing control of our company on December 9, 2004, Stephen Parent,
      acting as the putative president of GoldSpring, authorized the payment of a
      $250,000 retainer to the law firm of Gust Rosenfeld using funds of our company.
      On March 1, 2005, we filed a motion for an order requiring Gust Rosenfeld to
      provide a detailed accounting of its use of these funds and to refund the unused
      portion.




On
      March
      14, 2005, Gust Rosenfeld sent us a refund check for $83,903.38 and a “ledger”
showing how the firm spent the other $166,096.62. Among other things, the ledger
      revealed that Gust Rosenfeld withdrew approximately $109,000 as payment for
      its
      attorneys’ fees and costs. The ledger also showed payments to other lawyers and
      outside vendors totaling approximately $57,000. Included in this amount were
      two
“refund” payments to Stephen Parent totaling $21,000.




We
      have
      filed a reply brief asking the Court to order Gust Rosenfeld to provide a more
      detailed accounting of its expenditures, including billing invoices for legal
      services it purportedly rendered to our company. We have also asked the Court
      to
      require Gust Rosenfeld to provide a written explanation for the payments to
      other lawyers and outside vendors, as well as the so-called refund payments
      to
      Parent.




11




*The
      “New” Consent Resolutions*




On
      March
      21, 2005, defendants Stephen and Judith Parent filed a “Motion for Order” asking
      the Court to remove certain directors of our company’s Board of Directors.
      Attached to the motion was a “Consent in Lieu of a Special Meeting of the
      Shareholders of GoldSpring, Inc.,” dated March 18, 2005 (the “March Consent”).
      The March Consent was nearly identical to the one adopted by the Parents and
      others on December 9, 2004. It purported to remove directors Robert T. Faber,
      John F. Cook, Leslie L. Cahan, Todd S. Brown, Christopher L. Aguilar, Stanley
      A.
      Hirschman, and Phillip E. Pierce as directors of our company. The March Consent
      was signed by shareholders Stephen Parent; Judith Parent; Aztech Environmental
      Industries, Inc.; Jasmine House, LLC; Frontline 2001, LLC; Jubilee Investment
      Trust PLC; Ronald M. Haswell; Mark and Jennifer Ward; Walter T. Plummer; Lynn
      Zollinger; Maia Ray; and Rita Hardy.




On
      March
      25, 2005, our company and the plaintiffs filed a joint response to the Parents’
Motion for Order. In it, we argued that (1) the shareholders who signed the
      March Consent did not hold a majority of our company’s stock, which rendered the
      Consent ineffective; (2) the Parents solicited more than ten shareholders,
      and
      therefore violated Securities and Exchange Commission Rule 14a; and (3) the
      Parents cannot obtain the relief they seek because they have not asserted an
      affirmative claim in court.




The
      Parents filed a reply and supplemental reply on March 20, 2005, and April 11,
      2005, respectively. In the reply, the Parents argued that the shareholders
      who
      signed the Consent do, in fact, hold a majority of the outstanding shares as
      of
      the date it was executed, and that any shares issued after that date are not
      to
      be counted. They also denied having solicited more than ten persons and denied
      any obligation to state an affirmative claim before seeking the relief asked
      for
      in their motion. In their supplemental reply, the Parents referred to our
      company’s recent Form 8-K filing (the “8-K”) with the Securities and Exchange
      Commission. In the 8-K, we disclosed that our company had issued (1) 59,203,918
      shares of restricted common stock in connection with the Settlement Agreement
      Regarding Failure to File a Registration Statement; (2) six secured convertible
      notes in an aggregate amount of $6,584,005 in connection with the Settlement
      Agreement Regarding Mandatory Redemption Payment; and (3) convertible notes
      in
      the amount of $403,175 in connection with the Settlement Agreement Regarding
      Failure to deliver shares due upon conversion. The Parents contended that the
      transactions referred to in the 8-K constituted an unfair dilution of the
“non-Merriman shareholders’” stock holdings.




On
      April
      20, 2005, we filed a Supplemental Notice to inform the Court that Messrs. Gasch
      and Medhi do not support the March Consent. In addition, we informed the Court
      that Mr. Gasch had signed a Declaration that (1) Mr. Gasch never agreed to
      serve
      on the proposed board of directors contemplated by the March Consent, (2) that
      Mr. Gasch does not support the March Consent and, if the March Consent
      constituted a valid shareholder resolution (which we do not believe) Mr. Gasch
      would immediately vote to reinstate the entire Board of Directors as it
      currently exists, (3) Mr. Gasch denounces and rescinds the purported Director’s
      Consent Resolutions dated December 10, 2004 and no longer supports any of the
      resolutions or purported corporate actions contemplated in that purported
      consent, and (4) Mr. Gasch has terminated Gust Rosenfeld as his counsel because
      he no longer wishes to be associated with or jointed represented by Mr. Parent.
      Mr. Medhi also informed us that he resigned as a director of our Board of
      Directors as currently constituted and as a member of the board of directors
      designated by earlier consent resolution. We informed the Court that these
      developments constitute additional reasons to deny the Parents’
motion.





