**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        DC 20549**
 **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 September 30, 2006**
 
 **OR**
 
 **o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 
 **For
        the transition period from         
to**
  **Commission
        File Number 001-32659**
 
 **COLD
        SPRING CAPITAL INC.**
 (Exact
        Name of Registrant as Specified in Its Charter)
 **Delaware**
              
              **75-3192592**(State
                  or Other Jurisdiction of Incorporation or Organization)
              
              (I.R.S.
                  Employer Identification Number)**51
                  Locust Avenue, Suite 302, New Canaan, Connecticut**
              
              **06840**(Address
                  of Principal Executive Offices)
              
              (Zip
                  Code)**(203)
                  972-0888**(Registrant's
                  Telephone Number Including Area
                  Code)
 
 Indicate
        by check mark whether the registrant has: (1) filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
  Yes ý No o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
                  accelerated filer ̈
              Accelerated
                  filer ̈
              Non-accelerated
                  filerý
 
 Indicate
        by check mark whether the Registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 
 Yes ý No o
 
 There
        were 25,000,000 shares of the Company's common stock, par value $0.001,
        outstanding on November 2, 2006.
  
 **COLD
        SPRING CAPITAL INC.**
  TABLE
        OF
        CONTENTS
 
 PART
                  I:
              FINANCIAL
                  INFORMATION
              2Item
                  1.
              Financial
                  Statements.
              2Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations.
              10Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market Risk.
              12Item
                  4.
              Controls
                  and Procedures.
              12PART
                  II:
              OTHER
                  INFORMATION
              13Item
                  1.
              Legal
                  Proceedings.
              13Item
                  1A.
              Risk
                  Factors.
              13Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds.
              23Item
                  3.
              Defaults
                  upon Senior Securities.
              23Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders.
              23Item
                  5.
              Other
                  Information.
              23Item
                  6.
              Exhibits.
              23
   i
 ***FORWARD-LOOKING
        STATEMENTS***
  *This
        Quarterly Report on Form 10-Q includes forward-looking statements within
        the
        meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
        Securities Exchange Act of 1934. These forward-looking statements can be
        identified by the use of forward-looking terminology, including the words
        “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,”
“will,” “potential,” “continue,” or “should,” or, in each case, their negative
        or other variations or comparable terminology. Such statements include, but
        are
        not limited to, any statements relating to our ability to consummate the
        acquisition of Sedona Development Partners, LLC or any other business
        combination and any other statements that are not statements of current or
        historical facts. These statements are based on management's current
        expectations, but actual results may differ materially due to various factors,
        including, but not limited to, our being a development stage company with
        no
        operating history, our being able to consummate the acquisition of Sedona
        Development Partners, LLC or any other transaction, risks associated with
        the
        real estate industry, our dependence on key personnel, some of whom may join
        us
        following our acquisition of Sedona Development Partners, LLC or any other
        transaction, our personnel allocating their time to other businesses and
        potentially having conflicts of interest with our business, the ownership
        of our
        securities being concentrated, and those other risks and uncertainties detailed
        in the Company's filings with the Securities and Exchange
        Commission.*
  *By
        their nature, forward-looking statements involve risks and uncertainties
        because
        they relate to events and depend on circumstances that may or may not occur
        in
        the future. We caution you that forward-looking statements are not guarantees
        of
        future performance and that our actual results of operations, financial
        condition and liquidity, and developments in the industry in which we operate
        may differ materially from those made in or suggested by the forward-looking
        statements contained in this Quarterly Report on Form 10-Q. In addition,
        even if
        our results of operations, financial condition and liquidity, and developments
        in the industry in which we operate are consistent with the forward-looking
        statements contained in this Quarterly Report on Form 10-Q, those results
        or
        developments may not be indicative of results or developments in subsequent
        periods.*
  *These
        forward-looking statements are subject to numerous risks, uncertainties and
        assumptions about us described in our filings with the Securities and Exchange
        Commission. The forward-looking events we discuss in this Quarterly Report
        on
        Form 10-Q speak only as of the date of such statement and might not occur
        in
        light of these risks, uncertainties and assumptions. Except as required by
        applicable law, we undertake no obligation and disclaim any obligation to
        publicly update or revise any forward-looking statements, whether as a result
        of
        new information, future events or otherwise.*
  *Unless
        otherwise provided in this Quarterly Report on Form 10-Q, references to “the
        Company,” “the Registrant,” “we,” “us” and “our” refer to Cold Spring Capital
        Inc.*
  1
 **PART
        I:**  **FINANCIAL
        INFORMATION**
  **Item
        1.**  **Financial
        Statements.**
  **COLD
        SPRING CAPITAL INC.**
 **(A
        Development Stage Company)**
  **CONDENSED
        BALANCE SHEET**
 
  Current
                Assets:
              
              
              **September
                      30, 2006(Unaudited)**
              
              
              **December
                  31,
                  2005**Cash
              
              $
              817,112
              
              $
              2,528,516Investments
                  held in Trust Fund (Note 1)
              
              
              112,589,730
              
              
              110,450,408Prepaid
                  Expenses and other assets
              
              
              151,897
              
              
              223,653Deferred
                  Acquisition Costs
              
              
              152,913
              
              
              —Total
                  Current Assets
              
              $
              113,711,652
              
              $
              113,202,577Deferred
                  Tax Asset
              
              
              1,103,252
              
              
              99,000Total
                  Assets
              
              $
              114,814,904
              
              $
              113,301,577**LIABILITIES
                  & STOCKHOLDERS' EQUITY**Current
                  Liabilities:Accounts
                  Payable and Accrued Expenses
              
              $
              692,778
              
              $
              351,100Income
                  and Capital Taxes Payable
              
              
              240,555
              
              
              301,277Deferred
                  Underwriting Fees
              
              
              2,400,000
              
              
              2,400,000Deferred
                  Interest
              
              
              552,470
              
              
              124,818Total
                  Liabilities
              
              
              3,885,803
              
              
              3,177,195Common
                  Stock, subject to possible conversion 3,998,000 shares at conversion
                  value
              
              
              21,474,457
              
              
              21,474,457Commitment
                  and Contingencies (Notes 1, 3 and 4)Stockholders'
                  Equity (Notes 1 and 2):Preferred
                  stock, $0.001 par value, 5,000,000 shares authorized, none issued
                  and
                  outstanding
              
              
              —
              
              
              —Common
                  stock, $0.001 par value, 85,000,000 shares authorized, 25,000,000
                  issued
                  and outstanding (including 3,998,000 subject to possible
                  conversion)
              
