FORM 10-Q





(Mark One)


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





For the Quarterly Period Ended June 30,
2010




OR





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




For the transition period from
______________ to ______________




Commission File No.
000-32429





COMSTOCK MINING
INC.


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





NEVADA
            
            1040
            
            65-0955118(State or other jurisdiction of
            
            (Primary Standard Industrial
            
            (I.R.S. Employerincorporation or organization)
            
            Classification Code Number)
            
            Identification No.)





P.O. Box 1118


Virginia City, NV
89440


(Address of principal executive
offices)


(775) 847-5272


(Registrant’s
telephone number, including area code)





GOLDSPRING, INC.


(Former Name or Former Address, if
Changed Since Last Report)





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





Large accelerated filer ̈Accelerated
filer ̈


 ̈Non-accelerated
filerxSmaller reporting
company




Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ̈No ̈




Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ̈Nox




The number of shares of Common Stock,
$0.000666 par value, of the registrant outstanding at August 5, 2010 was
19,094,911.










TABLE OF
CONTENTS





PART
      I.
              4Item
      1. Financial Statements.
              4CONDENSED
      CONSOLIDATED BALANCE SHEETS
              4CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS
              6CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
              8CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
              10NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              11Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
              33Item
      4. Controls and Procedures.
              42PART
      II.
              43Item
      1. Legal Proceedings.
              43Item
      1A. Risk Factors.
              43Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
              43Item
      3. Defaults Upon Senior Securities.
              44Item
      5. Other Information.
              44Item
      6. Exhibits.
              44SIGNATURES
              45EXHIBIT
      INDEXCertification
      of Principal Executive Officer and Principal Financial Officer Pursuant to
      Rule 15d-14(a)Certification
      of Principal Executive Officer and Principal Financial Officer Pursuant to
      Section 1350





Statement Regarding Forward-Looking
Statements





This Form 10-Q contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended, which are intended to be covered by the safe harbors created
thereby. All statements contained in this report on Form 10-Q, other than
statements of historical facts, are forward-looking statements within the
meaning of applicable securities laws. Forward-looking statements include
statements about matters such as: future prices and sales of and demand for our
products; future industry market conditions; future changes in our production
capacity and operations; future production, operating and overhead costs;
recapitalization and balance sheet restructuring activities (including stock
splits, debt-for-equity exchanges, land-for-debt exchanges, capital raising and
other activities); operational and management restructuring activities
(including implementation of methodologies and changes in the board of
directors); future employment and contributions of personnel; tax and interest
rates; capital expenditures and their impact on us; nature and timing of
restructuring charges and the impact thereof; productivity, business process,
rationalization, restructuring, investment, acquisition, consulting,
operational, tax, financial and capital projects and initiatives; contingencies;
environmental compliance and changes in the regulatory environment; offerings,
sales and other actions regarding debt or equity securities; and future working
capital, costs, revenues, business opportunities, debt levels, cash flows,
margins, earnings and growth.  The words “believe,” “expect,”
“anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,”
“would,” “potential” and similar expressions identify forward-looking
statements, but are not the exclusive means of doing so.




2


These statements are based on
assumptions and assessments made by our management in light of their experience
and their perception of historical and current trends, current conditions,
possible future developments and other factors they believe to be appropriate.
Forward-looking statements are not guarantees, representations or warranties and
are subject to risks and uncertainties that could cause actual results,
developments and business decisions to differ materially from those contemplated
by such forward-looking statements.  Some of those risks and
uncertainties include the risk factors set forth in this report and our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009 and the
following: the current global economic downturn and capital markets weakness;
the speculative  nature of gold or mineral exploration, including
risks of diminishing quantities or grades of qualified resources and reserves;
operational or technical difficulties in connection with  exploration
or mining activities; contests over our title to properties; our ability to cure
defaults under our current indebtedness; our substantial indebtedness and the
impact such indebtedness may have on us; the possibility that our operating
performance and operating prospects, and capital market conditions will limit
our ability to timely meet our debt services obligations, comply with debt
covenants, obtain necessary financing or refinancing or restructure indebtedness
or our debt service obligations on acceptable terms or at all; potential
inability to continue to comply with government regulations; adoption of or
changes in legislation or regulation adversely  affecting our business
opportunities that my be presented to or pursued by us; changes in the United
States or other monetary o fiscal policies o regulations in response to the
recent capital markets and economic crises; interruptions in our production
capabilities due to unexpected equipment failures; fluctuation
of  prices for gold or certain other commodities (such as silver,
copper, diesel fuel and electricity);changes in generally accepted accounting
principles; geopolitical events; potential inability to implement our business
strategies; potential inability to commence production  unless
sufficient equity capital is raise; potential inability to grow revenues
organically; potential inability to attract and retain key personnel;
interruptions in delivery of critical supplies and equipment, raw materials due
to credit or other limitations imposed by vendors; assertion of claims, lawsuits
and proceedings against us; potential inability to list our securities on any
securities exchange or market; and work stoppages or other labor
difficulties.  Occurrence of such events or circumstances could have a
material adverse effect on our business, financial condition, results of
operations or cash flows or the market price of our securities.  All
subsequent written and oral forward-looking statements by or attributable to us
or persons action on our behalf are expressly qualified in their entirety by
these factors.  All forward-looking statements included in this report
are based on information available to us as of the filing date of this report.
We undertake no obligation to update or revise any  forward-looking
statement, whether as a result of new information, future events, changed
circumstances or otherwise.




3




PART I.


Item 1.Financial
Statements.





COMSTOCK MINING,
INC.


CONDENSED CONSOLIDATED BALANCE
SHEETS




June 30,
                      2010
                    
                    
                    December 31,
                      2009(Unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                    
                    $
                    1,501,757
                    
                    
                    $
                    246,214Prepaid
      expenses
                    
                    
                    163,352
                    
                    
                    
                    ―Total
      Current Assets
                    
                    
                    1,665,109
                    
                    
                    
                    246,214MINERAL
      RIGHTS, PLANT AND EQUIPMENTMineral
      rights
                    
                    
                    956,409
                    
                    
                    
                    1,270,547Plant
      and equipment, net
                    
                    
                    2,281,669
                    
                    
                    
                    2,301,466Total
      Mineral Rights, Plant and Equipment
                    
                    
                    3,238,078
                    
                    
                    
                    3,572,013RECLAMATION
      BOND DEPOSIT
                    
                    
                    766,768
                    
                    
                    
                    766,768LONG-LIVED
      DEFERRED RECLAMATION EXPENSE
                    
                    
                    306,143
                    
                    
                    
                    340,159TOTAL
      ASSETS
                    
                    $
                    5,976,098
                    
                    
                    $
                    4,925,154





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




4




COMSTOCK MINING,
INC.


CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)




June 30,
                          2010
                        
                        
                        December 31,
                          2009(Unaudited)LIABILITIES AND STOCKHOLDERS’
      DEFICITCURRENT
      LIABILITIESAccounts
      payable
                        
                        $
                        784,896
                        
                        
                        $
                        1,608,493Accrued
      expenses
                        
                        
                        563,761
                        
                        
                        
                        271,054Accrued
      interest payable
                        
                        
                        6,222,194
                        
                        
                        
                        4,870,713Convertible
      debentures
                        
                        
                        12,015,683
                        
                        
                        
                        12,495,698Other
      debt obligations
                        
                        
                        3,890,000
                        
                        
                        
                        3,650,000Total
      Current Liabilities
                        
                        
                        23,476,534
                        
                        
                        
                        22,895,958LONG-TERM
      DEBT AND OTHER LONG-TERM LIABILITIESLong-term
      convertible debt obligation, net of current portion
                        
                        
                        6,429,397
                        
                        
                        
                        3,025,325Long-term
      debt obligation, net of current portion
                        
                        
                        ―
                        
                        
                        
                        490,000Derivative
      liability
                        
                        
                        7,595,210
                        
                        
                        
                        4,500,189Long-term
      reclamation liability
                        
                        
                        1,227,778
                        
                        
                        
                        1,186,966Total
      Long-Term Debt and Other Long-Term Liabilities
                        
                        
                        15,252,385
                        
                        
                        
                        9,202,480Total
      Liabilities
                        
                        
                        38,728,919
                        
                        
                        
                        32,098,438COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      DEFICITCommon
      stock, $.000666 par value 3,950,000,000 shares authorized, shares issued
      and outstanding were 19,002,653 (June 30, 2010) and 18,310,339 (Dec. 31,
      2009)
                        
                        
                        12,656
                        
                        
                        
                        12,195Additional
      paid-in capital
                        
                        
                        28,715,721
                        
                        
                        
                        27,742,913Accumulated
      deficit
                        
                        
                        (61,481,198
                        )
                        
                        
                        (54,928,392
                        )Total
      Stockholders’ Deficit
                        
                        
                        (32,752,821
                        )
                        
                        
                        (27,173,284
                        )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
                        
                        $
                        5,976,098
                        
                        
                        $
                        4,925,154





On June 4, 2010, we received approval
from the Financial Industry Regulatory Authority (“FINRA”) clearing the
one-for-two hundred reverse stock split of our common stock previously approved
by our stockholders and announced on May 10, 2010.   The reverse stock
split took effect on Monday, June 7, 2010 (“Effective
Date”).  Accordingly, the consolidated balance sheet above and the
following consolidated financial statements reflect post reverse split common
shares.





See accompanying notes to the condensed
consolidated financial statements.




5




COMSTOCK MINING,
INC.


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(Unaudited)




Three Months Ended June 30,2010
                  
                  
                  2009REVENUE
      FROM GOLD SALES, Net
                  
                  $
                  ―
                  
                  
                  $
                  ―COST
      AND EXPENSESDepletion,
      depreciation and amortization
                  
                  
                  38,820
                  
                  
                  
                  37,603Reclamation,
      exploration and test mining expenses
                  
                  
                  1,269,929
                  
                  
                  
                  642,077General
      and administrative
                  
                  
                  596,923
                  
                  
                  
                  309,663Consultants
      and professional fees
                  
                  
                  234,543
                  
                  
                  
                  75,000Total
      Cost and Expenses
                  
                  
                  2,140,215
                  
                  
                  
                  1,064,343LOSS
      FROM OPERATIONS
                  
                  
                  (2,140,215
                  )
                  
                  
                  (1,064,343
                  )OTHER
      INCOME (EXPENSE):Financing
      cost
                  
                  
                  (82,333
                  )
                  
                  
                  (83,500
                  )Gain
      on sale of royalty
                  
                  
                  ―
                  
                  
                  
                  25,000Derivative
      change in fair value
                  
                  
                  (640,021
                  )
                  
                  
                  (418,173
                  )Interest
      expense
                  
                  
                  (1,060,930
                  )
                  
                  
                  (821,051
                  )Total
      Other Expense
                  
                  
                  (1,783,284
                  )
                  
                  
                  (1,297,724
                  )NET
      LOSS
                  
                  $
                  (3,923,499
                  )
                  
                  $
                  (2,362,067
                  )Net
      loss per common share – basic and diluted
                  
                  $
                  (0.21
                  )
                  
                  $
                  (0.13
                  )Basic
      and diluted weighted average common shares outstanding
                  
                  
                  18,941,288
                  
                  
                  
                  17,614,478





See accompanying notes to the condensed
consolidated financial statements.




6





COMSTOCK MINING,
INC.


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(Unaudited)




Six Months Ended June
                    30,2010
                  
                  
                  2009REVENUE
      FROM GOLD SALES, Net
                  
                  $
                  ―
                  
                  
                  $
                  ―COST
      AND EXPENSESDepletion,
      depreciation and amortization
                  
                  
                  147,056
                  
                  
                  
                  76,469Reclamation,
      exploration and test mining expenses
                  
                  
                  1,761,253
                  
                  
                  
                  2,092,393General
      and administrative
                  
                  
                  952,347
                  
                  
                  
                  692,217Consultants
      and professional fees
                  
                  
                  383,849
                  
                  
                  
                  145,406Total
      Cost and Expenses
                  
                  
                  3,244,505
                  
                  
                  
                  3,006,485LOSS
      FROM OPERATIONS
                  
                  
                  (3,244,505
                  )
                  
                  
                  (3,006,485
                  )OTHER
      INCOME (EXPENSE):Financing
      cost
                  
                  
                  (169,247
                  )
                  
                  
                  (83,500
                  )Gain
      on sale
                  
                  
                  300,000
                  
                  
                  
                  25,000Derivative
      change in fair value
                  
                  
                  (1,518,477
                  )
                  
                  
                  (1,745,035
                  )Interest
      expense
                  
                  
                  (1,920,577
                  )
                  
                  
                  (1,602,151
                  )Total
      Other Expense
                  
                  
                  (3,308,301
                  )
                  
                  
                  (3,405,686
                  )NET
      LOSS
                  
                  $
                  (6,552,806
                  )
                  
                  $
                  (6,412,171
                  )Net
      loss per common share – basic and diluted
                  
                  $
                  (0.35
                  )
                  
                  $
                  (0.37
                  )Basic
      and diluted weighted average common shares outstanding
                  
                  
                  18,775,115
                  
                  
                  
                  17,383,241





See accompanying notes to the condensed
consolidated financial statements.




7





COMSTOCK MINING,
INC.


CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS


(Unaudited)





Six
                    month Period Ended
                    June 30,2010
                  
                  
                  2009OPERATING
      ACTIVITIES:Net
      loss
                  
                  $
                  (6,552,806
                  )
                  
                  $
                  (6,412,171
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                  
                  
                  147,056
                  
                  
                  
                  76,469Stock
      warrants and stock based compensation
                  
                  
                  78,239
                  
                  
                  
                  129,638G
      Gain of sale of royalty interest
                  
                  
                  (300,000
                  )
                  
                  
                  ―Interest
      paid through the issuance of stock
                  
                  
                  361,769
                  
                  
                  
                  1,266,041Accretion
      and debt discount interest
                  
                  
                  221,428
                  
                  
                  
                  105,957Payments
      through the issuance of company stock
                  
                  
                  34,000
                  
                  
                  
                  ―Financing
      costs
                  
                  
                  169,247
                  
                  
                  
                  83,500Derivative
      change fair value
                  
                  
                  1,518,477
                  
                  
                  
                  1,745,035Net
      loss adjusted for non-cash operating activities
                  
                  
                  (4,322,590
                  )
                  
                  
                  (3,005,531
                  )Changes
      in operating assets and liabilities:Prepaid
      and other current assets
                  
                  
                  (163,352
                  )
                  
                  
                  ―Accounts
      payable
                  
                  
                  (823,597
                  )
                  
                  
                  463,641Accrued
      expenses
                  
                  
                  1,644,188
                  
                  
                  
                  368,476Other,
      net
                  
                  
                  ―
                  
                  
                  
                  4,999NET
      CASH USED IN OPERATING ACTIVITIES
                  
                  
                  (3,665,351
                  )
                  
                  
                  (2,168,415
                  )INVESTING
      ACTIVITIES:Proceeds
      received from sale of royalty less acquisition of mineral
      claims
                  
                  
                  545,000
                  
                  
                  
                  ―Acquisition  of
      plant and equipment
                  
                  
                  (24,106
                  )
                  
                  
                  (128,880
                  )NET
      PROVIDED BY (CASH USED) IN INVESTING ACTIVITIES
                  
                  
                  520,894
                  
                  
                  
                  (128,880
                  )FINANCING
      ACTIVITIES:Principal
      payments on other debt obligations
                  
                  
                  (250,000
                  )
                  
                  
                  (6,025
                  )Net
      proceeds from the issuance of company stock
                  
                  
                  ―
                  
                  
                  
                  902,500Proceeds
      from the issuance of convertible debentures, net of financing
      cost
                  
                  
                  4,650,000
                  
                  
                  
                  1,495,000NET
      CASH PROVIDED BY FINANCING ACIVITIES
                  
                  
                  4,400,000
                  
                  
                  
                  2,391,475INCREASE
      IN CASH AND CASH EQUIVALANTS
                  
                  
                  1,255,543
                  
                  
                  
                  94,180CASH
      AND CASH EQUIVALENTS, BEGINNING OF QUARTER
                  
                  
                  246,214
                  
                  
                  
                  322,938CASH
      AND CASH EQUIVALENTS, END OF QUARTER
                  
                  $
                  1,501,757
                  
                  
                  $
                  417,118SUPPLEMENTAL
      CASH FLOW INFORMATION:INCOME
      TAXES
                  
                  $
                  ―
                  
                  
                  $
                  ―INTEREST
      PAID
                  
                  $
                  26,712
                  
                  
                  $
                  5,270




8





COMSTOCK MINING,
INC.


CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (Continued)





Six
                    month Period Ended
                    June 30,2010
                  
                  
                  2009Supplemental
      disclosure of non-cash investing and financing activities:Issuance
      of company stock for interest
                  
                  $
                  361,769
                  
                  
                  $
                  1,266,041Conversion
      of convertible debenture principal into company’s common
      shares
                  
                  $
                  480,015
                  
                  
                  $
                  ―Issuance
      of company stock to employees
                  
                  $
                  7,100
                  
                  
                  $
                  58,500Seller
      note for acquisition of land
                  
                  $
                  ―
                  
                  
                  $
                  120,000Issuance
      of company stock for consulting services
                  
                  $
                  34,000
                  
                  
                  $
                  ―Issuance
      of company stock for financing fee
                  
                  $
                  ―
                  
                  
                  $
                  36,000





See accompanying notes to the condensed
consolidated financial statements.




9




COMSTOCK MINING,
INC.


CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS’ DEFICIT


For the Six month Period Ended June 30,
2010





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


Preferred Stock Par Value $.000666 per
share; 50,000,000 shares authorized)





Common
                          Shares Issued
                        
                        
                        Par value
                          $.000666
                          per share
                        
                        
                        Additional
                          Paid-in
                          Capital
                        
                        
                        Accumulated
                          Deficit
                        
                        
                        TotalDecember
      31, 2008
                        
                        
                        16,904,742
                        
                        
                        $
                        11,259
                        
                        
                        $
                        24,961,957
                        
                        
                        $
                        (48,863,723
                        )
                        
                        $
                        (23,890,507
                        )Common
      stock issued for:Debenture
      principal
                        
                        
                        133,264
                        
                        
                        
                        89
                        
                        
                        
                        192,179
                        
                        
                        
                        —
                        
                        
                        
                        192,268Debenture
      interest
                        
                        
                        751,833
                        
                        
                        
                        501
                        
                        
                        
                        1,477,096
                        
                        
                        
                        —
                        
                        
                        
                        1,477,597Employees
                        
                        
                        27,500
                        
                        
                        
                        19
                        
                        
                        
                        67,231
                        
                        
                        
                        —
                        
                        
                        
                        67,250Private
      placement
                        
                        
                        493,000
                        
                        
                        
                        327
                        
                        
                        
                        902,173
                        
                        
                        
                        —
                        
                        
                        
                        902,500Subtotal
                        
                        
                        1,405,597
                        
                        
                        
                        936
                        
                        
                        
                        2,638,679
                        
                        
                        
                        —
                        
                        
                        
                        2,639,615Warrant
      cost and stock based option compensation
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        142,277
                        
                        
                        
                        
                        
                        
                        
                        142,277Net
      loss
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (6,064,669
                        )
                        
                        
                        (6,064,669
                        )December
      31, 2009
                        
                        
                        18,310,339
                        
                        
                        $
                        12,195
                        
                        
                        $
                        27,742,913
                        
                        
                        $
                        (54,928,392
                        )
                        
                        $
                        (27,173,284
                        )Common
      stock issued for:Debenture
      principal
                        
                        
                        380,516
                        
                        
                        
                        253
                        
                        
                        
                        479,762
                        
                        
                        
                        —
                        
                        
                        
                        480,015Debenture
      interest
                        
                        
                        281,655
                        
                        
                        
                        188
                        
                        
                        
                        361,581
                        
                        
                        
                        —
                        
                        
                        
                        361,769Employees
                        
                        
                        5,000
                        
                        
                        
                        17
                        
                        
                        
                        7,097
                        
                        
                        
                        —
                        
                        
                        
                        7,100Consultant
                        
                        
                        25,000
                        
                        
                        
                        3
                        
                        
                        
                        33,983
                        
                        
                        
                        —
                        
                        
                        
                        34,000Subtotal
                        
                        
                        692,171
                        
                        
                        
                        461
                        
                        
                        
                        882,423
                        
                        
                        
                        —
                        
                        
                        
                        882,884Stock
      based option compensation and other, net
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        90,385
                        
                        
                        
                        —
                        
                        
                        
                        90,385Other,
      net
                        
                        
                        143
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Net
      loss
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (6,552,806
                        )
                        
                        
                        (6,552,806
                        )June
      30, 2010
                        
                        
                        19,002,653
                        
                        
                        $
                        12,656
                        
                        
                        $
                        28,715,721
                        
                        
                        $
                        (61,481.198
                        )
                        
                        $
                        (32,752,821
                        )





See accompanying notes to the condensed
consolidated financial statements.




10




COMSTOCK MINING,
INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


June 30, 2010 and
2009





Note 1 - Basis of
Presentation




COMSTOCK MINING, Inc. is a North
American precious metals mining company, focused on a Comstock Mine Project in
Nevada, with extensive, contiguous property in the Comstock Lode Mining
District. The Comstock Mine Project is located in Storey County, Nevada,
approximately 3 miles south of Virginia City and 30 miles southeast of Reno,
Nevada. Access to the property is by State Route 342, a paved highway. The
Comstock District is located within the western portion of the Basin and Range
Province of Nevada, between Reno and Carson City. The majority of our activities
occur in three major structural zones: (1) the northeast striking, (2) the east
dipping Comstock and Occidental fault zones and (3) the northwest striking, east
dipping Silver City fault zone.





On June 4, 2010, we received approval
from the Financial Industry Regulatory Authority (“FINRA”) clearing the
one-for-two hundred reverse stock split of our common stock previously approved
by our stockholders and announced on May 10, 2010.   The reverse stock
split took effect on Monday, June 7, 2010 (“Effective
Date”).  Accordingly, the consolidated balance sheet above and the
following consolidated financial statements reflect post reverse split common
shares.





On July 21, 2010, we changed our name
from “GoldSpring, Inc.” to “Comstock Mining Inc.,” by way of a merger with a
wholly owned subsidiary Comstock Mining Inc. that was formed solely for the
purpose of changing our name.  Pursuant to Section 92A.180 of the
Nevada Revised Statutes, the merger did not require stockholder
approval.  An OTC Equity Issuer Notification Form was filed with the
Financial Industry Regulatory Authority (“FINRA”) on July 9, 2010, and the name
change was approved by FINRA, effective July 21, 2010.  On the
effective date, the name changed with the Over-the-Counter Bulletin Board and
the Company’s shares of common stock began trading under the ticker symbol
“LODE.”





Our Company began acquiring properties
in the Comstock in 2003. Since then, we have secured permits, built an
infrastructure and brought the exploration project into test mining production.
We began further consolidating the Comstock Lode in 2005, by acquiring
additional properties in the district, expanding our footprint and creating
opportunities for exploration and mining. Because of the Comstock District’s
historic significance during the American Civil War and its world- class bonanza
precious metal grades, the geology is well known and has been studied in detail
by our Company and many independent researchers. We have amassed the largest
know library of historical data and detailed surface mapping and, in conjunction
with drilling programs designed for expanding the known historical data base, we
have invested in our understanding of the Comstock’s broader geological
footprint.





Our Company now owns or controls approximately 5,900 acres of active
lode mining claims in the Comstock Lode Mining District. The acreage is
comprised of 890 acres ofpatentedclaims (private lands) and 5,000 acres
of unpatentedclaims,Bureau of Land Management (BLM)
administered. The project includes a heap leach processing facility, which will
be redesigned and constructed to accommodate our new production
plans.




Note 2 — Interim Financial
Statements




The accompanying interim unaudited
condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In our opinion, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six month period ended June 30, 2010 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2010. For further information, refer to the consolidated financial statements
and footnotes thereto included in our Annual Report on Form 10-K for the year
ended December 31, 2009.  For the six-month period ended June 30, 2010
the working capital deficiency from operations was $3,665,351.  The
Shareholders’ deficit at June 30, 2010, totaled $32,752,821.




11




Note 3 — Going
Concern




The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States of America that contemplate continuation of the
Company as a going concern. However, the Company has year-end losses from
operations and had no revenues from operations during the six months ended June
30, 2010. During the six months ended June 30, 2010, the Company incurred a net
loss of $6,552,806. Further, the Company has inadequate working capital to
maintain or develop its operations, and is dependent upon funds from its lenders
and the support of certain stakeholders.





These factors raise substantial doubt
about the Company’s ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties. In this regard, management is proposing to raise
any necessary additional funds through the sale of its common stock, other
equity or equity-linked instruments. There is no assurance that the Company will
be successful in raising additional equity capital especially given the current
global economic conditions.




Note 4 — Summary of Significant
Accounting Policies




Terms and
Definitions




Company
            
            Comstock
      Mining, Inc. and SubsidiariesAPB
            
            Accounting
      Principles BoardARB
            
            Accounting
      Review BoardASC
            
            Accounting
      Standards Codification TopicASU
            
            Accounting
      Standards UpdateEITF
            
            Emerging
      Issues Task ForceFASB
            
            Financial
      Accounting Standards BoardFSP
            
            FASB
      Staff PositionPlum
      LLC
            
            Plum
      Mining Company, LLCSAB
            
            SEC
      Staff Accounting BulletinSEC
            
            Securities
      Exchange CommissionSOP
            
            Statement
      of Position




Summarized below are the significant
accounting policies of Comstock Mining, Inc.





Principles of
Consolidation




The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries:
GoldSpring, LLC, Ecovat Copper Nevada, LLC, The Plum Mining Company, LLC, and
the Plum Mine Special Purpose Company LLC. All material inter-company
transactions and balances have been eliminated in
consolidation.





Cash and Cash
Equivalents




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




Fair Value of Financial
Instruments




The carrying amounts of cash and cash
equivalents, accounts payable, and accrued expenses approximate fair market
value because of the short maturity of those instruments. Furthermore,
convertible debenture, other notes obligations, and long-term debt and other
liabilities payable amounts approximate fair value at June 30, 2010 and December
31, 2009.




12




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 in excess of limits 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




The Company accounts for impairment and
disposal of long-lived assets in accordance with ASC 360 Property, Plant, and
Equipment. ASC 360 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 standard 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.




We implemented ASC 360 in our evaluation
of the fair value of certain assets described in Notes 5 and
6.




Revenue Recognition




The Company recognizes revenue in
accordance with the provisions of ASC 605 Revenue, which states that revenue is
realized or realizable and earned when all of the following four criteria are
met:




1)
            Persuasive evidence of an
      arrangement exists,


2)
            Delivery has occurred or services
      have been rendered,


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


4)
            Collectability is reasonably
      assured.





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





Stock Issued For
Services




We base the value of stock issued for
services on the market value of our common stock at the date of issue and our
estimate of the fair value of the services received.




Plant and
Equipment




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




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




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




13




Mineral Rights




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




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




We review the carrying value of our
interest in each mineral claim on a quarterly basis to determine whether
impairment has incurred in accordance with ASC 360 (formerly SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets.”)




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




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




Reclamation Liabilities and Asset
Retirement Obligations




Minimum standards for site reclamation
and closure have been established by various government agencies that affect
certain of our operations. We calculate our estimates of reclamation liability
based on current laws and regulations and the expected undiscounted future cash
flows to be incurred in reclaiming, restoring, and closing our operating mine
sites. When we incur reclamation liabilities that are not related to asset
retirements we recognize the obligations in accordance with ASC 410-30 (formerly
SOP No. 96-1).




The Company accounts for its reclamation
liabilities and asset retirement obligations in accordance with ASC 410 Asset
Retirement and Environmental Obligations (ASC 410). ASC 410 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred. ASC 410 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.





Stock Based
Compensation





The Company accounts for share based
compensation in accordance with ASC 718 Compensation – Stock Compensation.
Accordingly, the Company measures the cost of employee services received in
exchange for an award of equity instruments based on the grant date fair value
of the award and recognizes cost over the requisite service
period.




Earnings Per Common
Share




In calculating earnings per common
share, we compute basic earnings per share by dividing net loss by the weighted
average number of common shares outstanding, excluding the dilutive effects of
common stock equivalents. For the three months ended June 30, 2010 and 2009, we
had net losses for which the effect of common stock equivalents would be
anti-dilutive. Accordingly only basic loss per share is
presented.




Use of Estimates




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




14




Risks and
Uncertainties




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




Income Taxes




We recognize deferred tax assets and
liabilities based on differences between the condensed consolidated financial
statement carrying amounts and tax bases of assets and liabilities (using the
applicable enacted tax rates and laws). We provide a valuation allowance for
deferred tax assets for which we do not consider realization of such assets to
be likely.