On
      January 23, 2006, the United States Court of Appeals for the Ninth Circuit
      issued a Memorandum disposition in the matter of *Faber
      v. Parent* ,
      reversing the Preliminary Injunction, which had been granted by the United
      States District Court for the District of Arizona on February 15, 2005 for
      Mr.
      Parent’s failure to comply with the requirements of Rule 52(a). The Court of
      Appeals ordered that the injunction shall remain intact for a reasonable period
      of time not to exceed 90 days or until an earlier date on which the district
      court enters a succeeding preliminary injunction. The Court of Appeals remanded
      the case to the district court to allow the district court to conduct further
      proceedings, which may include issuing a new preliminary
      injunction.




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*April
      18, 2006 Order*





On
      April
      18, 2006, the United States District Court for the District of Arizona issued
      an
      Order Granting a Preliminary Injunction in favor of the Plaintiff which finally
      provided firm direction on several of the matters which were the subject of
      motions described above. The Order accomplished the following:




(i)
      it
      stayed the implementation of the Consent Resolutions purportedly passed on
      December 9, 2004 to effect the attempted takeover of the Company by Stephen
      Parent’s group;




(ii)
      it
      denied Defendants’ motion for an Order removing seven current directors from
      Goldspring’s Board (which would have had the effect of allowing Parent to
      rescind the refinancing transaction dated November 30, 2004 with the Merriman
      investors); and




(iii)
      it
      granted GoldSpring’s Motion for an Order requiring the law firm of Gust
      Rosenfeld PLC to provide a detailed accounting of the unreturned portion of
      the
      $250,000 retainer (namely $166,096.62), given to Gust Rosenfeld PLC by Mr.
      Parent in December 2004.





In
      August
      2006, Defendants Steve and Judy Parent filed a notice of appeal from the Court’s
      order denying defendants’ motion for a new trial on the Preliminary Injunction
      Order to the Ninth Circuit Court of Appeals. Defendants Steve and Judy have
      filed their initial brief, and Plaintiffs’ reply brief is due to be filed by the
      end of November 2006.  The Ninth Circuit will presumably schedule oral
      argument after the appeal is fully briefed, which may occur as early as
      January 2007.




*Degerstrom
      Suit*




On
      April
      11, 2006, in the First Judicial District Court, Storey County, Nevada, wherein
      N.A. Degerstrom, Inc. (“Degerstrom”) sued the Company on various counts,
      including breach of contract, *quantum
      merit* ,
      foreclosure of mechanic's lien, and assertion that the Degerstrom lien has
      priority over all other liens on the Plum Mine property. The plaintiff claims
      damages in excess of $806,000 plus interest. The Company subsequently answered
      the Complaint and counterclaimed for breach of contract, breach of implied
      covenant of good faith and fair dealing, and for negligence, alleging damages
      in
      excess of $10,000.





The
      lawsuit arises out of a dispute as to how much the Company owes the Degerstrom
      for services provided. Pursuant to a December 27, 2005 agreement, the parties
      agreed that the amount to be paid by the Company to Degerstrom would be subject
      to volume reconciliation by aerial survey. According to Company management,
      pursuant to prepared aerial and ground surveys, the Company has been over-billed
      for amounts of ore and waste which have been hauled by Degerstrom. The results
      of the surveys are to be presented to the Court as evidence as to the Company’s
      affirmative defenses that it does not owe the amounts claimed by
      Degerstrom.





Additionally,
      the Company has what it believes to be valid counterclaims, arising out of
      activities of Degerstrom, including, but not limited to, negligent crushing
      of
      ore, failure to accurately measure and charge for waste and ore hauled and
      crushed, and failure to adequately man the job and provide sufficient equipment.
      These activities, as alleged in the Counterclaim, resulted in damages to the
      Company in excess of $10,000.





Degerstrom
      filed a mechanic's lien against the property of Plum, and at the time of filing
      of the Complaint, filed and recorded a lis pendens against the property of
      Plum
      based upon Degerstrom's claim. Counsel has advised management that the Company
      may challenge the lis pendens by asserting that the lis pendens is based upon
      a
      mechanic's lien which is overstated. However, the time is not ripe for the
      bringing of such a motion until the survey results have been presented and
      analyzed. Alternatively, Plum may request the court to establish a bond in
      an
      amount that would secure, pending litigation, Degerstrom's mechanic's lien
      claim. Typically, the court would charge one and one-half times the amount
      it
      found to be the mechanic's lien claim.




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Management
      believes the ground and aerial surveys support a much lower amount of ore and
      waste which was processed by Degerstrom than is alleged in the Complaint, and
      if
      the Court accepts that volume reconciliation would be as established by such
      surveys (as is established in the written documentation between the parties),
      there is a reasonable probability of success in reduction, if not elimination,
      of the amount claimed by Degerstrom. However, until the Court rules on the
      method of volume reconciliation, it is premature to predict the probability
      of
      likelihood of success on the merits.