              
              25,000
              
              
              25,000Additional
                  paid-in capital
              
              
              88,492,567
              
              
              88,492,567Earnings
                  accumulated during the development stage
              
              
              937,077
              
              
              132,358Total
                  stockholders' equity
              
              
              89,454,644
              
              
              88,649,925Total
                  Liabilities and Stockholders' Equity
              
              $
              114,814,904
              
              $
              113,301,577
 
 *The
        accompanying notes should be read in conjunction with the condensed financial
        statements.*
  2
 **COLD
        SPRING CAPITAL INC.**
 **(A
        Development Stage Company)**
 
 **CONDENSED
        STATEMENT OF INCOME**
 **(Unaudited)**
  **Three
                  months**
                **ended**
                **September
                  30, 2006**
              
              **Nine
                  months**
                **ended**
                **September
                  30, 2006**
              
              **Three
                  months**
                **ended**
                **September
                  30, 2005**
              
              **Amount
                  from Inception (May 26, 2005) to September 30,
                  2005**
              
              **Cumulative**
                **amount
                  from**
                **inception**
                **(May
                  26, 2005)**
                **to
                  September 30, 2006**Interest
                  Income
              
              $
              1,365,194
              
              $
              3,344,746
              
              $
              —
              
              $
              —
              
              $
              3,845,917General
                  & Administrative Expense
              
              
              1,227,435
              
              
              2,041,106
              
              
              12,384
              
              
              16,479
              
              
              2,317,919Net
                  Income before Provision for Income Taxes
              
              
              137,759
              
              
              1,303,640
              
              
              (12,384
              )
              
              (16,479
              )
              
              1,527,998Provision
                  for Income Taxes
              
              
              (35,121
              )
              
              (498,921
              )
              
              —
              
              
              —
              
              
              (590,921
              )Net
                  Income
              
              $
              102,638
              
              $
              804,719
              
              $
              (12,384
              )
              
              (16,479
              )
              $
              937,077Weighted
                  Average Number of Shares Outstanding - Basic and Diluted
              
              
              25,000,000
              
              
              25,000,000
              
              
              5,000,000
              
              
              5,000,000
              
              
              17,232,758Earnings
                  Per Share - Basic and Diluted
              
              $
              —
              
              $
              0.03
              
              $
              —
              
              $
              —
              
              $
              0.05
 
 *The
        accompanying notes should be read in conjunction with the condensed financial
        statements.*
  3
  **COLD
        SPRING CAPITAL INC.**
 **(A
        Development Stage Company)**
 
 **CONDENSED
        STATEMENT OF STOCKHOLDERS' EQUITY**
 **Cumulative
        Amounts from Inception (May 26, 2005) to September 30,
        2006**
 
 
 **Common
                  Stock**
              
              **Additional**
                **Paid-In**
              
              **Earnings
                  Accumulated During the Development**
              
              **Total**
                **Stockholders****Shares**
              
              **Amount**
              
              **Capital**
              
              **Stage**
              
              **Equity**Stock
                  issued June 10, 2005 for $0.005 per share
              
              
              5,000,000
              
              $
              5,000
              
              $
              20,000
              
              
              —
              
              $
              25,000Sale
                  of 20,000,000 units, net of underwriters discount and offering
                  expenses
                  (including 3,998,000 shares subject to possible
                  conversion)
              
              
              20,000,000
              
              
              20,000
              
              
              109,946,924
              
              
              —
              
              
              109,966,924Proceeds
                  subject to possible conversion of 3,998,000 shares
              
              
              —
              
              
              —
              
              
              (21,474,457
              )
              
              —
              
              
              (21,474,457
              )Proceeds
                  from issuance of option
              
              
              —
              
              
              —
              
              
              100
              
              
              —
              
              
              100Net
                  Income for period
              
              
              —
              
              
              —
              
              
              —
              
              $
              132,358
              
              
              132,358Balance
                  as of December 31, 2005
              
              
              25,000,000
              
              
              25,000
              
              
              88,492,567
              
              
              132,358
              
              
              88,649,925Unaudited:Net
                  income for the nine months ended September 30, 2006
              
              
              —
              
              
              —
              
              
              —
              
              
              804,719
              
              
              804,719Balance
                  as of September 30, 2006
              
              
              25,000,000
              
              $
              25,000
              
              $
              88,492,567
              
              $
              937,077
              
              $
              89,454,644
   The
        accompanying notes should be read in
        conjunction with the condensed financial statements.
  4
 **COLD
        SPRING CAPITAL INC.**
 **(A
        Development Stage Company)**
 
 **CONDENSED
        STATEMENT OF CASH FLOWS**
 **(Unaudited)**
  **Amount
                  from**
              
              
              **Cumulative
                  amount****inception**
              
              
              **from
                  inception****Nine
                  months
                  Ended**
              
              
              **(May
                  26, 2005)
                  to**
              
              
              **(May
                  26, 2005)
                  to****September
                    30, 2006**
              
              
              **September
                  30, 2005**
              
              
              **September
                  30, 2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Income (Loss)
              
              $
              804,719
              
              $
              (16,479
              )
              $
              937,077Adjustments
                  to reconcile net income to net cash used in operating
                  activities:Increase
                  in value of investments held in trust
              
              
              (2,139,322
              )
              
              —
              
              
              (2,763,730
              )Increase
                  in deferred income tax benefit
              
              
              (1,004,251
              )
              
              —
              
              
              (1,103,251
              )Changes
                  in operating assets and liabilities(Increase)
                  in deferred acquisition costs
              
              
              (152,913
              )
              
              —
              
              
              (152,913
              )Increase
                  in accrued expenses
              
              
              600,071
              
              
              2,175
              
              
              692,777(Increase)
                  in deferred offering costs
              
              
              —
              
              
              —
              
              
              —(Decrease)
                  Increase in income and capital taxes payable
              
              
              (60,722
              )
              
              —
              
              
              240,555(Increase)
                  Decrease in prepaid expense and other assets
              
              
              71,756
              
              
              —
              
              
              (151,897
              )Increase
                  in deferred interest
              
              
              427,652
              
              
              —
              
              
              552,470Net
                  cash used in operating activities
              
              
              (1,453,010
              )
              
              (14,304
              )
              
              (1,748,912
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Increase
                  in investments held in trust fund
              
              
              —
              
              
              —
              
              
              (109,826,000
              )Net
                  cash used in investing activities
              
              
              —
              
              
              —
              
              
              (109,826,000
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Gross
                  proceeds from public offering
              