ACCOUNTING STANDARDS UPDATES
(ASU’s)




We do not expected any significant
impact on our Company’s consolidated financial position or results of operations
from other ASU’s issued but not effective until after June 30,
2010,




Note 4 — Mineral
Rights




Mineral rights at June 30, 2010 and
December 31, 2009 consisted of the following:




June30,
                    2010
                  
                  
                  December 31,
                    2009Comstock
      Placer Claims
                  
                  $
                  100,000
                  
                  
                  $
                  100,000Big
      Mike Copper Claims
                  
                  
                  —
                  
                  
                  
                  69,138Comstock
      Lode Claims
                  
                  
                  766,409
                  
                  
                  
                  1,011,409Water
      rights
                  
                  
                  90,000
                  
                  
                  
                  90,000Total
      Mineral Rights
                  
                  $
                  956,409
                  
                  
                  $
                  1,270,547




In January 2010, we sold a 0.61% net
smelter royalty on our Obester Property for $550,000 to Precious Royalties, LLC,
resulting in a gain of $300,000. Accordingly, we adjusted our mining claim
values to reflect the impact of the net smelter royalty.





During the six month period ended June
30, 2010, we determined the Big Mike copper project in Northern Nevada to be
impaired and to have no fair value. In accordance with ASC 360, we recorded an
impairment expense of $69,138, which is included in the depreciation, depletion
and amortization expense on the Statement of Operations.




Note 5 — Property and Equipment,
net




Plant and equipment at June 30, 2010 and
December 31, 2009, consisted of the following:




June 30,
                      2010
                    
                    
                    December 31,
                      2009Land
      and Building
                    
                    $
                    2,327,443
                    
                    
                    $
                    2,327,443Vehicle
      and Equipment
                    
                    
                    314,094
                    
                    
                    
                    302,094Processing
      and Lab
                    
                    
                    714,528
                    
                    
                    
                    704,528Furniture
      and Fixtures
                    
                    
                    51,496
                    
                    
                    
                    49,390Property
      and Equipment
                    
                    
                    3,407,561
                    
                    
                    
                    3,383,455Less
      accumulated depreciation
                    
                    
                    (1,125,892
                    )
                    
                    
                    (1,081,989
                    )Total
      Property and Equipment, net
                    
                    $
                    2,281,669
                    
                    
                    $
                    2,301,466




15




During the six month period ended June
30, 2010, we purchased additional equipment totaling $24,105.  The
property and equipment additions include $10,000 for processing equipment,
$12,000 for a used pickup truck and $2,105 for computers.





Depreciation expense for the six months
ended June 30, 2010 and 2009 was $43,903 and $42,454,
respectively.  We use the straight-line method of depreciation for
financial reporting purposes, depreciating buildings over 15 years and other
assets over useful lives ranging from 3 to 10 years.




Note 6 – Reclamation Bond
Deposit





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




The Nevada Revised Statutes and
regulations promulgated thereunder by the Nevada State Environmental Commission
and the Nevada Division of Environmental Protection, Bureau of Mining and
Reclamation require a bond to be posted for mining projects to assure we will
leave the site safe, stable and capable of providing for a productive
post-mining land use. Pursuant to the approved Reclamation Plans we secured a
$1,106,882 mine reclamation financial assurance instrument through the Nevada
Division of Minerals' Bond Pool Program. As required by the bond pool program, a
cash deposit of $766,768 was made.




Note 7 — Long-term Reclamation Liability
and Deferred Reclamation Expense





We have an accrued long-term liability
of $1,227,778 and $1,186,966 as of June 30, 2010 and December 31, 2009
respectively, with regard to our obligations to reclaim our Comstock Mine
facility based on our reclamation plan submitted and approved by the Nevada
State Environmental Commission and Division of Environmental Protection. In
conjunction with recording the reclamation liability we recorded a deferred
reclamation expense of which the value is being amortized over the period of the
anticipated land disturbance. Costs of future expenditures for environmental
remediation are discounted to their present value. Such costs are based on
management’s current estimate of amounts expected to be incurred when the
remediation work is performed within current laws and regulations. It is
reasonably possible that, due to uncertainties associated with the application
of laws and regulations by regulatory authorities and changes in reclamation or
remediation technology, the ultimate cost of reclamation and remediation could
change in the future. We periodically review accrued liabilities for such
reclamation and remediation costs as evidence becomes available indicating that
our liabilities have potentially changed. The reclamation liability accretion
expense and the amortization of defined reclamation expense for the six month
period ended June 30, 2010 and 2009 were $40,812 and $34,016
respectively.





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




6/30/10
                    
                    
                    12/31/09Long-term
      reclamation liability beginning of period
                    
                    $
                    1,186,966
                    
                    
                    $
                    1,105,342Additional
      obligations incurred
                    
                    
                    ―
                    
                    
                    
                    ―Liabilities
      settled during the period
                    
                    
                    ―
                    
                    
                    
                    ―Increase
      in present value of the reclamation obligation (accretion
      expense)
                    
                    
                    40,812
                    
                    
                    
                    81,624Long-term
      asset reclamation liability
                    
                    $
                    1,227,778
                    
                    
                    $
                    1,186,966





Following is a reconciliation of the
aggregate long-lived deferred reclamation expense associated with on our
reclamation plan for our Comstock Project:




6/30/10
                    
                    
                    12/31/09Net
      long-lived deferred reclamation expense beginning of
period
                    
                    $
                    340,159
                    
                    
                    $
                    408,190Additional
      obligations incurred
                    
                    
                    ―
                    
                    
                    
                    ―Amortization
      of deferred reclamation expense
                    
                    
                    (34,016
                    )
                    
                    
                    (68,031
                    )Long—lived
      deferred reclamation expense
                    
                    $
                    306,143
                    
                    
                    $
                    340,159




16





Note 8 - Convertible
Debentures




The following is a summary of the
Convertible debentures as of June 30, 2010 and December 31,
2009:





6/30/10
                  
                  
                  12/31/09Convertible
      Debentures Payable – Investors
                  
                  $
                  1,105,908
                  
                  
                  $
                  1,105,908Convertible
      Debentures Payable - Mandatory Redemption payment
                  
                  
                  4,412,058
                  
                  
                  
                  4,412,058Convertible
      Notes Payable - 2006 & 2007
                  
                  
                  2,170,000
                  
                  
                  
                  2,170,000Convertible
      Notes Payable:  June – November 2008
                  
                  
                  2,500,000
                  
                  
                  
                  2,500,000Convertible
      Notes Payable – July 2008 Longview Amended and Restated
    Note
                  
                  
                  2,782,563
                  
                  
                  
                  2,782,563Convertible
      Notes Payable – December 2008
                  
                  
                  500,000
                  
                  
                  
                  500,000Convertible
      Notes Payable – May – August 2009
                  
                  
                  1,327,717
                  
                  
                  
                  1,807,732Convertible
      Notes Payable – December 2009, net
                  
                  
                  2,917,045
                  
                  
                  
                  242,762Convertible
      Notes Payable – June 2010, net
                  
                  
                  729,789
                  
                  
                  
                  ―Subtotal
                  
                  
                  18,445,080
                  
                  
                  
                  15,521,023Less
      current portion of convertible debentures
                  
                  
                  (12,015,683
                  )
                  
                  
                  (12,495,698
                  )Long
      term portion of convertible debentures
                  
                  $
                  6,429,397
                  
                  
                  $
                  3,025,325





The terms of the convertible debentures
included above are as follows:




Convertible
Debentures Payable – Investors


During March 2004, we completed a
private placement of securities transaction (the “March Offering”), which
generated $10 million in gross proceeds from a group of accredited institutional
and individual investors. On November 30, 2004, we restructured the March
Offering and entered into a new agreement (the “Subscription Agreement”) whereby
we exchanged 108,696 shares of common stock and 108,696 warrants issued for 8%
convertible notes, with the following terms;





ConvertibleLoan
      Amount:
            
            $11.1
      million, which includes the initial $10 million investment and
      approximately $1.1 million in accrued penalties resulting from the delay
      in the registration of common stock held by investors. Since initial
      funding, approximately $10 million has been paid leaving a balance of
      $1,105,908.Interest
      Rate:
            
            15%,
      payable in arrears in cash or stock at the lender’s
  optionConversion:
            
            The
      conversion price is equal to the lesser of: (i) eighty-five percent (85%)
      of the average of the five (5) lowest closing bid prices of the common
      stock as reported by Bloomberg L.P. for the twenty (20) trading days
      preceding the date the Company was obligated to pay the debenture; or (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. In no
      event shall the conversion price be higher than
$.2.00,.Term:
            
            Note
      is currently due and in default.





As a result of the Company completing
other financing arrangements at a lower conversion price, the reset provision
clause was triggered and established a new fixed maximum conversion rate of
$2.00 in February 2008.




17




Convertible
Debentures Payable – Mandatory Redemption Payment





John V. Winfield, a major shareholder
and note holder, and his affiliates elected to convert approximately $3.3
million of their convertible debentures under the November 30, 2004 Subscription
Agreement into common stock.  In March 2005, because we did not
deliver the share certificates within the period required in the November 30,
2004 subscription agreement, Winfield and his affiliates (“Winfield Group”)
elected to demand payment of approximately $6.9 million pursuant to the
mandatory redemption payment provisions of the November 30, 2004 subscription
agreement and consequently forfeited his right to receive shares in lieu of
payment.




The Company did not have sufficient
funds to meet this obligation. On March 31, 2005, the Winfield Group entered
into a Settlement Agreement with the Company whereby he agreed to convert the
$6.9 million obligation into Convertible Debentures (“the
Debentures”).




The terms of the Debentures are noted
below:





ConvertibleLoan
      Amount:
            
            $6.9
      million, of which approximately $2.5 million has been paid since initial
      funding leaving a remaining balance of $4,412,058.Interest
      Rate:
            
            18%,
      payable in arrears in cash or stock at the lender’s
  optionPayments:
            
            Monthly
      installments of principal and interest over a 24 month period with the
      remaining entire balance of unpaid principal and interest due on March 31,
      2007.Conversion:
            
            The
      Debentures are convertible, in all or in part, into shares of our common
      stock (“Conversion Shares”) at any time. The conversion price is equal to
      the lesser of: (i) eighty-five percent (85%) of the average of the five
      (5) lowest closing bid prices of the common stock as reported by Bloomberg
      L.P. for the twenty (20) trading days preceding the date the Company was
      obligated to pay the mandatory redemption Payment; or (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. In no event shall the
      conversion price be higher than $2.00.Term:
            
            Note
      is currently due and in default.Security
      interest:
            
            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.




As a result of the Company completing
other financing arrangements at a lower conversion price, the reset provision
clause was triggered and established a new fixed maximum conversion rate of
$2.00 in February 2008.




Convertible
Notes Payable – 2006 & 2007




The convertible notes payable as of June
30, 2010 and December 31, 2009 were as follows:




Face amountWinfield
      Group Convertible Debentures Payable
                    
                    $
                    1,620,000Longview
      Convertible Debentures Payable
                    
                    
                    550,000$
                    2,170,000




18




The terms of the agreement are as
follows:




ConvertibleLoan
      Amount:
            
            $2,170,000Interest
      Rate:
            
            18%,
      payable in arrears in cash or stock at the lender’s
  optionConversion:
            
            The
      principal amount of the Note and interest is convertible into GoldSpring
      Common Stock at 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.Term:
            
            Note
      is currently due and in defaultWarrants:
            
            This
      Warrant shall be exercisable for such number of Warrant Shares as equals
      two percent (2%) of the Common Stock Deemed Outstanding on the date(s) of
      exercise multiplied by a quotient equal to the Face Amount set forth above
      (or any portion thereof) divided by 1,800,000.Security:
            
            Secured
      by a lien on the assets of Comstock Mining, Inc. and a pledge of all of
      the interests in Plum Mine Special Purpose, LLC, which owns the Plum Mine
      operation.




In February 2008, as a result of the
Company completing other financing arrangements at a lower conversion price, the
reset provision clause was triggered and established a new fixed maximum
conversion rate of $2.00.




Convertible
Notes Payable: June – November 2008




In June 2008, the Company entered into a
Loan Agreement with Winfield Group pursuant to which Winfield Group agreed to
loan the Company $2,500,000 no later than December 31, 2008 through issuance of
a series of secured notes (“Notes”). In each month, during the five months ended
December 2008, Winfield Group lent the Company $500,000 pursuant to this Loan
Agreement. These notes have been in default since late 2008 because we failed to
make any monthly payment on the notes. Pursuant to the terms and conditions of
this Loan Agreement, the notes become immediately payable upon default and thus
the note balance has been recorded as a current liability.




The terms of the agreement are as
follows:




Convertible
      Loan Amount:
            
            $2,500,000Interest
      Rate:
            
            9%,
      payable in arrears in cash or stock at the lender’s
  optionConversion:
            
            The
      principal amount of the Note and interest is convertible into Comstock
      Mining Common Stock at the lesser of (A) $3.00 per share, or (B) .85
      multiplied by the “Volume Weighted Average Price” for the Borrower’s
      Common Stock for the five trading days immediately prior to the Conversion
      Date.Term:
            
            Three
      YearsSecurity:
            
            Security
      interest in all of the Company’s assets, pari passu with
      the existing security interests





On December 22, 2008, as a result of the
Company completing other financing arrangements at a lower conversion price, the
reset provision clause was triggered and established a new fixed maximum
conversion rate of $2.00.




19




Convertible
Notes Payable – July 2008 (Longview Amended and Restated
Note)




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




Convertible
      Loan Amount:
            
            $2,782,563
      (Includes an initial principal amount of $2,175,000 and accrued interest
      of $607,563)Expiration
      Date:
            
            July
      10, 2011Interest
      Rate:
            
            11%,
      payable per annumConversion:
            
            The
      principal amount of the Note and interest is convertible into Comstock
      Mining Common Stock at the lesser of (A) 2.00 per share, or (B) .85
      multiplied by the “Volume Weighted Average Price” for the Borrower’s
      Common Stock for the five trading days immediately prior to the Conversion
      Date.Term:
            
            Three
      Years




On December 22, 2008, as a result of the
Company completing other financing arrangements at a lower conversion price, the
reset provision clause was triggered and established a new fixed maximum
conversion rate of $2.00.