During
      the third quarter, there was little activity in this lawsuit, other than the
      beginning of discovery by the parties.




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





Not
      applicable.





**Item
      3.**  **Defaults
      Upon Senior Securities**





In
      connection with our acquisition of the Plum Mining Company, LLC, we issued
      a
      promissory note to the seller for $1 million (the balance of the purchase
      price). At September 30, 2006, the outstanding balance on the Note was $400,000.
      We are in default on this Note.




Under
      the
      terms of our November 2004 subscription agreement, we issued 8% convertible
      notes in the aggregate principal amount of $11.1 million to an investor group.
      Under the terms of the notes, our first principal and interest repayment was
      scheduled for April 1, 2005. We are in default on these notes. The default
      interest rate is 12%.




In
      March
      2005, we issued a secured convertible note in the aggregate amount of $6,885,184
      with a 12% interest rate for the 29,573,803 shares and accrued interest due
      under the mandatory redemption payment provisions of our November 2004
      subscription agreement. Payments on this note were scheduled to begin on April
      1, 2005. We are in default on this note, causing the interest rate to increase
      to the default rate of 18%.




On
      July
      15, 2005, we completed a financing transaction, which provided us with $800,000
      in funding. In consideration for the financing, we issued promissory notes
      with
      a face value of $1.2 million, reflecting an original issue discount of
      thirty-three and one-third (33.3%) percent. The term of the notes is two years,
      with an optional extension of one year at the option of the investor. The annual
      interest rate on the notes is 15% of the face value and is payable monthly.
      On
      September 28, 2005, we completed another financing transaction under the same
      terms and conditions as the July 2005 financing. The September 2005 financing
      provided us with $200,000 in funding. We have not made the monthly interest
      payments on these notes, and thus we are in default. The default interest rate
      on these notes is 22%.




During
      the fourth quarter of 2005, we completed three financing transactions, which
      provided us with a total of $575,000 in funding. In consideration for the
      financing, we issued promissory notes with a term of ninety (90) days and an
      interest rate of sixteen percent (16%) per annum. The default interest rate
      on
      the notes is twenty-two percent (22%). These notes had a maturity date of May
      15, 2006, at which time all outstanding principal and interest became due.




We
      are
      working with the above-referenced note holders to cure the defaults. The above
      referenced notes, including interest, have a total value of approximately
      $ **** 9,,041,625
      at September 30, 2006. While failure to reach a resolution would likely cause
      us
      to seek external funding in order to meet our obligations, there can be no
      assurance that such funding would be available.




14




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





Not
      applicable.





**Item
      5.**  **Other
      Information**




Not
      applicable.




**Item
      6.**  **Exhibits
      and Reports on Form 8-K**




(a)
            The
                following documents are filed as part of this
                Report:




(1)
            Financial
                statements filed as part of this
                Report:




·
            Consolidated
                Balance Sheet as of September 30, 2006
                (Unaudited)




·
            Consolidated
                Statement of Operations for the three- and nine-month periods ended
                September 30, 2006 and 2005
                (Unaudited)




·
            Consolidated
                Statement of Cash Flows for the nine-month periods ended September
                30,
                2006 and 2005 (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 theSecurities
                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 September 30,
      2006:




(1)
            A
                Report on Form 8-K was filed with the Securities and Exchange Commission
                on August 10, 2006 under Items 5.03 and 8.01 (i) amending the Company’s
                Bylaws so that so that the record date for the taking of any action
                by
                shareholders may be a date within 120 days of the date of action,
                as
                opposed to the 70 day limitation previously set forth in the Bylaws,
                and
                (ii) reporting that the United States District Court for the District
                of
                Arizona in*Faber
                v. Parent, et al.*issued
                an order denying the Defendants’ Motion for New Trial (Reconsideration)
                which had requested that the Court vacate the April 18thorder.




(2)
            A
                report on Form 8-K was filed with the Securities and Exchange Commission
                on August 29, 2006 under Item 1.01 reporting that Effective as of
                August
                23, 2006, registrant entered into a  $1.9 million financing
                package with several institutional investors. The terms of the financing
                call for issuance of $1.9 principal amount of convertible notes secured
                by
                a pledge of all of the membership interests in a limited liability
                company, which is a wholly owned subsidiary of registrant and will
                hold
                all of the right, title and interest in and to the registrant’s Plum Mine
                property. The investors are also to be issued warrants to
                purchase up to 24,000,000 shares of registrant’s common stock which shall
                bear a term of five years from the date of funding and be exercisable
                at a
                price equal to the then applicable conversion price for the convertible
                notes.  Of the $1.9 million, $1.3 has been funded to
                date.




15




**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: November
              13, 2006
            By:
            /s/ Robert
              T.
              FaberName:
            Robert
                T. FaberTitle:
            President
                and Chief Executive Officer


By:
            /s/ Robert
              T.
              FaberName:
            Robert
                T. FaberTitle:
            Chief
                Financial and Accounting Officer




16