              
              —
              
              
              —
              
              
              120,000,000Proceeds
                  from sale of stock
              
              
              —
              
              
              25,000
              
              
              25,000Proceeds
                  from issuance of option
              
              
              —
              
              
              —
              
              
              100Proceeds
                  from advances to stockholders
              
              
              —
              
              
              100,000
              
              
              100,000Payments
                  of advances from stockholders
              
              
              —
              
              
              —
              
              
              (100,000
              )Payment
                  of costs of public offering
              
              
              (258,394
              )
              
              (110,606
              )
              
              (7,633,076
              )Net
                  cash (used in) provided by financing activities
              
              
              (258,394
              )
              
              14,394
              
              
              112,392,024Net
                  (decrease) increase change in cash
              
              
              (1,711,404
              )
              
              90
              
              
              817,112Cash
                  at beginning of period
              
              
              2,528,516
              
              
              —
              
              
              —Cash
                  at end of period
              
              $
              817,112
              
              $
              90
              
              $
              817,112**SUPPLEMENTAL
                  SCHEDULE OF NON-CASH FINANCING ACTIVITIES**Accrual
                  of deferred underwriting fees
              
              $
              —
              
              
              —
              
              $
              2,400,000Accrual
                  of deferred offering costs
              
              
              —
              
              
              248,000
              
              
              —
  *The
        accompanying notes should be read in conjunction with the condensed financial
        statements.*
  
 5
 **COLD
        SPRING CAPITAL INC.**
 **(A
        Development Stage Company)**
 
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **September
        30, 2006**
  **NOTE
        1--ORGANIZATION, BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING
        POLICIES**
 
 Cold
        Spring Capital Inc. (the “Company”), formerly Cold Spring Capital Incorporated,
        was incorporated in Delaware on May 26, 2005 as a blank check company whose
        objective is to acquire an operating business, portfolio of financial assets
        (including commercial, consumer, and/or mortgage loans), or real estate assets
        that are expected to generate a portfolio of financial assets (each a “Business
        Combination.”) See “Recent Developments” below.  The financial information
        in this report has not been audited, but in the opinion of management, all
        adjustments (consisting only of normal recurring adjustments) considered
        necessary to present fairly such information have been included.  See the
        Company's Annual Report on Form 10-K for the period ended December 31, 2005
        for
        additional disclosures relating to the Company's condensed financial
        statements. The December 31, 2005 balance sheet has been derived from the
        audited financial statements.
 
 The
        registration statement for the initial public offering (the “Offering”) was
        declared effective on November 10, 2005.  The Company consummated the
        Offering on November 16, 2005, and received net proceeds of approximately
        $109,967,000.  The Company's management has broad discretion with respect
        to the specific application of the net proceeds of the Offering, although
        substantially all of the net proceeds of the Offering are intended to be
        generally applied toward consummating a Business Combination (excluding the
        amount held in the trust account representing a portion of the fees of the
        underwriters). Furthermore, there is no assurance that the Company will be
        able
        to successfully effect the Business Combination contemplated by the transaction
        described under the heading “Recent Developments.” An amount of $109,826,000 of
        the net proceeds (including $2,400,000 of underwriters fees which have been
        deferred by the underwriters as described in Note 2), was placed in a trust
        account (“Trust Account”) and invested in government securities until the
        earlier of (i) the consummation of a Business Combination and
        (ii) liquidation of the Company. The securities in the Trust Account have
        been accounted for as trading securities and have been recorded at their
        market
        value of $112,589,730 at September 30, 2006. The increase in market value,
        exclusive of the deferred interest described below, has been included in
        interest income in the accompanying statement of income. The remaining net
        proceeds (not held in the Trust Account) may be used to pay for business,
        legal
        and accounting due diligence on prospective acquisitions and continuing general
        and administrative expenses. The Company will submit the transaction described
        in “Recent Developments” below for stockholder approval. In the event that
        stockholders owning 20% or more of the shares sold in the Offering vote against
        the Business Combination and exercise their conversion rights described below,
        the Business Combination will not be consummated.  All of the Company's
        stockholders prior to the Offering, including all of the officers and directors
        of the Company (“Initial Stockholders”), have agreed to vote their founding
        shares of common stock in accordance with the vote of the majority in interest
        of all other stockholders of the Company (“Public Stockholders”) with respect to
        any Business Combination.  After consummation of a Business Combination,
        these voting safeguards will no longer be applicable.
  With
        respect to a Business Combination which is approved and consummated, any
        Public
        Stockholder who voted against the Business Combination may demand that the
        Company convert his or her shares. The per share conversion price will equal
        the
        amount in the Trust Account (excluding the amount held in the Trust Account
        representing a portion of the fees of the underwriters), calculated as of
        two
        business days prior to the consummation of the proposed Business Combination,
        divided by the number of shares of common stock held by Public Stockholders
        at
        the consummation of the Offering. Accordingly, Public Stockholders holding
        19.99% of the aggregate number of shares owned by all Public Stockholders
        may
        seek conversion of their shares in the event of a Business Combination. Such
        Public Stockholders are entitled to receive their per share interest in the
        Trust Account (excluding the amount held in the trust account representing
        a
        portion of the fees of the underwriters) computed without regard to the shares
        held by Initial Stockholders. Accordingly, a portion of the net proceeds
        from
        the Offering (19.99% of the amount held in the Trust Account) has been
        classified as common stock subject to possible conversion and 19.99% of the
        interest earned on the Trust Account has been classified as deferred interest
        in
        the accompanying September 30, 2006 balance sheet.
 