Convertible
Notes Payable –December 2008


On December 8, 2008, we completed a
financing transaction with Winfield Group which provided us with $500,000 in
funding. Pursuant to the terms and conditions of the note agreement, the notes
became immediately payable upon default and thus the note balance has been
recorded as a current liability since December 31, 2009.




The terms of the agreement are as
follows:




Convertible
      Loan Amount:
            
            $500,000Interest
      Rate:
            
            11%,
      payable quarterly in cash or stock at the Company’s
  optionConversion:
            
            The
      principal amount of the Note and interest is convertible into Comstock
      Mining Common Stock at the lesser of (A) $3.00 per share, or (B) .85
      multiplied by the “Volume Weighted Average Price” for the Borrower’s
      Common Stock for the five trading days immediately prior to the Conversion
      Date.Term:
            
            Note
      is currently in defaultSecurity:
            
            Security
      interest in all of the Company’s assets, pari passu with
      the existing security interests




On December 22, 2008, as a result of the
Company completing other financing arrangements at a lower conversion price, the
reset provision clause was triggered and established a new fixed maximum
conversion rate of $2.00.





Convertible
Notes Payable – May 2009- August 2009




On May 1, 2009, the Company secured a
$2,000,000 commitment for additional convertible debt financing. The agreement,
upon 30 days prior written notice, permitted the Company to request financing in
tranches between $250,000 and $500,000 per request. Funding requests were
permitted at any time between May 1, 2009 and August 28, 2009. The Company
requested and received $2,000,000 from this financing. The notes are in default.
Pursuant to the terms and conditions of the loan agreement, the notes became
immediately payable upon default and thus the note balance has been recorded as
a current liability.




20




The terms of the agreement are as
follows:




Convertible
      Loan Amount:
            
            $2,000,000Interest
      Rate:
            
            9%,
      payable in arrears in cash or stock at the lender’s
  optionConversion:
            
            The
      principal amount of the Note and interest is convertible into Comstock
      Mining Common Stock at the lesser of (A) $2.50 per share, or (B) .85
      multiplied by the “Volume Weighted Average Price” for the Borrower’s
      Common Stock for the five trading days immediately prior to the Conversion
      Date.Term:
            
            Note
      is currently in defaultWarrants:
            
            50%
      Stock warrant coverage (Maximum warrants: 80,000,000) with an exercise
      price of $4.00 and a term of four (4) yearsSecurity:
            
            Security
      interest in all of the Company’s assets, pari passu with
      the existing security interests




On December 22, 2008, as a result of the
Company completing other financing arrangements at a lower conversion price, the
reset provision clause was triggered and established a new fixed maximum
conversion rate of $2.00.




Note Balance
                      6/30/10
                    
                    
                    Note Balance
                      12/31/09Balances
      beginning of period
                    
                    $
                    1.807,732
                    
                    
                    $
                    —Convertible
      Note
                    
                    
                    —
                    
                    
                    
                    2,000,000Principal
      Payments
                    
                    
                    (480,015
                    )
                    
                    
                    (192,268
                    )Note
      Balance
                    
                    
                    1,327,717
                    
                    
                    
                    1,807,732




21




The following summarizes the activity
for Convertible Notes Payable – May 2009 – August 2009:





Note Principal
                                  
                                  Debt Discount
                                    (*)
                                  
                                  Conversion
                                    Price per
                                    Share
                                  
                                  
                                  Number of
                                    Shares
                                    Underlying
                                    Convertible
                                    Note
                                  
                                  
                                  Effective
                                    Interest Rate
                                  
                                  
                                  Earnings per
                                    Share Impact$
                                  2,000,000
                                  
                                  1,443,271
                                  
                                  $
                                  1.34
                                  
                                  
                                  
                                  1,492,537
                                  
                                  
                                  
                                  33.1
                                  %
                                  
                                  $
                                  0.08





(*) - The debt was in default and
immediately due and payable, therefore the entire unamortized debt discount was
recognized as interest expense in 2009. The unamortized debt discount that was
included in 2009 interest expense consists of the initial fair value of the
warrant liability of $545,404 and the embedded conversion option liability of
$897,867, for a total of $1,443,271.  (See Note
11)




Convertible
Notes Payable– December 2009




On December 10, 2009,
we secured $4,500,000 commitment for additional convertible debt financing. The
agreement provided initial funding of $750,000 and on each 30thday thereafter another
tranche of $750,000 through May 2010. As of June 30, 2010, we have received 100%
of the $4,500,000 from this financing.




The terms of the agreement are as
follows:




Convertible
      Loan Amount:
              
              $4,500,000
      total commitment, of which $750,000 was funded through December 31, 2009
      and a total of $4,500,000 was funded through June 30,
  2010Interest
      Rate:
              
              8%,
      payable in arrears in cash or stock at the lender’s
  optionConversion:
              
              The
      principal amount of the Note and interest is convertible into Comstock
      Mining Common Stock at the lesser of (A) $2.00 per share, or (B) .85
      multiplied by the “Volume Weighted Average Price” for the Borrower’s
      Common Stock for the five trading days immediately prior to the Conversion
      Date.Term:
              
              Three
      YearsWarrants:
              
              Stock
      warrant coverage of 1,125,000 warrants with an exercise price of $3.50 and
      a term of three (3) yearsSecurity:
              
              Security
      interest in all of the Company’s assets, subject to the interest of(a) Seller Note – plum Mine; and (b) certain lenders (the “Additional
      Lenders”) as of March 31, 2005, July 15, 2005, September 26, 2005,
      December 12, 2007, June 27, 2008, December 8, 2008, May 1, 2009 and May
      13, 2009.




22




The following summarizes the activity
for Convertible Notes Payable:  December 2009




Note Balance
                      as of 6/30/10
                    
                    
                    Note Balance
                      as of 2/31/09Beginning
      of period
                    
                    $
                    242,762
                    
                    
                    $
                    —Convertible
      Note
                    
                    
                    3,750,000
                    
                    
                    
                    750,000Debt
      Discount, net
                    
                    
                    (1,075,717
                    )
                    
                    
                    (507,238
                    )End
      of period
                    
                    $
                    2,917,045
                    
                    
                    $
                    242,762





Note Principal
                    
                    
                    Debt Discount
                    
                    
                    Conversion
                      Price per
                      Share
                    
                    
                    Number of
                      Shares
                      Underlying
                      Convertible
                      Note
                    
                    
                    Effective
                      Interest Rate
                    
                    
                    Earnings per
                      Share Impact$
                    750,000
                    
                    
                    $
                    518,030
                    
                    
                    $
                    1.34
                    
                    
                    
                    559,701
                    
                    
                    
                    23.0
                    %
                    
                    
                    0.031,750,000
                    
                    
                    
                    498,720
                    
                    
                    
                    1.34
                    
                    
                    
                    1,305,970
                    
                    
                    
                    9.5
                    %
                    
                    
                    0.072,000,000
                    
                    
                    
                    753,105
                    
                    
                    
                    1.34
                    
                    
                    
                    1,492,537
                    
                    
                    
                    12.6
                    %
                    
                    
                    0.08$
                    4,500,000
                    
                    
                    $
                    1,769,855
                    
                    
                    $
                    1.34
                    
                    
                    
                    3,358,208
                    
                    
                    
                    13.1
                    %
                    
                    
                    0.18





The debt discount consists of the
initial fair value of the warrant liability of ($541,741) and the embedded
conversion option liability of ($1,228,114), for a total of
($1,769,855).  (See Note 11)





Debt Discount at June 30, 2010 and
December 31, 2009:




6/30/10
                  
                  
                  12/31/09Debt
      discount beginning balance – beginning of period
                  
                  $
                  (507,238
                  )
                  
                  $
                  —Debt
      discount – embedded conversion feature
                  
                  
                  (911,512
                  )
                  
                  
                  (316,602
                  )Debt
      discount – detachable warrants
                  
                  
                  (340,313
                  )
                  
                  
                  (201,428
                  )Less
      amortization of debt discount
                  
                  
                  176,106
                  
                  
                  
                  10,792Unamortized
      debt discount
                  
                  $
                  (1,582,957
                  )
                  
                  $
                  (507,238
                  )





Convertible
Notes Payable– June 2010




On June 15, 2010 we
completed a financing transaction which provided us with $1,100,000 in
funding.  During June 2010 $1,050,000 was funded and the balance of
$50,000 was funded in July 2010.




The terms of the agreement are as
follows:




Convertible
      Loan Amount:
              
              $1,100,000
      financing, of which $1,050,000 was funded in June 2010 and $50,000 was
      funded in July 2010.Interest
      Rate:
              
              8%,
      payable in arrears in cash or stock at the lender’s
  optionConversion:
              
              The
      principal amount of the Note and interest is convertible into Comstock
      Mining Common Stock at the lesser of (A) $2.00 per share, or (B) .85
      multiplied by the “Volume Weighted Average Price” for the Borrower’s
      Common Stock for the five trading days immediately prior to the Conversion
      Date.Term:
              
              Three
      YearsWarrants:
              
              Stock
      warrant coverage of 275,000 warrants with an exercise price of $3.50 and a
      term of three (3) years




23




Security:
                
                Security
      interest in all of the Company’s assets, subject to the interests of(a) Seller Note – plum Mine;  and (b) certain lenders
      (the “AdditionalLenders”) as of March 31,
      2005, July 15, 2005, September 26, 2005, December 12, 2007, June 27, 2008,
      December 8, 2008, May 1, 2009 and May 13,
2009.




The following summarizes the activity
for Convertible Notes Payable:  June 2010





Note Balance
                        as of 6/30/10
                      
                      
                      Note Balance
                        as of 12/31/09Beginning
      of period
                      
                      $
                      —
                      
                      
                      $
                      —Convertible
      Note
                      
                      
                      1,050,000
                      
                      
                      
                      —Debt
      Discount, net
                      
                      
                      (320,211
                      )
                      
                      
                      —
                      )End
      of period
                      
                      $
                      729,789
                      
                      
                      $
                      —





Note Principal
                
                
                Debt Discount
                
                
                Conversion
                  Price per
                  Share
                
                
                Number of
                  Shares
                  Underlying
                  Convertible
                  Note
                
                
                Effective
                  Interest Rate
                
                
                Earnings per
                  Share Impact$
                1,050,000
                
                
                $
                324,721
                
                
                $
                1.34
                
                
                
                783,582
                
                
                
                10.3
                %
                
                
                0.04





The debt discount consists of the
fair value of the warrant liability of ($104,054) and the embedded conversion
option of ($220,667), for a total of $(324,721). (See Note
11)





Debt Discount at June 30, 2010 and
December 31, 2009:




6/30/10
                  
                  
                  12/31/09Debt
      discount beginning balance – beginning of period
                  
                  $
                  —
                  
                  
                  $
                  —Debt
      discount – embedded conversion feature
                  
                  
                  (220,667
                  )
                  
                  
                  —Debt
      discount – detachable warrants
                  
                  
                  (104,054
                  )
                  
                  
                  —Less
      amortization of debt discount
                  
                  
                  4,510
                  
                  
                  
                  —Unamortized
      debt discount
                  
                  $
                  (320,211
                  )
                  
                  $
                  —





Note 9 —Other Debt
Obligation





Our other debt obligations as of June
30, 2010 and December 31, 2009 include the following:




6/30/10
                  
                  
                  12/31/09Promissory
      Notes Payable - 2005 through 2008
                  
                  $
                  2,400,000
                  
                  
                  $
                  2,400,000Debt
      –Note (Plum Mine)
                  
                  
                  250,000
                  
                  
                  
                  250,000Debt
      –Note (Obester Property)
                  
                  
                  1,150,000
                  
                  
                  
                  1,400,000Debt  -
      Note (Petrini)
                  
                  
                  90,000
                  
                  
                  
                  90,000Subtotal
                  
                  
                  3,890,000
                  
                  
                  
                  4,140,000Less
      current portion
                  
                  
                  (3,890,000
                  )
                  
                  
                  (3,650,000
                  )Long
      term portion of debt obligations
                  
                  $
                  —
                  
                  
                  $
                  490,000




24


The terms of the other debt obligations
listed above are as follows;




Promissory Notes Payable
–2005 through 2008





The
Company has the following promissory notes payable as of June 30, 2010 and
December 31, 2009:





6/30/10
                  
                  
                  12/31/09Promissory
      Notes Payable-July 2005 Financing
                  
                  $
                  1,200,000
                  
                  
                  $
                  1,200,000Promissory
      Notes Payable-December 2007 Financing
                  
                  
                  600,000
                  
                  
                  
                  600,000Promissory
      Notes Payable-January 2008 Financing
                  
                  
                  600,000
                  
                  
                  
                  600,000$
                  2,400,000
                  
                  
                  $
                  2,400,000





Promissory
Notes Payable - July 2005 Financing





In July
of 2005, we borrowed $1.2 million from companies controlled by the Winfield
Group. 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 accrued interest at 17% per annum and were
payable in monthly installments of principal and interest over a 24 month period
with the remaining entire balance of unpaid principal and interest was 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. We
failed to make any payments on the notes; hence, they are in default and
the original issue discount is fully amortized.





Promissory
Notes Payable – December 2007 Financing





In
December 2007, we completed a financing transaction with the Winfield Group
which provided us with $500,000 in funding. In consideration for the financing,
we issued promissory notes with a face value of $600,000, reflecting an original
discount of sixteen and seventeen hundreds (16.17%) percent. The notes
evidencing the loan bear interest at the rate of 18% per annum, payable on or
prior to the one year anniversary of the respective loan date. We failed to make
any payments on the notes; hence, they are in default and the original
issue discount is fully amortized.





Promissory
Notes Payable – January 2008 Financing





On
January 31, 2008, we completed a financing transaction with the Winfield Group
which provided us with $500,000 in funding. In consideration for the financing,
we issued promissory notes with a face value of $600,000, reflecting an original
discount of sixteen and seventeen hundreds (16.17%) percent. The notes
evidencing the loan bear interest at the rate of 18% per annum, payable on or
prior to the one year anniversary of the respective loan date.  We failed
to make any payments on the notes; hence, they are in default and the
original issue discount is fully amortized.





Debt – Note (Plum
Mine)





We have a
5% bearing note payable note related to our purchase of the Plum Mining
property. The note was payable on June 2006 and we are in default on this note.
As of June 30, 2010 and December 31, 2009, we still had a $250,000 note balance
due.  There is a first security interest on the assets of Plum Mining
Property for this note.





Debt - Note (Obester
Property)





In
December 2009, we completed the acquisition of mineral properties, which we had
been leasing, from Claire Obester, Jim Obester, Alan Obester, and Julian Smith
(“sellers”) for $1,650,000 plus a 1% royalty.  Pursuant to the
purchase agreement, we made initial payments of $250,000 and we issued a note to
the “sellers” for $1,400,000.  The note bears interest of six percent
(6%) per annum. Interest and principal payments shall be made in quarterly
installments of $250,000 with the first payment due on or before April 1, 2010
and continuing on the first day of each quarter, until July 1, 2011, when the
then unpaid principal and accrued interest is due and payable.


25





Debt – Note (Obester Property) at June
30, 2010 and December 31, 2009:




6/31/10
                    
                    
                    12/31/09Beginning
      balance – beginning of period
                    
                    $
                    1,400,000
                    
                    
                    $
                    —Seller
      Note
                    
                    
                    —
                    
                    
                    
                    1,400,000Payments
                    
                    
                    (250,000
                    )
                    
                    
                    —Note
      balance
                    
                    $
                    1,150,000
                    
                    
                    $
                    1,400,000





Debt - Note (Petrini
Property)





On
February 17, 2009 we purchased 4.79 acres in the Comstock District for
$130,000.  We paid $40,000 in cash and financed the balance of $90,000
through a first deed of trust.  The note is interest only for two
years and bears interest at 16% per annum. We have made our scheduled
interest payments to date.  The note is due and payable on February
17, 2011.





Note
10 - Debt Concentration





The
Winfield Group is the largest lender to the Company.  At June 30,
2010, we had approximately $23.0 million of outstanding note principal of which
$15.1 million or 66% was held by the Winfield Group.  In addition to
the $15.1 principal owed to the Winfield Group, $5.3 million of unpaid interest
was also due.  Had the Winfield Group converted all of its convertible
principal and interest of $15.7 million into our common stock at June
30, 2010, we would have been obligated to issue the Winfield Group 11.7 million
of our common shares representing 38.2% of our then outstanding common
shares.   The amounts listed below have been reflected in the
schedules presented in Note 8 and Note 9.





Debt Position with the Winfield GroupAt June30, 2010Note Descriptions (Winfield Group)
                    
                    Principal
                    
                    
                    Unpaid
                      Interest
                    
                    
                    Total15%
      Convertible Notes Payable – Investors
                    
                    $
                    687,928
                    
                    
                    $
                    41,852
                    
                    
                    $
                    729,78018%
      Convertible Debentures Payable - Mandatory Redemption
    Payment
                    
                    
                    4,412,058
                    
                    
                    
                    1,328,483
                    
                    
                    
                    5,740,54118%
      Convertible Notes Payable - 2006 – 2007
                    
                    
                    1,620,000
                    
                    
                    
                    1,078,438
                    
                    
                    
                    2,698,43811%
      Convertible Notes Payable - June - November 2008
                    
                    
                    2,500,000
                    
                    
                    
                    580,217
                    
                    
                    
                    3,080,21711%
      Convertible Notes Payable - December 2008
                    
                    
                    500,000
                    
                    
                    
                    96,734
                    
                    
                    
                    596,7349%
      Convertible Notes Payable - May - August 2009
                    
                    
                    1,000,000
                    
                    
                    
                    102,483
                    
                    
                    
                    1,102,4838%
      Convertible Notes Payable - December 2009
                    
                    
                    1,500,000
                    
                    
                    
                    28,023
                    
                    
                    
                    1,528,0238%
      Convertible Notes Payable – June 2010
                    
                    
                    250,000
                    
                    
                    
                    444
                    
                    
                    
                    250,44417%
      Promissory Note Payable - July 2005
                    
                    
                    1,200,000
                    
                    
                    
                    1,570,088
                    
                    
                    
                    2,770,08818%
      Promissory Note Payable - December 2007 Financing
                    
                    
                    600,000
                    
                    
                    
                    226,183
                    
                    
                    
                    826,18318%
      Promissory Note Payable - January 2008 Financing
                    
                    
                    600,000
                    
                    
                    
                    211,542
                    
                    
                    
                    811,5425%
      Debt Seller Note (Plum Mine)
                    
                    
                    250,000
                    
                    
                    
                    62,500
                    
                    
                    
                    312,500Total
      at June 30, 2010
                    
                    $
                    15,119,986
                    
                    
                    $
                    5,326,987
                    
                    
                    $
                    20,446,973





Note
11 – Financial Instruments and Derivatives





The
Company issues various note instruments with various terms but they are
typically convertible into the Company’s common stock and issued with detachable
warrants.  The following sections discuss in general those conversion
features and warrants.




26


Conversion
Features





The terms
of the conversion feature of our debt instruments will differ between specific
notes but their typical terms contain the following
characteristics.  Specific terms for each note are discussed in Notes
8 – 10 as appropriate.





·
            The conversion feature is an
      embedded beneficial conversion feature, whereby debt is convertible into
      Comstock Mining’s common stock at approximately the lesser of (a) a fixed
      price or (b)85% of market price (based on a “lookback”
      formula),


·
            The embedded beneficial
      conversion feature is immediately
  exercisable,


·
            Exercising the embedded
      beneficial conversion feature is not contingent on a future
      event,


·
            Exercising the embedded
      beneficial conversion feature may be converted into cash or stock at the
      discretion of the issuer (Comstock
  Mining),


·
            The variable component of the
      conversion price is a fixed discount, there is no stated price floor or
      shares issued to cap to the potential number of shares that can be
      converted to satisfy the conversion
  feature





Although
such conversion features are typically considered equity instruments, because
the conversion feature has a component which is a fixed discount from our traded
stock price without a limit to the number of shares that may be issued, the
Company cannot be assured that it has sufficient authorized shares to execute
the conversion if presented.  Accordingly, the Company is not “in
control” of the conversion and recognition of the value of the conversion
feature is deemed a derivative liability for financial reporting purposes under
the guidance offered in ASC 815.  As liabilities related to financial
instruments, we therefore apply fair value measurement to each conversion
feature liability at each reporting period.  See Note 12 for a
discussion of fair value measurement.





Warrants





The terms
of the warrants attached to our debt instruments will differ between specific
notes but their typical terms contain the following
characteristics.  Specific terms for each note are discussed in Notes
8 – 10 as appropriate.





·
            Detachable warrants are included
      with the debt offering, as debt “sweetener,” that generally provide for
      conversion at a fixed price,


·
            There is no active trading market
      for our warrants


·
            Comstock Mining may lack
      sufficient authorized shares to satisfy all conversion options if
      presented.





Although
such warrants are typically considered equity instruments, because the Company
cannot be assured that it has sufficient authorized shares to execute the
conversion if presented.  Accordingly, the Company is not “in control”
of the conversion and recognition of the value of the conversion feature is
deemed a liability for financial reporting purposes under the guidance offered
in ASC 815.  In addition, the guidance offered in ASC 815, indicates
that “if share settlement
is not within the control of the Company an asset or liability classification is
required.”  Consequently, we classified our warrants as
liabilities and began to measure them at fair value in each subsequent reporting
period.  See Note 12 for a discussion of fair value
measurement.





A summary
of the embedded conversion option liability and warrant liability is as
follows:





Embedded
                        Conversion
                        Option
                        Liability
                      
                      
                      Warrant
                        Liability
                      
                      
                      TotalBeginning
      balance Dec. 31, 2008
                      
                      $
                      5,088,333
                      
                      
                      $
                      280,000
                      
                      
                      $
                      5,368,333Initial
      issuance note liability of new convertible notes and
    warrants
                      
                      
                      1,214,469
                      
                      
                      
                      746,832
                      
                      
                      
                      1,961,301Change
      in Fair Value of liability during 2009
                      
                      
                      (3,558,743
                      )
                      
                      
                      729,298
                      
                      
                      
                      (2,829,445
                      )Liability
      at Dec. 31, 2009
                      
                      
                      2,744,059
                      
                      
                      
                      1,756,130
                      
                      
                      
                      4,500,189Initial
      issuance note liability of new convertible notes and
                      
                      
                      1,132,178
                      
                      
                      
                      444,367
                      
                      
                      
                      1,576,545Change
      in Fair Value of liability during 2010
                      
                      
                      853,853
                      
                      
                      
                      664,623
                      
                      
                      
                      1,518,476Liability
      at June 30, 2010
                      
                      
                      4,730,090
                      
                      
                      $
                      2,865,120
                      
                      
                      $
                      7,595,210





27


Note
12 – Fair Value Measurements





ASC 820
defines fair value as the price that would be received upon sale of an asset or
paid upon transfer of a liability in an orderly transaction between market
participants at the measurement date and in principal or most advantageous
market for that asset or liability.  The fair value should be
calculated based on assumptions that market participants would use in pricing
the asset or liability, not on assumptions specific to the entity.  In
addition, the fair value of liabilities should include consideration of
non-performance risk, including the Company’s own credit risk.





In
addition to defining fair value, ASC 820 expands the disclosure requirements
around fair value and establishes a fair value hierarchy for valuation
inputs.  The hierarchy prioritizes the inputs into three levels based
on the extent to which inputs used in measuring fair value are observable in the
market.  Each fair value measurement is reported in one of three
levels, which is determined by the lowest level input that is significant to the
fair value measurement in its entirety.  These levels
are:




·
            Level 1 – inputs are based upon
      unadjusted quoted prices for identical instruments traded in active
      markets.


·
            Level 2 – inputs are based upon
      quoted prices for similar instruments in active markets, quoted prices for
      identical or similar instruments in markets that are not active, and
      model-based valuation techniques for which all significant assumptions are
      observable in the market or can be corroborated by observable market data
      for substantially the full term of the assets or
      liabilities.


·
            Level 3 – inputs are generally
      unobservable and typically reflect management’s estimates of assumptions
      that market participants would use in pricing the asset or
      liability.  The fair values are therefore determined using
      model-based techniques that include option pricing models, discontinued
      cash flow models, and similar
techniques.





The
following describes the valuation methodologies the Company uses to measure
financial assets and liabilities at fair value.





Liabilities Measured at Fair
Value on a Recurring Basis





The
following table presents our liabilities at June 30, 2010 and December 31, 2009,
which are measured at fair value on a recurring basis:





Fair Value Measurements atJune 30, 2010Total
                    
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3Liabilities:Convertible
      features and warrants
                    
                    $
                    7,595,210
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    7,595,210Total
      Liabilities
                    
                    $
                    7,592,210
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    7,592,210




28





Fair Value Measurements atDecember 31, 2009Total
                    
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3Liabilities:Convertible
      features and warrants
                    
                    $
                    4,500,189
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    4,500,189Total
      Liabilities
                    
                    $
                    4,500,189
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    4,500,189





As
discussed in Note 11, the conversion feature liability represents the derivative
component on convertible notes proceeds associated with the fair value of the
embedded conversion features of our notes.  Warrant liabilities
represent detachable warrants issued in association with various notes
payable.





The fair
values for the conversion feature and warrant liabilities included in Level 3
are estimated using industry standard valuation models, such as the
Black-Scholes-Merton model.  Level 3 derivative liabilities primarily
include certain over-the-counter options.





Gains (losses) from changes in fair
values of the conversion feature and warrant liabilities that are not designated
as hedges are recognized in other income (expense).   The amounts
recognized during the fiscal quarter ended June 30, 2010 and the year ended
December 31, 2009 are as follows:





LiabilitiesAs of June 30, 2010
                                                          
                                                          As of December 31, 2009Balance Sheet
                                                            Location
                                                          
                                                          Fair Value
                                                          
                                                          Balance Sheet
                                                            Location
                                                          
                                                          Fair ValueDerivative
      not designated as hedging Instruments under ASC 815Convertible
      features and warrants
                                                          
                                                          Long-term liabilities
                                                          
                                                          $
                                                          7,595,210
                                                          
                                                          Long-term
      liabilities
                                                          
                                                          $
                                                          4,500,189Total
      Instruments not designated as hedging instruments under ASC
      815
                                                          
                                                          
                                                          
                                                          $
                                                          7,595,210
                                                          
                                                          
                                                          
                                                          $
                                                          4,500,189




Amount of Loss Recognized in Income on
                            DerivativeDerivatives Not
                            Designated as Hedging
                            Instruments under ASC
                            815
                          
                          Location of Loss
                            Recognized in income on
                            Derivative
                          
                          For the six months ended
                            June 30, 2010
                          
                          
                          For the year ended
                            December 31, 2009Convertible
      features and warrants
                          
                          Interest Expense
                          
                          $
                          180,616
                          
                          
                          $
                          1,454,063Total:
                          
                          
                          
                          $
                          180,616
                          
                          
                          $
                          1,454,063





The
following table indicates the changes in fair value of the
instruments:





Convertible
                      Features and
                      WarrantsBalances
      as of January 1, 2009
                    
                    $
                    5,368,333Additions
                    
                    
                    1,961,302Reductions
                    
                    
                    (2,829,446
                    )Balances
      as of December 31, 2009
                    
                    
                    4,500,189Additions
                    
                    
                    3,095,021Reductions
                    
                    
                    —Balances
      as of June 30, 2010
                    
                    $
                    7,595,210




29


Note
13 — Stockholders’ Equity





Common
stock was issued during the six months ended June 30, 2010 and June 30, 2009 for
the following purposes:





Six months ended 6/30/10
                  
                  
                  Year ended 12/31/09Share Issuances
                  
                  
                  Share Value
                  
                  
                  Share Issuances
                  
                  
                  Share ValueDebenture
      principal
                  
                  
                  380,516
                  
                  
                  $
                  480,015
                  
                  
                  
                  133,264
                  
                  
                  $
                  192,268Debenture
      Interest
                  
                  
                  281,655
                  
                  
                  
                  361,769
                  
                  
                  
                  751,833
                  
                  
                  
                  1,477,597Private
      placements
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  493,000
                  
                  
                  
                  986,000Consulting
                  
                  
                  25,000
                  
                  
                  
                  34,000
                  
                  
                  
                  —
                  
                  
                  
                  —Employees
      and directors
                  
                  
                  5,000
                  
                  
                  
                  7,100
                  
                  
                  
                  27,500
                  
                  
                  
                  67,250Total
                  
                  
                  692,171
                  
                  
                  $
                  882,884
                  
                  
                  
                  1,405,597
                  
                  
                  $
                  2,723,115





The
following schedules provide additional detail on the summary listed
above.





Debenture Principal and
Debenture Interest for the six month period ended June 30,
2010





The
following represents principal and interest payments on debt, made during the
six months ended June 30, 2010, with the issuance of our common stock.  The
shares were valued in accordance with each respective convertible note's term as
disclosed in Note 8.