 On
        October 17, 2005, the Company amended its Certificate of Incorporation to
        provide for mandatory liquidation of the Company in the event that the Company
        does not consummate a Business Combination within 12 months from the date
        of the
        consummation of the Offering (November 16, 2006), or 18 months from the
        consummation of the Offering (May 16, 2007) if certain extension criteria
        have
        been satisfied.  There is no assurance that the Company will be able to
        successfully effect the Business Combination described below during this
        period. This factor raises substantial doubt about the Company's ability
        to
        continue as a going concern. The accompanying financial statements are prepared
        assuming the Company will continue as a going concern. The financial statements
        do not include any adjustments that might result from the outcome of this
        uncertainty. In the event of liquidation, it is likely that the per share
        value
        of the residual assets remaining available for distribution (including Trust
        Account assets) will be less than the initial public offering price per share
        in
        the Offering (assuming no value is attributed to the Warrants contained in
        the
        Units sold in the Offering discussed in Note 2). The amendment to the Company's
        Certificate of Incorporation also increased the number of common shares
        authorized to 85,000,000, and authorized 5,000,000 shares of preferred
        stock.
  6
 Immediately
        following the amendment of the Company's Certificate of Incorporation, the
        Company effected a 25,000-for-1 split of the outstanding common stock, in
        the
        form of a stock dividend.  The financial statements were retroactively
        adjusted for the aforementioned amendment and stock dividend.
  Basic
        net
        income per share is computed by dividing net income by the weighted average
        number of common shares outstanding during the period. Diluted net income
        per
        share reflects the additional dilution for all potentially dilutive securities
        such as stock, warrants and options. The effect of the 40,000,000 outstanding
        warrants, issued in connection with the initial public offering described
        in
        Note 2, has not been considered in the diluted net income per share since
        the
        warrants are contingently exercisable. The effect of the 1,000,000 units
        included in the underwriters purchase option, as described in Note 2, along
        with
        the warrants underlying such units, has not been considered in the diluted
        earnings per share calculation, since the market price of the stock was less
        than the exercise price during the period.
  In
          June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
          Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an
          interpretation of FASB Statement No. 109 (“FIN 48”), which provides
          criteria for the recognition, measurement, presentation and disclosure
          of
          uncertain tax positions. A tax benefit from an uncertain position may be
          recognized only if it is “more likely than not” that the position is sustainable
          based on its technical merits. The provisions of FIN 48 are effective for
          fiscal
          years beginning after December 15, 2006. The Company does not expect FIN 48
          will have a material effect on its consolidated financial condition or
          results
          of operations.
 
 Management
        does not believe that any other recently issued, but not yet effective,
        accounting standards if currently adopted would have a material effect on
        the
        accompanying financial statements.
 
 **Recent
        Developments**
 
 On
        November 3, 2006, we executed a Securities Purchase Agreement with Sedona
        Development Partners, LLC (“Sedona”), Seven Canyons Investors, L.L.C. (“Seven
        Canyons”), David V. Cavan and Cavan Management Services, L.L.C., pursuant to
        which we will purchase all the outstanding equity interests of Sedona (the
        “ Sedona Acquisition”). Sedona is headquartered in Scottsdale, Arizona and owns and
        operates The Club at Seven Canyons, a private residence club, located in
        Sedona,
        Arizona.
 
 Under
        the
        Securities Purchase Agreement, Seven Canyons, the owner of Sedona, will sell
        its
        equity interests for approximately $132.1 million, consisting of $82.1 million
        in cash, a three year $5 million subordinated 8% promissory note, and a four
        year $45 million subordinated 8% note which is convertible into 7 million
        shares
        of Cold Spring common stock. The convertible note mandatorily converts into
        7
        million shares of common stock if the average daily closing price of Cold
        Spring’s common stock equals or exceeds $6.43 per share during any period of 20
        consecutive trading days after the first anniversary of the closing. In
        addition, during the 30 day period following the one year anniversary of
        the
        closing, the holder of the note can elect to convert the note into 7 million
        shares of common stock regardless of the trading price. No interest shall
        be
        paid on the convertible note until the fifteenth month following the closing
        of
        the Sedona Acquisition and no accrued but unpaid interest will be paid upon
        a
        conversion, and such interest shall be deemed waived.
  In
        addition, Cold
        Spring will assume all of Sedona’s outstanding debt at
        closing.
 
 Cavan
        Management Services, L.L.C., an entity controlled by Mr. Cavan which is not
        being acquired as part of the transaction, will continue to oversee operations
        and development of the Seven Canyons project under a 10 year management
        agreement.
 
 The Sedona Acquisition is subject to, among other things, the filing of definitive proxy
        materials with the SEC and approval of the Sedona Acquisition by the Company’s stockholders. Additionally, the closing is subject
        to not more than 19.99% of Cold Spring’s shareholders voting their shares
        against the transaction and electing to convert their Cold Spring shares
        into
        cash. There can be no assurance that the Sedona Acquisition will be consummated. For additional information on the Sedona Acquisition, please see our Current Report on Form 8-K filed with the SEC
        on
        November 9, 2006.
  Richard
        A. Stratton, Cold Spring's Chairman of the
        Board, Chief Executive Officer and Secretary, is affilliated with two companies
        that have made loans to Sedona. In May 2005, Resort Finance LLC ("RFL")
        entered into a construction loan and security agreement, providing for the
        lending of up to $30 million to Sedona. As of October 31, 2006, $19,346,137.50
        in aggregate principal amount was outstanding under the loan agreement. The
        loan
        is repaid as Sedona sells property based on negotiated release prices and
        matures on May 20, 2008. Mr. Stratton is the controlling stockholder and
        chief
        executive officer of Resort Finance Corporation, which owns a 40% interest
        in
        RFL.
  **NOTE
        2--INITIAL PUBLIC OFFERING**
  On
        November 16, 2005, the Company sold 20,000,000 units (“Units”) in the
        Offering. In addition, the Company granted the underwriters (the “Underwriters”)
        of the Offering an option (the “Over-Allotment Option”), exercisable not later
        than 30 days after the sale of the Units, to purchase up to 3,000,000 additional
        Units to cover over-allotments.  The Over-Allotment Option expired on
        December 16, 2005 without being exercised. Each Unit consists of one share
        of
        the Company's common stock, $0.001 par value, and two Redeemable Common Stock
        Purchase Warrants (“Warrants”). Each Warrant entitles the holder to purchase
        from the Company one share of common stock at an exercise price of $5.00
        commencing the later of the completion of a Business Combination with a target
        business and on November 11, 2006 and expiring on November 11, 2009.
        The Warrants will be redeemable at a price of $0.01 per Warrant upon 30 days'
        notice after the Warrants become exercisable, only in the event that the
        last
        sale price of the common stock is at least $8.50 per share for any 20 trading
        days within a 30-trading day period ending on the third day prior to the
        date on
        which notice of redemption is given.
  7
 The
        Underwriters of the Offering were paid fees equal to 7.5% of the gross proceeds;
        the Underwriters have agreed to defer $2,400,000 (the “Deferred Fees”) of their
        underwriting fees until the consummation of a Business Combination.  Upon
        the consummation of a Business Combination, the Company will pay such Deferred
        Fees, equal to 2.0% of the gross proceeds of the Offering, or approximately
        $0.12 per unit, out of the gross proceeds of the Offering held in the Trust
        Account at Morgan Stanley maintained by Continental Stock Transfer &
Trust Company, acting as trustee. The Underwriters will not be entitled to
        any
        interest accrued on the Deferred Fees. The Underwriters have agreed to forfeit
        any rights to, or claims against, such proceeds if the Company does not
        successfully complete a Business Combination. The Company issued to the lead
        underwriter for $100, as additional compensation, an option (the “UPO”) to
        purchase up to a total of 1,000,000 Units. The Units issuable upon exercise
        of
        the UPO will be identical to those offered in the Offering, except that the
        warrants included in the UPO will have an exercise price of $6.25 per share
        (125% of the price of the warrants to be sold in the Offering). The UPO will
        be
        exercisable by the lead underwriter at $7.50 per unit (125% of the price
        of the
        units to be sold in the Offering) upon the later of the consummation of the
        Business Combination or November 16, 2006.  The UPO will expire
        November 16, 2010.  The sale of the UPO has been accounted for as an
        equity transaction. Accordingly, there is no net impact on the Company's
        financial position or results of operations, except for the recording of
        the
        $100 proceeds from the sale. The Company has determined, based upon a
        Black-Scholes model, that the fair value of the option on the date of
        sale was approximately $1.6 million using an expected life of five years,
        volatility of 31.6% and a risk-free interest rate of 4.19%. The Company has
        no
        trading history, and as a result it is not possible to value the UPO based
        on
        historical trades. In order to estimate the value of the UPO, the Company
        considered a basket of U.S. finance companies. The median volatility of the
        representative companies was calculated to be 30.7%, and the average volatility
        was calculated to be 31.6%. Management believes that this volatility is a
        reasonable benchmark to use in estimating the value of the UPO. The actual
        volatility of the UPO will depend on many factors which cannot be precisely
        determined.
 