PrincipalPayment
                        
                        
                        InterestPaymentNote Description
                        
                        Number of
                          Shares
                        
                        
                        Value of
                          Shares
                        
                        
                        Number of
                          shares
                        
                        
                        Value of
                          SharesConvertible
      Debentures Payable-Investors
                        
                        
                        —
                        
                        
                        $
                        —
                        
                        
                        
                        60,000
                        
                        
                        $
                        67,728Convertible
      Debentures Payable- Mandatory Redemption payment
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        125,000
                        
                        
                        
                        141,000Long-Term
      Convertible Notes – July 2008 (Longview Amended and Restated
      Note)
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        96,655
                        
                        
                        
                        153,041Convertible
      Notes:  May 2009 – Aug. 2009
                        
                        
                        380,516
                        
                        
                        
                        480,015
                        
                        
                        
                        —
                        
                        
                        
                        —380,516
                        
                        
                        $
                        480,015
                        
                        
                        
                        281,655
                        
                        
                        $
                        361,769





Debenture Principal and
Debenture Interest for the year ended December 31, 2009





The
following represents principal and interest payments on debt, made in 2009 with
the issuance of our common stock.  The shares were valued in accordance
with each respective convertible note's term as disclosed in Note
8.




Note Description
                        
                        Principal
                          Payment
                          Number of
                          Shares
                        
                        
                        Value of
                          Shares
                        
                        
                        Interest
                          Payment
                          Number of
                          shares
                        
                        
                        Value of
                          SharesConvertible
      Debentures Payable-Investors
                        
                        
                        —
                        
                        
                        $
                        —
                        
                        
                        
                        29,373,214
                        
                        
                        $
                        257,618Convertible
      Debentures Payable- Mandatory Redemption payment
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        99,000,000
                        
                        
                        
                        990,000Long-Term
      Convertible Notes – July 2008 (Longview Amended and Restated
      Note)
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        21,993,369
                        
                        
                        
                        229,979Convertible
      Notes:  May 2009 – Aug. 2009
                        
                        
                        26,652,890
                        
                        
                        
                        192,268
                        
                        
                        
                        —
                        
                        
                        
                        —26,652,890
                        
                        
                        $
                        192,268
                        
                        
                        
                        150,366,583
                        
                        
                        $
                        1,477,597




30


Private
Placements





The
following 2009 private placement transactions raised a gross total of $986,000
in exchange for 493,000 shares of our unregistered Common stock, placed with
accredited investors.  In general, the proceeds were used to fund
exploratory drilling and for general working capital.





·
            During the six months ended June
      30, 2009, $986,000 for 493,000 shares at $2.00 per share and 475,000
      warrants.  The warrants have an exercise price of $3.00 and a term of
      six years. .




Consultants





In the
six months ended June 30, 2010, the following shares were issued to consultants
for services performed:





·
            In January 2010, a consultant was
      issued twenty-five thousand (25,000) shares valued at $34,000 or $1.36 per
      share, for services.





Employees and
directors





During
the six months ended June 30, 2010, the following share grants were issued to
employees:





·
            In January 2010, pursuant to his
      employment agreement, Mr. Larry Martin, our Chief Geologist, was issued a
      total of two thousand five hundred (2,500) of our unregistered common
      shares.  The value of the common shares at the time of issuance
      was $3,400, averaging $1.36 per share.  Shares are valued at the
      closing market price on date of
issue.





·
            In April 2010, pursuant to his
      employment agreement, Mr. Larry Martin, our Chief Geologist, was issued a
      total of two thousand five hundred (2,500) of our unregistered common
      shares.  The value of the common shares at the time of issuance
      was $3,700, averaging $1.48 per share.  Shares are valued at the
      closing market price on date of
issue.





During
2009, the following share grants were issued to employees:





·
            In 2009, pursuant to his
      employment agreement, Mr. Larry Martin, our Chief Geologist, was issued a
      total of fifteen thousand (15,000) of our unregistered common
      shares.  The value of the common shares at the time of issuance
      was $37,250, averaging $2.48 per share.  Shares are valued at the
      closing market price on date of
issue.





·
            In April 2009, pursuant to his
      employment agreement, Dennis Anderson, our Senior Engineer, was issued a
      total of twelve thousand five hundred (12,500) of our unregistered common
      shares.  The value of the common shares at the time of issuance
      was $30,000, averaging $2.40 per share.  Shares are valued at the
      closing market price on date of
issue.




31


Note
14 - Earnings Per Share





Basic
earnings per share is computed by dividing net loss, after deducting preferred
stock dividends accumulated during the period, by the weighted average number of
shares of common stock outstanding. Diluted earnings per share is computed by
dividing net income, after deducting preferred stock dividends accumulated
during the period, by the weighted average number of shares of common stock and
dilutive common stock equivalent shares outstanding.   For the
month period ended June 30, 2010 and June 30, 2009, there were approximately
25.2 million and 9.0 million, respectively, of common stock equivalent shares
excluded from the dilutive earnings per share calculation because they were
anti-dilutive. The following is a reconciliation of the number of shares used in
the basic and diluted computation of net income per share (in
millions):




For the six Months Ended
                    June 30
                    (in Thousands)2010
                  
                  
                  2009Weighted
      average number of common shares outstanding – basic
                  
                  
                  18,775
                  
                  
                  
                  17,383Dilution
      from convertible debt, stock options and warrants
                  
                  
                  25,204
                  
                  
                  
                  8,970Weighted
      average number of common shares outstanding – diluted
                  
                  
                  43,979
                  
                  
                  
                  26,353





Note
15 - Unregistered Sales of Securities





During
the six months ended June 30, 2010, the following shares were issued to
employees and consultants:





·
            In January 2010, pursuant to his
      employment agreement, Mr. Larry Martin, our Chief Geologist, was issued a
      total of two thousand five hundred (2,500) of our unregistered common
      shares.  The value of the common shares at the time of issuance
      was $3,400, averaging $1.36 per share.  Shares are valued at the
      closing market price on date of
issue.





·
            In April 2010, pursuant to his
      employment agreement, Mr. Larry Martin, our Chief Geologist, was issued a
      total of two thousand hundred (2,500) of our unregistered common
      shares.  The value of the common shares at the time of issuance
      was $3,700, averaging $1.48 per share.  Shares are valued at the
      closing market price on date of
issue.





·
            In January 2010, a consultant was
      issued twenty-five thousand (25,000) shares valued at $34,000 or $1.36 per
      share, for services.




Note 16 – Subsequent
Events – Land Purchases and Exploration Licenses





On July
1, 2010, the Company obtained an exclusive 180-day exploration license with
option to purchase four patented lode claims totaling 95 acres known as the
Dayton property.  This property is contiguous with the Company’s
Spring Valley Dondero holdings.  Under the purchase option, the price
for the property is $3,000,000 plus a 3% Net Smelter Return
(NSR).  The Company will receive credit for the full purchase price
through a reduction in the NSR by 75% until such time as the full $3,000,000
purchase price has been credited back.  The purchase price will be
paid through an initial payment of $500,000, with the balance payable in 20
equal, quarterly installments of $125,000, with no interest.





On July
20, 2010, we acquired  seven patented mining claims totaling 48 acres,
surface rights to two additional patented mining claims totaling 15 acres, 12
unpatented lode claims, and 15 acre-feet of water rights, all located in Storey
County, Nevada. The purchase price was $1,025,000, with an initial payment of
$300,000.  We financed the remaining $725,000 with an installment note
bearing 6% interest, requiring 60 monthly payments of $6,178 and a final payment
of then-unpaid principal and interest. The former owners of the parcel will
retain a 1.5% Net Smelter Royalty (NSR) on all future mineral production from
these claims.


32





On July
21, 2010, the Company obtained an exclusive 180-day option to acquire one
patented lode claim and two unpatented lode claims, adjoining and consolidating
the Dayton property as shown on the attached map.   The agreement
allows the Company to acquire these mineral claims for $100,000 plus a 2% NSR at
any time during the option period.





Note
17 – Subsequent Event – Name and Trading Symbol Change





On July
21, 2010, we changed our name from “GoldSpring, Inc.” to “Comstock Mining Inc.,”
by way of a merger with a wholly owned subsidiary Comstock Mining Inc., which
was formed solely for the purpose of changing our name.  Pursuant to
Section 92A.180 of the Nevada Revised Statutes, the merger did not require
stockholder approval.  An OTC Equity Issuer Notification Form was
filed with the Financial Industry Regulatory Authority (“FINRA”) on July 9,
2010, and the name change was approved by FINRA, effective July 21,
2010.  On the effective date, the name changed with the
Over-the-Counter Bulletin Board and the Company’s shares of common stock began
trading under the ticker symbol “LODE.”





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





The
following discussion provides information that we believe is relevant to an
assessment and understanding of the consolidated results of operations and
financial condition of our company. It should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes also included in this
10-Q and our Annual Report on Form 10-K as of and for the fiscal year ending
December 31, 2009.





The
following discussion addresses matters we consider important for an
understanding of our financial condition and results of operations as of and for
the three months ended June 30, 2010, as well as our future
results.





Overview





Comstock
Mining Inc., is a North American precious metals mining company, focused in
Nevada, with extensive, contiguous property in the Comstock Lode District.
 The Company began acquiring properties in the Comstock in
2003.  Since then, the Company has consolidated a substantial potion
of the Comstock Lode District, secured permits, built an infrastructure and
brought the exploration project into test mining production.  We
continue acquiring additional properties in the district, expanding our
footprint and creating opportunities for exploration and mining.  The
goal of our strategic plan is to deliver stockholder value by validating
qualified resources (measured and indicated) and reserves (probable and proven)
of 3,250,000 gold equivalent ounces by 2013, and commencing commercial mining
and processing operations by 2011, with annual production rates of 20,000 gold
equivalent ounces.





The
Lucerne Project is located in Storey County, Nevada, approximately 3 miles south
of Virginia City and 30 miles southeast of Reno, Nevada. Access to the property
is by State Route 342, a paved highway. The Comstock District is located within
the western portion of the Basin and Range Province of Nevada, between Reno and
Carson City. The majority of our activities occur in three major structural
zones: (1) the northeast striking, (2) the east dipping Comstock and Occidental
fault zones and (3) the northwest striking, east dipping Silver City fault
zone.




Because
of the Comstock District’s historic significance during the American Civil War
and its world- class bonanza precious metal grades, the geology is well known
and has been studied in detail by the Company and many independent researchers.
We have amassed an unprecedented library of historical data and detailed surface
mapping. In conjunction with current drilling programs designed for expanding
the known historical data base, we have invested in our understanding of the
Comstock’s broader geological footprint.


33


The
Comstock Mine Project now consists of approximately 5,900 acres of active lode
mining claims in the Comstock Lode Mining District. The acreage is comprised of
890 acres of patented claims (private lands) and 5,000 acres of unpatented
claims, Bureau of Land Management (BLM) administered. The Project includes the
Comstock Mine heap leach processing facility, which will be redesigned and
constructed to accommodate our new production plans. In excess of 700 Reverse
Circulation (RC) holes, drilled by the Company and our predecessors, have
further defined our mine plan at the Lucerne and Billie the Kid open pits
together with those along strike and down- dip. For our exploration and
development campaigns, all drilling, surface and down-hole surveying, hole
abandonment, geologic logging, sampling, and assays were performed to
industry-recognized standards.





We
produced 11,550 ounces of gold and 68,514 ounces of silver from 2004-2006, at
our Comstock Lode test mining operation and existing heap leach processing
facilities.  Our test mining activities were suspended in 2007, and we
began an exploration and drilling program to gather the detailed information to
allow us to restart mining with a high degree of confidence.





Strategic
Plan and Management Reorganization





The Board
approved a strategic plan in April, 2010, designed to restructure and
recapitalize the Company, accelerate mine development and production and
continue exploration.  The principal features of the plan encompass a
recapitalization and balance sheet restructuring (which includes a now completed
reverse stock split, a near complete debt-for-equity exchange, the securing of
certain critical mineral rights and anticipates a new capital raise to fund gold
mine operations, exploration and development) and an operational and management
restructuring.  The goal of the plan is to deliver stockholder value
by validating qualified resources (at least measured and indicated) and reserves
(probable and proven) of 3,250,000 gold equivalent ounces by 2013, and
commencing commercial mining and processing operations by early 2011,
respectively, with annual production rates of 20,000 gold equivalent
ounces.  Mr. De Gasperis, our Chief Executive Officer, will lead
implementation of the plan.




The
completion of the aforementioned steps will allow us to focus our capacity on
raising new equity capital.  In connection therewith, the Board has
agreed to pursue listing of the common shares on an appropriate securities
exchange in due course.  The strategic plan has scheduled the
exploration and development drilling intended to validate mine design and
increased qualified resources and reserves in the latter half of 2010 through
2013, with two intermediate objectives of 1,000,000 gold equivalent ounces and
2,000,000 of gold equivalent ounces with the long term planned objective of
3,250,000 gold equivalent ounces.  The plan has also scheduled the
start of production operations in 2011, initially from using existing heap leach
operating assets, and then scaling to an annual run rate of at least 20,000 gold
equivalent ounces. The commencement of production in 2011 is dependent on the
Company raising sufficient capital as part of its strategic plan.





Our
Team





Overall,
the Company, as part of its restructuring efforts, has reorganized its
management and the professional services firm it cooperates with in an effort to
improve governance, effectiveness and transparency in its
operations.  We believe we have exceptional geological,
geo-statistical, engineering, regulatory, environmental, financial and operating
competencies on our senior team.  In addition, we have strengthened
our system through agreements and relationships with our most critical trading
partners.





In
November, 2009, we retained Moelis & Company to serve as our exclusive
financial advisor.  Moelis & Company is a global investment bank
that provides financial advisory services and capital raising solutions to a
broad client base, through its offices in New York, Boston, Chicago, Los
Angeles, London, and Sydney.  We have access to the most senior
bankers in their metals and mining practice and support from the firm’s
leadership and we believe this relationship improves the likelihood of better
financing our Company on more favorable terms.


34


In
December, 2009, we engaged Behre Dolbear, a mining consulting firm based in
Denver, Colorado, to review our mine model, and to produce a technical report
compliant with the Canadian National Instrument (“NI”) 43-101 standard. The
report was published on May 17, 2010.  We continue working with Behre
Dolbear, in an ongoing strategic relationship that focuses on continuously
expanding our knowledge of our resource base and expanding our qualified
resources and, ultimately, reserves. We anticipate publishing an updated NI
43-101 in early August.





In May,
2010, we retained Kelley Drye and Warren to serve as our legal
advisor.  Kelley Drye and Warren is an international law firm founded
in 1836, providing legal services in over 30 practice areas, including Corporate
Finance and Securities law. We have access to the most senior securities
partners in the firm and believe this relationship supports our recapitalization
efforts and current financing activities and best corporate governance
practices.





Recapitalization





In
December, 2009, we entered into a definitive agreement to obtain $4.5 million in
new debt financing.  This financing was provided through a consortium
led by the Company’s lead stakeholder, who is an accredited
investor.   On June 21, the Company announced a definitive agreement
to increase its December 2009 $4.5 million debt financing to $5.6
million.  The additional $1.1 million was provided through a
consortium, again led by the Company’s lead stakeholder and provides sufficient
funding for the continuation of our operating plan, primarily for completing our
global resource estimate and finalizing our metallurgical testing prerequisite
for finalizing our mine and production plans, while we secure permanent
financing through our planned new equity capital raise.





We are
focused on concluding on the terms of a debt for equity exchange with our
lenders and planning and scheduling the activities for raising new
equity.  The plan contemplates exchanging substantially all of our
existing convertible debt obligations, other debt obligations and related
accrued interest, which total approximately $29.2 million at June 30, 2010, for
equity. The transaction anticipates that the Company will raise new equity
capital in 2010, for funding operations and continued exploration.  In
addition to the aforementioned debt and related obligations, we have
approximately $1.2 million in mortgage indebtedness which is not considered in
the recapitalization and restructuring.


Summary of Principal and InterestAt June 30, 2010Note Descriptions
                                    
                                    Principal
                                    
                                    Unpaid
                                      Interest
                                    
                                    TotalConvertible
      debentures (See Note 8)
                                    
                                    $
                                    20,348,246
                                    
                                    $
                                    4,134,630
                                    
                                    $
                                    24,482,876Other
      debt obligations (See Note 9)
                                    
                                    
                                    3,890,000
                                    
                                    
                                    2,087,564
                                    
                                    
                                    5,977,564Total
      debt and related interest obligations at June 30, 2010
                                    
                                    
                                    24,238,246
                                    
                                    
                                    6,222,194
                                    
                                    
                                    30,460,440Less
      mortgage indebtedness
                                    
                                    
                                    (1,240,000
                                    )
                                    
                                    (17,250
                                    )
                                    
                                    (1,257,250
                                    )Total
      principal and related interest excluding mortgage indebtedness at June 30,
      2010
                                    
                                    $
                                    22,998,246
                                    
                                    $
                                    6,204,944
                                    
                                    $
                                    29,203,190





Total
outstanding principal and interest as of July 31, 2010 was $31,184,498 of
which $29,461,380 was total principal and interest excluding mortgage
indebtedness.


35




There are
also risks involved in the fact that one individual and his affiliates, as of
June 30, 2010, beneficially own in excess of 40% of our voting stock. Pursuant
to financing agreements, this convertible debt holder and his affiliates with a
61 day notice, can waive the 4.9% ownership restriction, allowing them to
convert 100% of their convertible debt and related interest, which totals
$15,726,660 at June 30, 2010, into shares of our common stock. In addition, if
the proposed recapitalization and balance sheet restructuring plan is
implemented, this individual and his affiliates would own a significant
percentage of the Company’s common stock.  This group, if the
ownership restriction is waived and all convertible debt and related interest is
converted into our common stockmay take actions that
could conflict with the interests of the other stockholders including the
election of Company directors and approval of actions generally requiring the
approval of the stockholders of our voting stock, including adopting amendments
to our articles of incorporation and bylaws and approving mergers, certain
acquisitions or sales of all or substantially all of our assets, which could
delay or prevent a third party from acquiring or merging with the Company or
limit the ability of the other remaining stockholders to approve transactions
that they may deem to be in their best interests. The total Winfield Group
outstanding principal and interest as of July 31, 2010 was $20,682,157.
Total outstanding principal and interest as of July 31, 2010 was
$31,184,498 of which $15,896,994 relates to the Winfield Group.





Our cash
resources remain limited. Our continued existence and plans for mining
production depend on our ability to obtain the capital necessary to operate,
through the issuance of additional debt, royalty financing or equity or
equity-linked instruments. If we are unable to raise additional working and/or
permanent capital through outside financing, it is unlikely that our existing
financing will be sufficient for the liquidity necessary for anticipated working
capital requirements associated with existing exploration activities and plans
for restarting production, including capital expenditure requirements, existing
lease obligations and interest payments associated with our
indebtedness.





Furthermore,
it is unlikely that the cash generated, if any, from our internal operations
will suffice as a primary source of the liquidity necessary for anticipated
working capital requirements, capital expenditure requirements and interest
payments associated with our lease obligations and indebtedness. There is no
assurance that the Company’s initiatives to improve its liquidity and financial
position will be successful. Accordingly, there is substantial risk that the
Company will be unable to continue as a going concern. In the event of
insolvency, liquidation, reorganization, dissolution or other winding up of the
Company, the Company’s creditors would be entitled to payment in full out of the
Company’s assets before stockholders would be entitled to any payment, and it is
unlikely that the value of such assets would exceed the claims on such
assets.





Early
2010 Developments





Our
strategic plan calls for additional infill drilling and metallurgical testing
prior to the resumption of mining.  Two drilling programs began late
in the first quarter 2010 and were complete in June.  These drilling
programs were managed by Larry Martin, CPG, our Chief Geologist.





The first
program was a reverse circulation drilling program designed to provide
additional information for a detailed mine design.  It included 51
infill holes in the Lucerne area and the historic Hartford and Justice
areas.  The drilling consisted of two drilling rigs and crews supplied
by George DeLong Construction, Inc., of Winnemucca, Nevada.





The
second drilling program included drilling eight core holes, using a diamond
drilling rig and crews supplied by KB Drilling, of Moundhouse,
Nevada.  The cores are being used for metallurgical testing required
for final design of the processing flow design and for geotechnical testing to
determine final slope stability calculations for the open pit
walls.


The
information from these drill programs are be used in the development of a
detailed mine design for reopening the mine, fine-tune our mineral processing
procedures to maximize gold and silver recovery and updating our global resource
estimates.  We continue to take all steps to resume production and we
anticipate publishing our updated global resource report in August
2010.


36





The
Company is currently preparing an application for a major modification to our
Air Quality Permit and an application for a new Mercury Emissions Permit
scheduled for completion in the second half of 2010, under the direction of
Dennis Anderson, PE, our Senior Engineer. These permits, to be issued by the
Nevada Division of Environmental Protection (NDEP), are required before mining
and processing can begin.





In
mid-2009, the Company was contacted by the United State Environmental Protection
Agency (EPA) regarding the selection of the Company’s Plum Mine to be audited
under the EPA’s Toxic Release Inventory (TRI) program. The Company engaged
Enviroscientists, Inc., to assist it in managing the EPA audit as well as the
Company’s TRI reporting requirements. We have submitted all required reports for
all periods under audit and believe the reporting for these periods are now in
compliance. The audit may determine that the Company was not in compliance with
the TRI requirements and, as a result, the EPA may take action against the
Company, including the imposition of fines and penalties or other enforcement
action, based on the results of the audit.





Additional
activities planned for 2010:





A
drilling program to evaluate what we have designated as the “northern extension”
mineralization has been designed. This additional drilling will begin once the
results from the first program of infill holes have been evaluated. Our
strategic plan also calls for a program of exploration drilling on the 36
exploration targets already identified by our geologic team, throughout our
extensive land holdings in the Comstock Lode district. Our geologic team will
rank the targets so that we are leveraged for maximum success.





Land and
Mineral Right Acquisitions





We will
continue to increase our footprint in the Comstock Lode District through
strategic acquisitions.  We consider the historic Comstock Lode
central to our growth strategy. We work collaboratively with Federal, State, and
local regulatory agencies to ensure that we obtain all remaining permits needed
to resume mining.





On April
2, 2010, we completed the acquisition of 11 patented lode mining claims in
Storey and Lyon counties, which we had been leasing, from Claire Obester, Jim
Obester, Alan Obester, and Julian Smith (“sellers”) for $1,650,000 plus a 1%
royalty.  Pursuant to the purchase agreement, we made initial payments
of $250,000 and we issued a note to the “sellers” for $1,400,000.  The
note bears interest of six percent (6%) per annum. Interest and principal
payments shall be made in quarterly installments of $250,000 with the first
payment due on or before April 1, 2010 and continuing on the same day of each
consecutive quarter, until July 1, 2011, when the then unpaid principal and
accrued interest is due and payable.





On June
2, 2010, we entered into Mineral Exploration and Mining Lease agreement with New
Daney Company, Inc. covering 7 unpatented lode claims.  These claims
are located Lyon County and are contiguous with the company’s Spring Valley
mineral holdings.





On July
1, 2010, we acquired a purchase option to acquire 4 patented lode claims
totaling 95 acres known as the “Dayton.” These mineral claims are contiguous
with our Spring Valley mineral holdings and the property has known historic
mineral resources. The purchase price is $3,000,000 plus a 3% NSR. In addition,
the NSR will be reduced by 75% until the company receives credit through the
reduction of NSR for the $3,000,000 purchase price. The agreement calls for a
$500,000 upfront payment and the seller will finance $2,500,000 with a 0%
interest seller’s note. The note will be payable in 20 equal quarterly
installments of $125,000.


37





On July
20, 2010, we acquired  seven patented mining claims totaling 48 acres,
surface rights to two additional patented mining claims totaling 15 acres, 12
unpatented lode claims, and 15 acre-feet of water rights, all located in Storey
County, Nevada. The purchase price was $1,025,000, with an initial payment of
$300,000.  We financed the remaining $725,000 with an installment note
bearing 6% interest, requiring 60 monthly payments of $6,178 and a final payment
of then-unpaid principal and interest. The former owners of the parcel will
retain a 1.5% NSR on all future mineral production from these
claims.





On August
1, 2010 we purchased an exclusive 180 day option to acquire one patented lode
claim known as the Metropolitan and two unpatented lode claims.  These
claims adjoin the “Dayton” claims where we secured an option to acquire 4
patented lode claims on July 1, 2010.   The agreement allows us
to acquire theses mineral claims for $100,000 plus a 2% net smelter return at
any point during the option period.





We will
continue our program to catalog and digitize our library of historic mining maps
and reports, so that our team can leverage the knowledge accumulated by over 150
years of mining experience in the Comstock Lode.





Comparative
Financial Information





Below we
set forth a summary of comparative financial information for the three and six
months ended June 30, 2010 and 2009.





Comparative
Financial Information





Three
Months Ended June 30, 2010 and June 30, 2009:





Quarter
                  ended
                  June 30, 2010
                
                
                Quarter
                  ended
                  June 30, 2009
                
                
                DifferenceRevenue
                
                $
                —
                
                
                $
                —
                
                
                $
                —Depletion
      and amortization
                
                
                38,820
                
                
                
                37,603
                
                
                
                1,217Reclamation,
      Exploration and Test Mining Expense
                
                
                1,269,929
                
                
                
                642,077
                
                
                
                627,852General
      and Administration
                
                
                596,923
                
                
                
                309,663
                
                
                
                287,260Consulting
      and Professional Service
                
                
                234,543
                
                
                
                75,000
                
                
                
                159,543Financing
      cost
                
                
                82,333
                
                
                
                83,500
                
                
                
                (1,167
                )Derivative
      change in fair value
                
                
                640,021
                
                
                
                418,173
                
                
                
                221,848Other
      – Gain on sale
                
                
                —
                
                
                
                (25,000
                )
                
                
                (25,000
                )Interest
      Expense
                
                
                1,060,930
                
                
                
                821,051
                
                
                
                239,879Net
      Loss
                
                $
                (3,923,499
                )
                
                
                (2,362,067
                )
                
                
                1,561,432





We did
not produce or sell any gold or silver at our Comstock project in Nevada during
the three months ended June 30, 2010 and June 30, 2009.





Reclamation, Exploration
and Test Mining Expenses were $ 627,852 greater for the three months ended June
30, 2010 compared to the three months ended June 30, 2009. The increase in
expenses during 2010 reflects the commencement of our 2010 spring drill campaign
and the suspension of drilling activities in mid first quarter
2009.  We paused our drilling activity in the first quarter 2009 to
allow our team to focus on quantifying the drill assay information from the
December 2007 through January 2009 drill campaign.


38


The
second calendar quarter 2010 General and Administrative expenses increased by
$287,260 from the second calendar quarter 2009.  This increase
reflects the costs associated with the 2010 proxy for the reverse stock-split
and the recognition of severance costs for our former Chief Operating
Officer.





Consulting
and professional expenses for the three month period ended June 30, 2010 were
$234,543 compared to $75,000 for the three month ended June 30, 2009, amounting
to $159,543 quarter over quarter increase.  The increase in consulting
and professional expenses reflects higher legal fees as a result of the 2010
proxy and legal fees associated with the capital and legal
restructuring.





Derivative
change in Fair Value increased in the second calendar quarter 2010 when compared
to the same period in 2009 by $221,848. This negative variance reflects the year
over year fair value calculation change for beneficial features (embedded
derivatives) and detachable instrument (warrants) contained in various notes at
each of the reporting periods.





Interest
expense for the three month period ended June 30, 2010 increased by $239,879
when compared to the same fiscal quarter in 2009. This variance reflects the
issuance of additional interest bearing notes plus $120,439 of debt discount
amortization.





Six
Months Ended June 30, 2010 and June 30, 2009:





Six months
                  ended
                  June 30, 2010
                
                
                Six months
                  ended
                  June 30, 2009
                
                
                DifferenceRevenue
                
                $
                —
                
                
                $
                —
                
                
                $
                —Depletion
      and amortization
                
                
                147,056
                
                
                
                76,469
                
                
                
                70,587Reclamation,
      Exploration and Test Mining Expense
                
                
                1,761,253
                
                
                
                2,092,393
                
                
                
                (331,140
                )General
      and Administration
                
                
                952,347
                
                
                
                692,217
                
                
                
                260,130Consulting
      and Professional Service
                
                
                383,849
                
                
                
                145,406
                
                
                
                238,443Financing
      cost
                
                
                169,247
                
                
                
                83,500
                
                
                
                85,747Derivative
      change in fair value
                
                
                1,518,477
                
                
                
                1,745,035
                
                
                
                (226,558
                )Other
      – Gain on sale
                
                
                (300,000
                )
                
                
                (25,000
                )
                
                
                (275,000
                )Interest
      Expense
                
                
                1,920,577
                
                
                
                1,602,151
                
                
                
                318,426Net
      Loss
                
                $
                (6,552,806
                )
                
                
                (6,412,171
                )
                
                
                140,635





We did
not produce or sell any gold or silver during the two six moth periods shown at
our Comstock project in Nevada.