 Under
        an
        agreement with the lead underwriters and in accordance with guidelines specified
        by Rule 10b5-1 under the Securities Act of 1934, Richard A. Stratton and
        Joseph
        S. Weingarten, the Company's founding stockholders, purchased 4,875,228 Warrants
        for an aggregate purchase price of $2,100,000, or approximately $0.43 per
        Warrant, in the open market.  A broker-dealer who did not participate in
        the Offering made the purchases of the Warrants on behalf of
        Messrs. Stratton and Weingarten, pursuant to an irrevocable
        order.
  **NOTE
        3--COMMITMENT**
  The
        Company utilizes certain administrative, technology and secretarial services,
        as
        well as certain limited office space provided by an affiliate of one of the
        Initial Stockholders. Such affiliate has agreed that, until the acquisition
        of a
        target business by the Company, it will make such services available to the
        Company, as may be required by the Company from time to time. The Company
        has
        agreed to pay such affiliate $7,500 per month for such services commencing
        on
        the effective date of the Offering.  The Company's statement of income
        includes $22,500, $67,500 and $78,750, respectively, for the three months
        ended
        September 30, 2006, for the nine months ended September 30, 2006 and for
        the
        cumulative amount for the period from inception (May 26, 2005) to September
        30,
        2006, relating to this agreement.
  Pursuant
        to letter agreements with the Company, the Company's founding stockholders
        have
        waived their right to receive distributions with respect to the founding
        shares
        upon the Company's liquidation.
  The
        founding stockholders will be entitled to registration rights with respect
        to
        their initial 5,000,000 shares of common stock pursuant to an agreement signed
        in connection with the Offering.  The holders of the majority of these
        shares are entitled to make up to two demands that the Company register these
        shares at any time after the date on which these shares of common stock are
        released from escrow.  In addition, the founding stockholders have certain
“piggy-back” registration rights on registration statements filed subsequent to
        the date on which these shares of common stock are released from
        escrow.
  8
 **NOTE
        4--CONTINGENCIES**
  The
        Company had originally considered using the firm of Ferris, Baker
        Watts, Inc. as lead underwriter of the Offering. The Company never reached
        or entered into any agreement with Ferris, Baker Watts, and the Company
        subsequently decided, for market and other reasons, to use Deutsche Bank
        Securities Inc. as lead underwriter. On October 20, 2005, Ferris, Baker
        Watts filed a complaint against the Company entitled *Ferris, Baker Watts, Inc. v. Cold Spring Capital Inc.* in the
        Circuit Court for Baltimore City, Maryland. The complaint alleges breach
        of
        express contract, breach of implied-in-fact contract, detrimental reliance
        or
        promissory estoppel, and unjust enrichment arising out of the Company's alleged
        refusal to pay Ferris, Baker Watts for alleged financial and investment banking
        services. The complaint seeks damages of $10.6 million, as well as attorneys'
        fees, court costs, prejudgment interest and any other relief that may be
        deemed
        appropriate by the court. The complaint alleges that the claims run against
        the
        proceeds raised in the Offering, including those held in the trust account.
        The
        Company believes the claims in the complaint to be wholly without merit,
        and
        intends to defend against those claims vigorously. On October 26, 2005, the
        Company filed an answer and counterclaim in the Circuit Court for Baltimore
        City, Maryland denying the claims and alleging tortious interference with
        economic relations. On June 30, 2006, Ferris, Baker Watts, Inc. filed an
        amended
        complaint adding Deutsche Bank Securities Inc. to the lawsuit and alleging
        tortious interference with a contract by Deutsche Bank Securities Inc. On
        July
        17, 2006, the Company filed an answer to the amended complaint denying the
        claims and alleging tortious interference with economic relations. On August
        17,
        2006, Deutsche Bank Securities Inc. filed a motion to dismiss Ferris, Baker
        Watts, Inc.’s amended complaint and denying the claims. On
        September 1, 2006, Ferris, Baker Watts, Inc. filed an opposition to Deutsche
        Bank Securities Inc.'s motion to dismiss. The
        case
        has been assigned to the Business and Technology Case Management Program
        of the
        Circuit Court for Baltimore City, Maryland. Discovery in this case is ongoing.
        No assurances can be given, however, that the Company will ultimately prevail
        in
        this matter or that an adverse judgment would not materially adversely affect
        the Company's financial condition or results of operations. It is possible
        that
        the outcome of litigation may result in a material liability. However, the
        potential range of loss resulting from an adverse outcome of litigation cannot
        currently be estimated. Messrs. Stratton and Weingarten have agreed,
        severally, one half each, to be personally liable to ensure that the proceeds
        in
        the Trust Account are not reduced by any claims in this matter and that the
        Company's working capital is not impacted by any such claims in excess of
        $300,000. **
  9
 **Item
        2.**  **Management's
        Discussion and Analysis of Financial Condition and Results of
        Operations.**
  The
        following discussion should be read in conjunction with our financial statements
        and notes thereto contained in this Quarterly Report on Form 10-Q and the
        Company's audited financial statements and notes thereto for the period from
        inception (May 26, 2005) to December 31, 2005 included in the Company's Annual
        Report on Form 10-K for the fiscal year ended December 31, 2005 filed with
        the
        Securities and Exchange Commission (“SEC”) on March 31, 2006.
 