Reclamation, Exploration
and Test Mining Expenses were $ 331,140 less for the six months ended June 30,
2010 compared to the six months ended June 30, 2009. This variance reflects the
change in drilling activity in 2010 versus 2009.





General
and administrative expenses increased by $260,130 in the second quarter of 2010
from the second quarter 2009.  This increase reflects the costs
associated with the reverse stock-split proxy process and the recognition of
severance costs for our former Chief Operating Officer.





Consulting
and professional expenses for the six month period ended June 30, 2010 were
$383,849 compared to $145,406 for the six month ended June 30, 2009, amounting
to $238,443 quarter over quarter increase.  The increase in consulting
and professional expenses reflects the engagement of Symmetry Advisors for
strategic planning and scheduling plus higher legal fees associated with
affecting the reverse stock-split proxy process and the capital and legal
restructuring.


39


The
Financing costs in the six month period June 30, 2010 were $85,747 higher
compared to the six month period ended June 30, 2009. The increase in 2010
resulted because of the fees associated with financing during 2010





Derivative
change in Fair Value decreased in the six month period ended June 30, 2010 when
compared to the same period in 2009 by $225,558. This variance reflects the year
over year fair value calculation change for beneficial features (embedded
derivatives) and detachable instrument (warrants) contained in various notes at
each of the reporting periods.





In
January 2010, we sold a 0.6% royalty interest in our Obester Property to
Precious Royalties for $550,000. After adjusting our mineral claim value for the
sale, a gain of $300,000 was realized.





Interest
expense for the six month period ended June 30, 2010 increased by $318,426 when
compared to the same six month period in 2009. This variance reflects the
issuance of additional interest bearing notes plus $180,616 of debt discount
amortization.





Liquidity
and Capital Resources





We
recognize that our cash resources are limited. Our continued existence and plans
for mining production depend on our ability to obtain the capital necessary to
operate, through the issuance of additional debt, royalty financing or equity.
During the first six months of 2010, we raised an aggregate of $4,800,000 in
financing.  While this additional funding may meet our immediate
working capital needs, we did not generate revenues or cash flows or obtain
additional or alternative funding that would enable us to continue as a going
concern. We have yet to realize an operating profit at our Company. As disclosed
in the report of our independent registered public accounting firm in our
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2009, our recurring losses and negative cash flow from
operations raise substantial doubt about our ability to continue as a going
concern.





As
of June 30, 2010, the Company was in default of the terms on several
outstanding notes payable with the Winfield Group totaling $14,369,986 of
principal and $5,5,326,543 of interest.  The Winfield Group consists
of John V. Winfield, Sante Fe Financial Corporation, Portsmouth Square and
InterGroup Corporation, Combined, the Winfield Group represent the Company’s
largest creditor and a significant stockholder.  Mr. Winfield is
affiliated with these Companies through a direct controlling interest and/or as
their Chairman of the Board.  Because we are in default, the entire
note balances of the defaulted notes have been recorded as current
liabilities.





The
Winfield Group held various notes and debentures issued by the Company that are
reported in several different liabilities accounts that are in default as of
June 30, 2010.  The notes are as follows:





Debt in Technical Default with Winfield GroupAt June 30, 2010Note Descriptions (Winfield Group)
                    
                    Principal
                    
                    
                    Unpaid
                      Interest
                    
                    
                    Total15%
      Convertible Notes Payable – Investors
                    
                    $
                    687,928
                    
                    
                    $
                    41,852
                    
                    
                    $
                    729,78018%
      Convertible Debentures Payable - Mandatory Redemption
    Payment
                    
                    
                    4,412,058
                    
                    
                    
                    1,328,483
                    
                    
                    
                    5,740,54118%
      Convertible Notes Payable - 2006 – 2007
                    
                    
                    1,620,000
                    
                    
                    
                    1,078,438
                    
                    
                    
                    2,698,43811%
      Convertible Notes Payable - June - November 2008
                    
                    
                    2,500,000
                    
                    
                    
                    580,217
                    
                    
                    
                    3,080,21711%
      Convertible Notes Payable - December 2008
                    
                    
                    500,000
                    
                    
                    
                    96,734
                    
                    
                    
                    596,7349%
      Convertible Notes Payable - May - August 2009
                    
                    
                    1,000,000
                    
                    
                    
                    102,483
                    
                    
                    
                    1,102,4838%
      Convertible Notes Payable - December 2009
                    
                    
                    1,500,000
                    
                    
                    
                    28,023
                    
                    
                    
                    1,528,02317%
      Promissory Note Payable - July 2005
                    
                    
                    1,200,000
                    
                    
                    
                    1,570,088
                    
                    
                    
                    2,770,08818%
      Promissory Note Payable - December 2007 Financing
                    
                    
                    600,000
                    
                    
                    
                    226,183
                    
                    
                    
                    826,18318%
      Promissory Note Payable - January 2008 Financing
                    
                    
                    600,000
                    
                    
                    
                    211,542
                    
                    
                    
                    811,5425%
      Debt Seller Note (Plum Mine)
                    
                    
                    250,000
                    
                    
                    
                    62,500
                    
                    
                    
                    312,500Total
      at June 30, 2010
                    
                    $
                    14,369,986
                    
                    
                    $
                    5,326,543
                    
                    
                    $
                    19,696,529




40




Had the
Winfield Group converted all of its convertible principal and interest
of $15,726,660 into shares of our common stock at June 30, 2010, we would
have been obligated to issue to the Winfield Group 11.7 million shares
representing 38.2% of our then outstanding shares of common stock, resulting in
substantial dilution.  The total Winfield Group’s outstanding
principal and interest as of July 31, 2010 was $20,682,157.





As stated
earlier, the board has approved a restructuring and recapitalization plan that
includes debt for equity exchange and a new capital raise. If we are unable,
however, to raise additional working capital through outside financing, it is
unlikely that we will achieve resumption of mining in
2011.  Furthermore, it is unlikely that the cash generated from our
internal operations will suffice as a primary source of the liquidity necessary
for anticipated working capital requirements, capital expenditure requirements
and interest payments associated with our lease obligations and indebtedness.
There is no assurance that the Company’s initiatives to improve its liquidity
and financial position will be successful. Accordingly, there is substantial
risk that the Company will be unable to continue as a going concern. In the
event of insolvency, liquidation, reorganization, dissolution or other winding
up of the Company, the Company’s creditors would be entitled to payment in full
out of the Company’s assets before stockholders would be entitled to any
payment, and it is unlikely that the value of such assets would exceed the
claims on such assets.





The
recapitalization and restructuring plan contemplates exchanging substantially
all of the Company’s existing convertible debt obligations, other debt
obligations and related accrued interest which total approximately $29.2 million
at June 30, 2010, for equity.  In addition to the aforementioned debt
and related obligations, we have approximately $1.2 million in mortgage
indebtedness which is not considered in the recapitalization and
restructuring.





Summary of Principal and InterestAt June 30, 2010Note Descriptions
                                  
                                  Principal
                                  
                                  
                                  Unpaid
                                    Interest
                                  
                                  TotalConvertible
      debentures (See Note 8)
                                  
                                  $
                                  20,348,246
                                  
                                  
                                  $
                                  4,134,630
                                  
                                  $
                                  24,482,876Other
      debt obligations (See Note 9)
                                  
                                  
                                  3,890,000
                                  
                                  
                                  
                                  2,087,564
                                  
                                  
                                  5,977,564Total
      debt and related interest obligations at June 30, 2010
                                  
                                  
                                  24,238,246
                                  
                                  
                                  
                                  6,222,194
                                  
                                  
                                  30,460,440Less
      mortgage indebtedness
                                  
                                  
                                  (1,240,000
                                  )
                                  
                                  
                                  (17,250
                                  )
                                  
                                  (1,257,250)Total
      principal and related interest excluding mortgage indebtedness at June 30,
      2010
                                  
                                  $
                                  22,998,246
                                  
                                  
                                  $
                                  6,204,944
                                  
                                  $
                                  29,203,190





Total
outstanding principal and interest as of July 31, 2010 was $31,184,498 of
which $29,461,380 was total principal and interest excluding mortgage
indebtedness.





Item 3. Quantitative and Qualitative
Disclosures About Market Risks





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


41





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





ITEM
4. CONTROLS AND PROCEDURES





A. 
Disclosure





Evaluation
of Disclosure Controls and Procedures





As of the
end of the period covered by this Quarterly Report on Form 10-Q, management
performed, with the participation of our Principal Executive Officer and
Principal Financial Officer and our Principal Accounting Officer, an evaluation
of the effectiveness of our disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and
procedures are designed to ensure that information required to be disclosed in
the report we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s forms,
and that such information is accumulated and communicated to our management
including our Principal Executive Officer and Principal Financial Officer and
our Principal Accounting Officer, to allow timely decisions regarding required
disclosures. Based on the evaluation as described above, our internal control
over disclosure controls and procedures as of June 30, 2010 were
effective.





B.
 Internal Control over Financial Reporting





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





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





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





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





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





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





There
have been no changes during the quarter ended June 30, 2010 in our Company's
internal control over financial reporting identified in connection with the
evaluation required by Exchange Act Rules 13a-15(d) and 15d-15(d) that have
material affected, or are reasonably likely to materially affect, our internal
controls over our financial reporting.


42




PART
II - OTHER INFORMATION




Item 1. Legal Proceedings





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





Item
1A.  Risk
Factors





Set forth
below is an update to our risk factors as set forth in our Annual Report on Form
10-K for the year ended December 31, 2009.  For full comprehension of
the risks affecting our Company, you are encouraged to review the risk factors
set forth in our 2009 Annual Report on Form 10-K, which are hereby incorporated
herein in their entirety.





Investing
in our common stock is very speculative and involves a high degree of risk. You
should carefully consider all of the information in this report before making an
investment decision. The following are among the risks we face related to our
business, assets and operations. They are not the only risks we face. Additional
risks and uncertainties not presently known to us or that we currently believe
to be immaterial may also arise. Any of these risks could materially and
adversely affect our business, results of operations and financial condition,
which in turn could materially and adversely affect the trading price of our
common stock. You should not purchase our shares unless you can afford to lose
your entire investment.





Relative
to our cash flows we have substantial indebtedness.





As of
June 30, 2010, we had current indebtedness of $24,238,246 million in addition to
$6,222,194 million of current accrued interest payable. For the six months ended
June 30, 2010, we had a deficit of cash flows from operating activities of
$3,665,351 million. Our substantial indebtedness, and our ability to incur
additional indebtedness, may further negatively affect our cash flow and our
ability to operate our business and react to changes in the economy or our
industry.





Outstanding
convertible securities and warrants may result in substantial
dilution.





At June
30, 2010, we had outstanding 19,002,653 shares of common stock. In addition, we
had outstanding convertible notes and related interest plus various common stock
purchase warrants. At June 30, 2010, these notes, related interest and warrants
were convertible into or exercisable for a total of approximately 25.2 million
additional shares of our common stock, subject to further anti-dilution
provisions.





If
we are not able to obtain financing, it is unlikely that we will be able to
continue as a going concern.





If we are
unable to raise additional working capital through outside financing, it is
unlikely that the cash generated from our internal operations will suffice as a
primary source of the liquidity necessary for anticipated working capital
requirements, capital expenditure requirements and interest payments associated
with our lease obligations and indebtedness. There is no assurance that the
Company’s initiatives to improve its liquidity and financial position will be
successful. Accordingly, there is substantial risk that the Company will be
unable to continue as a going concern. In the event of insolvency, liquidation,
reorganization, dissolution or other winding up of the Company, the Company’s
creditors would be entitled to payment in full out of the Company’s assets
before stockholders would be entitled to any payment, and it is unlikely that
the value of such assets would exceed the claims on such assets.




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





Employees and
directors




During
the three month period ended June 30, 2010, the following shares were issued to
employees and Company directors:




43





·
            In April 2010, pursuant to his
      employment agreement, Mr. Larry Martin, our Chief Geologist, was issued a
      total of two thousand five hundred (2,500) of our unregistered common
      shares.  The value of the common shares at the time of issuance
      was $3,700, averaging $1.48 per share.  Shares are valued at the
      closing market price on date of
issue.





As of
June 30, 2010, Mr. Faber, Chief Accounting Officer, has unpaid wages and
expenses of $116,250.





Item 3. Defaults Upon Senior
Securities





As of June 30, 2010, the Company is in
default of the terms on several outstanding notes payable with the Winfield
Group with principal balance due of $14,369,986 and accrued interest of
$5,326,543. Because we are in default, the entire
note balances of the defaulted notes have been recorded as current
liabilities.


Item 5. Other Information





None.





Item 6. Exhibits and Reports on Form
8-K





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





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




Consolidated
      Balance Sheet as of  June 30, 2010 (Unaudited)
                
                
                4Consolidated
      Statement of Operations for the three-month periods ended June 30, 2010
      and 2009 (Unaudited)
                
                
                6Consolidated
      Statement of Operations for the six-month periods ended June 30, 2010 and
      2009 (Unaudited)
                
                
                7Consolidated
      Statement of Cash Flows for the six-month periods ended June 30, 2010 and
      2009 (Unaudited)
                
                
                8Consolidated
      Statement of Changes in Stockholders’ Deficit for the six-month periods
      ended June 30, 2010 (Unaudited)
                
                
                10Notes
      to Financial Statements
                
                
                11





(2) Exhibits
filed as part of this Report:





Exhibit
                    Number
                  
                  Exhibit31
                  
                  Certifications
      of Principal Executive Officer and Principal Financial Officer pursuant to
      Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities
      Exchange Act of 1934, as amended.32
                  
                  Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002




44




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:
      August 5, 2010
              By:
              /s/ Corrado De GasperisName:
      Corrado De GasperisTitle:  
      Chief Executive Officer (Principal
                Executive
      Officer and Principal Financial
                Officer)Date:  August
      5, 2010
              By:
              /s/ Robert T. FaberName:
      Robert T. FaberTitle:  
      Chief Accounting Officer


45