 We
        were
        formed on May 26, 2005 to serve as a vehicle to acquire, through a merger,
        capital stock exchange, asset acquisition or other similar business combination,
        one or more operating businesses, portfolios of financial assets or real
        estate
        assets that we expect will generate financial assets. Our first business
        combination, portfolio acquisition or real estate acquisition, or series
        of such
        transactions which close simultaneously (the “initial transaction”), must have a
        fair market value of at least 80% of our net assets (excluding the amount
        held
        in the trust account representing a portion of the underwriters' discount)
        at
        the time of such transaction(s). We consummated our initial public offering
        on
        November 16, 2005. We have neither engaged in any operations nor generated
        any
        revenues nor incurred any debt or expenses during the period ended September
        30,
        2006, other than in connection with our initial public offering and, thereafter,
        certain minor legal and other expenses related to pursuing acquisitions of
        targets and defending litigation. Our entire activity since inception has
        been
        to prepare for and consummate our initial public offering and to identify
        and
        investigate targets for an initial transaction.
 
 **Recent
        Developments**
 
 On
        November 3, 2006, we executed a Securities Purchase Agreement with Sedona
        Development Partners, LLC (“Sedona”), Seven Canyons Investors, L.L.C. (“Seven
        Canyons”), David V. Cavan and Cavan Management Services, L.L.C., pursuant to
        which we will purchase all the outstanding equity interests of Sedona (the
        “Sedona Acquisition”). Sedona is headquartered in Scottsdale, Arizona and owns
        and operates The Club at Seven Canyons, a private residence club, located
        in
        Sedona, Arizona.
 
 Under
        the
        Securities Purchase Agreement, Seven Canyons, the owner of Sedona, will sell
        its
        equity interests for approximately $132.1 million, consisting of $82.1 million
        in cash, a three year $5 million subordinated 8% promissory note, and a four
        year $45 million subordinated 8% note which is convertible into 7 million
        shares
        of Cold Spring common stock. The convertible note mandatorily converts into
        7
        million shares of common stock if the average daily closing price of Cold
        Spring’s common stock equals or exceeds $6.43 per share during any period of 20
        consecutive trading days after the first anniversary of the closing. In
        addition, during the 30 day period following the one year anniversary of
        the
        closing, the holder of the note can elect to convert the note into 7 million
        shares of common stock regardless of the trading price. No interest shall
        be
        paid on the convertible note until the fifteenth month following the closing
        of
        the Sedona Acquisition and no accrued but unpaid interest will be paid upon
        a
        conversion, and such interest shall be deemed waived.
  In
        addition, Cold Spring will assume all of Sedona’s outstanding debt at
        closing.
 
 Cavan
        Management Services, L.L.C., an entity controlled by Mr. Cavan which is not
        being acquired as part of the transaction, will continue to oversee operations
        and development of the Seven Canyons project under a 10 year management
        agreement.
 
 The
        Sedona Acquisition is subject to, among other things, the filing of definitive
        proxy materials with the SEC and approval of the Sedona Acquisition by the
        Company’s stockholders. Additionally, the closing is subject to not more than
        19.99% of Cold Spring’s shareholders voting their shares against the transaction
        and electing to convert their Cold Spring shares into cash. There can be
        no
        assurance that the Sedona Acquisition will be consummated. For additional
        information on the Sedona Acquisition, please see our Current Report on Form
        8-K
        filed with the SEC on November 9, 2006.
  Richard
        A. Stratton, Cold Spring's Chairman of the
        Board, Chief Executive Officer and Secretary, is affilliated with two companies
        that have made loans to Sedona. In May 2005, Resort Finance LLC ("RFL")
        entered into a construction loan and security agreement, providing for the
        lending of up to $30 million to Sedona. As of October 31, 2006, $19,346,137.50
        in aggregate principal amount was outstanding under the loan agreement. The
        loan
        is repaid as Sedona sells property based on negotiated release prices and
        matures on May 20, 2008. Mr. Stratton is the controlling stockholder and
        chief
        executive officer of Resort Finance Corporation, which owns a 40% interest
        in
        RFL.
  The
        Company is not presently engaged in, and will not engage in, any substantive
        commercial business until it consummates an initial transaction. We intend
        to
        utilize cash derived from the proceeds of our initial public offering, notes
        and
        convertible notes, in effecting our initial transaction, as described above.
 
 **Results
        of Operations**
 
 Net
        income for the three months ended September 30, 2006 was $102,638 which
        consisted of $1,365,194 in interest income partially offset by $35,121 in
        income
        taxes and $1,227,435 in expenses consisting of $42,811 for D&O and other
        insurance, $1,015,433 for legal and accounting fees unrelated to our initial
        public offering, $31,822 for travel expenditures, $15,294 for Delaware franchise
        taxes, $751 for printing, supplies and phone expenses, $87,000 related to
        due
        diligence expenses paid to third parties, $22,500 paid to Full Circle LLC,
        an
        affiliate of Richard A. Stratton, our Chief Executive Officer and Chairman
        of
        the Board, through September 30, 2006 for our office space and other general
        and
        administrative services and $11,824 for other expenses. The trustee of the
        trust
        account will pay any taxes resulting from interest accrued on the funds held
        in
        the trust account out of the funds held in the trust account.
 
 Net
        income for the nine months ended September 30, 2006 was $804,719 which consisted
        of $3,344,746 in interest income partially offset by $498,921 in income taxes
        and $2,041,106 in expenses consisting of $128,464 for D&O and other
        insurance, $1,521,652 for legal and accounting fees unrelated to our initial
        public offering, $111,325 for travel expenditures, $71,384 for Delaware
        franchise taxes, $7,537 for printing, supplies and phone expenses, $87,000
        related to due diligence expenses paid to third parties, $67,500 paid to
        Full
        Circle LLC, an affiliate of Richard A. Stratton, our Chief Executive Officer
        and
        Chairman of the Board, through September 30, 2006 for our office space and
        other
        general and administrative services, $2,000 for capital based taxes and $44,244
        for other expenses. The trustee of the trust account will pay any taxes
        resulting from interest accrued on the funds held in the trust account out
        of
        the funds held in the trust account.
  10
 Net
          loss
          for the three months ended September 30, 2005 was $12,384, which consisted
          of
          $12,384 in expenses consisting of $11,288 for travel expenditures and $1,096
          for
          printing, supplies and phone expenses.
  Net
          loss
          for the period from inception (May 26, 2005) to September 30, 2005 was
          $16,479,
          which consisted of $16,479 in expenses consisting of $12,989 of travel
          expenditures, $1,314 for printing supplies and phone expense and $2,176
          of other
          expenses.
  Net
        income for the cumulative period from inception (May 26, 2005) to September
        30,
        2006 was $937,077 which consisted of $3,845,917 in interest income partially
        offset by $590,921 in income taxes and $2,317,919 in expenses consisting
        of $148,537 for D&O and other insurance, $1,599,061 for legal and
        accounting fees unrelated to our initial public offering, $133,242 for travel
        expenditures, $92,661 for Delaware franchise taxes, $18,294 for printing,
        supplies and phone expenses, $87,000 related to due diligence expenses paid
        to
        third parties, $78,750 paid to Full Circle LLC, an affiliate of Richard A.
        Stratton, our Chief Executive Officer and Chairman of the Board, through
        September 30, 2006 for our office space and other general and administrative
        services, $91,000 for capital based taxes and $69,374  for other expenses.
        The trustee of the trust account will pay any taxes resulting from interest
        accrued on the funds held in the trust account out of the funds held in the
        trust account.
  **Liquidity
        and Capital Resources**
 
 The
        net
        proceeds to us from the sale of our units in our initial public offering,
        after
        deducting offering expenses of approximately $1,033,076 and underwriting
        discounts of approximately $9,000,000 (including $2,400,000 placed in the
        trust
        account representing a deferred underwriters’ discount) was $109,966,924, of
        which $107,426,000 (plus the additional $2,400,000 attributable to the
        underwriters’ discount) was placed in a trust account and the remaining proceeds
        ($2,540,926) became available to be used to provide for business, legal and
        accounting due diligence on prospective transactions and continuing general
        and
        administrative expenses. To the extent that our capital stock is used in
        whole
        or in part as consideration to effect an initial transaction, the proceeds
        held
        in the trust account (excluding the amount held in a trust account representing
        a portion of the underwriters’ discount) as well as any other net proceeds not
        expended will be used to finance the operations of the target. At September
        30,
        2006, we had cash outside of the trust account of $817,112, investments held
        in
        the trust account of $112,589,730, prepaid expenses of $151,897, deferred
        acquisition costs of $152,913 and total liabilities of $3,885,803 (which
        includes $2,400,000
        attributable to the deferred underwriters' discount, which, if paid, will
        be
        paid out of the amounts held in the trust fund ).
        We
        believe that the funds available to us outside of the trust account will
        be
        sufficient to allow us to operate until May 16, 2007, assuming that an initial
        transaction is not consummated during that time. Of the funds held outside
        of
        the trust account totaling $408,950 as of November 8, 2006, we anticipate
        using
        these funds to cover legal and accounting fees (including certain costs of
        pending litigation), other expenses attendant to the due diligence
        investigations, structuring, and negotiating of an initial transaction, and
        administrative expenses incurred prior to completing an initial transaction.
        We
        may need to raise additional funds in order to meet the expenditures required
        for operating our business.
 
 We
        pay
        Full Circle LLC an aggregate fee of $7,500 per month which includes the cost
        of
        the office space and the cost of other general and administrative services
        provided to us by Full Circle LLC.
 
 **Off-Balance
        Sheet Arrangements**
 
 Options
        and warrants issued in conjunction with our initial public offering are equity
        linked derivatives and accordingly represent off-balance sheet
        arrangements.  The options and warrants meet the scope exception in
        paragraph 11(a) of FAS 133 and are accordingly not accounted for as derivatives
        for purposes of FAS 133, but instead are accounted for as equity.  For a
        more complete discussion of the treatment of the underwriter's purchase option
        and the warrants, see footnote 1 to the financial statements.
  11
 **Item
        3.**  **Quantitative
        and Qualitative Disclosures about Market Risk.**
 
 Market
        risk is a broad term for the risk of economic loss due to adverse changes
        in the
        fair value of a financial instrument. These changes may be the result of
        various
        factors, including interest rates, foreign exchange rates, commodity prices
        and/or equity prices. Of the net offering proceeds, $107,426,000 has been
        placed
        into a trust account at Morgan Stanley maintained by Continental Stock
        Transfer & Trust Company, acting as trustee. Additionally, $2,400,000
        of the proceeds attributable to the underwriters' discount has also been
        deposited into the trust account. The proceeds held in trust will only be
        invested in United States "government securities," defined as any Treasury
        Bill
        issued by the United States having a maturity of 180 days or less. Thus,
        we are
        subject to market risk primarily through the effect of changes in interest
        rates
        on government securities. The effect of other changes, such as foreign exchange
        rates, commodity prices and/or equity prices, does not pose significant market
        risk to us.
  **Item
        4.**  **Controls
        and Procedures.**
  **(a)**
              **Evaluation
                  of Disclosure Controls and
                  Procedures**
  We
        evaluated the effectiveness of our disclosure controls and procedures, as
        defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
        as of the end of the period covered by this Quarterly Report on Form 10-Q.
        Richard A. Stratton, our Chief Executive Officer, and Joseph S. Weingarten,
        our
        Treasurer, participated in this evaluation. Based upon that evaluation, Messrs.
        Stratton and Weingarten concluded that our disclosure controls and procedures
        were effective as of the end of the period covered by the report.
  **(b)**
              **Changes
                  in Internal Controls over Financial
                  Reporting**
  As
        a
        result of the evaluation completed by management, and in which Messrs. Stratton
        and Weingarten participated, we have concluded that there were no changes
        during
        the fiscal quarter ended September 30, 2006 in our internal controls over
        financial reporting, which have materially affected, or are reasonably likely
        to
        materially affect, our internal controls over financial reporting.
  12
  **PART
        II:**  **OTHER
        INFORMATION**
 
 **Item
        1.**  **Legal
        Proceedings.**
  See
        the
        Company's Annual Report on Form 10-K for the fiscal year ended December 31,
        2005
        filed with the SEC on March 31, 2006 and its Quarterly Report on Form 10-Q
        for
        the fiscal quarter ended June 30, 2006 filed with the SEC on August 14, 2006
        for
        disclosure previously provided regarding the Company's ongoing litigation
        with
        Ferris, Baker Watts, Inc. (“Ferris”). On August 17, 2006, Deutsche Bank
        Securities Inc. (“Deutsche”) filed a motion to dismiss Ferris’ amended complaint
        adding Deutsche to the lawsuit and denying the claims. On
        September 1, 2006, Ferris, Baker Watts, Inc. filed an opposition to Deutsche
        Bank Securities Inc.'s motion to dismiss.
  **Item
        1A.**  **Risk
        Factors.**
  *The
        following information updates, and should be read in conjunction with, the
        information disclosed in Item 1A, “Risk Factors,” of the Company's Annual Report
        on Form 10-K for the fiscal year ended December 31, 2005 filed with the SEC
        on
        March 31, 2006, Part II, Item 1A, “Risk Factors,” of the Company's Quarterly
        Reports on Form 10-Q for the fiscal quarters ended March 31, 2006 and June
        30,
        2006, filed with the SEC on May 15, 2006 and August 14, 2006,
        respectively.*
  **Risks
          Associated with the Business of Sedona**
 **Sedona
          is subject to the risks of the real estate market and the risks associated
          with
          real estate development, including the risks and uncertainties relating
          to the
          cost and availability of construction materials, services and land for
          new
          projects.**
 Sedona
          owns a real estate project in Sedona, Arizona. The real estate has been
          acquired
          as inventory for development and sale, as opposed to investment purposes.
          We
          anticipate that certain properties at the project will be available for
          sale
          when we acquire Sedona. Other properties will not be available for sale
          until
          additional planned construction, improvements and developments take place
          at the
          project. Real estate markets are cyclical in nature and highly sensitive
          to
          changes in national, regional and local economic conditions, including
          among
          other factors:
 ·
 levels
          of
          unemployment;
 ·
 levels
          of
          discretionary disposable income;
 ·
 levels
          of
          consumer confidence;
 ·
 levels
          of
          consumer spending on lodging and leisure;
 ·
 the
          availability of financing;
 ·
 other
          available properties;
 ·
 overbuilding
          or decreases in demand; and
 ·
 interest
          rates.
 A
          downturn in the economy in general or in the market for high-end fractional
          interests, lots and golf memberships sold by Sedona in particular could
          have a
          material adverse effect on our business, operating results and financial
          condition. A downturn could have a material adverse effect on the ability
          of
          Sedona to sell real estate at a profit.
 Another
          factor impacting the profitability of real estate development activities
          is the
          cost of construction materials and services. As indicated above, Sedona
          needs to
          complete further planned construction and improvements before some of its
          inventory is available for sale. Should the cost of construction materials
          and
          services rise, as recent trends have indicated, the ultimate cost of Sedona’s
          inventories under development (and any future properties we may acquire)
          could
          increase and have a material, adverse impact on our results of
          operations.
 In
          addition, the availability of land or properties at favorable prices for
          the
          future development of real estate projects will be critical for Cold Spring
          to
          generate favorable results of operations in the future. If we are unable
          to
          acquire land or properties at a favorable cost, it would have an adverse
          effect
          on our future results of operations. Because the Seven Canyons club is
          surrounded by Forest Service land, we will not be able to expand it beyond
          the
          original plan and Sedona’s existing property. Accordingly, we will need to
          acquire new properties for development, and we may sell our entire available
          inventory at Seven Canyons in as few as three or four years.
 **Sedona
          is subject to significant and customary risks relating to the ownership
          and
          development of real estate.**
 Sedona
          owns real estate and we expect to acquire additional real estate assets
          in the
          future. In addition, Sedona may, in the future, decide to offer financing
          to
          purchasers for a significant portion of the purchase price of fractional
          interests, homesites, condominiums or other property interests. Our future
          activities in these areas will be subject to numerous risks and uncertainties,
          including the following:
  13
 ·
 the
          real
          estate market is highly competitive, and we may have difficulty locating
          and
          acquiring suitable assets;
 ·
 the
          Sedona property and any future real estate assets may decline in value
          due to
          changing market and economic conditions and other factors;
 ·
 the
          costs
          of developing and completing the asset may exceed those anticipated, possibly
          making the asset unprofitable;
 ·
 there
          may
          be delays in bringing the property to market due to, among other things,
          changes
          in regulations, delays in obtaining necessary permits, authorizations and
          approvals, and changes in the availability of financing;
 ·
 demand
          for available golf memberships and for homesites and residences (including
          fractional interests) at Sedona’s existing project or any future projects may be
          lower, and the period necessary to sell off the asset may be longer, than
          anticipated;
 ·
 real
          estate is subject to extensive and complex regulations, and costs of regulatory
          compliance may exceed those anticipated; and
 ·
 we
          may
          incur environmental liabilities in connection with our ownership of real
          estate.
 To
          the
          extent we offer financing to purchasers in the future, we will bear the
          risk of
          delinquencies and defaults and other customary risks inherent in the financing
          business. Financing activities would also require us to comply with extensive
          laws and regulations with respect to those activities.
 Sedona’s
          real estate development activities require significant capital expenditures.
          Sedona currently anticipates that the aggregate capital requirements to
          complete
          planned developments at Sedona over the next three years will be approximately
          $160 million, although there can be no assurance that actual development
          costs will not exceed that amount. Sedona obtains funds for capital expenditures
          through borrowings, as well as cash flows from operations, property sales
          or
          financings. We cannot be sure that the funds available from these sources
          will
          be sufficient to fund our required or desired capital expenditures for
          development in the future. If we are unable to obtain sufficient funds,
          we may
          have to defer or otherwise limit our development activities.
 As
          is the
          case with all real estate projects, the existing Sedona project and any
          future
          projects acquired by Cold Spring require the ownership, lease, easement
          or other
          access to all necessary property. Sedona believes that it has all necessary
          rights to the Seven Canyons club. With respect to a portion of the property,
          Sedona has been granted an easement by the Forest Service for a stretch
          of road
          that connects to parts of the Seven Canyons club. This easement expires
          in 2023.
          Sedona believes that it will be able to renew such easement in the ordinary
          course prior to its expiration. If such easement is not renewed, and Sedona’s
          customers are harmed, Sedona could be subject to claims from its customers,
          and
          such claims, if not resolved, could have an adverse effect on
          Sedona.
 **We
          may not successfully execute our strategy.**
 A
          principal component of our strategy is to acquire additional real estate
          for the
          development of fractional interests, lot sales or club projects, preferably
          in
          markets that also provide us with incremental sales distribution opportunities.
          We will not be able to expand the Seven Canyons club beyond the existing
          approximately 200 acres that Sedona owns, because the Forest Services owns
          all
          abutting land. No assurance can be given that we will be able to acquire
          additional property or be successful in any future acquisition or expansion
          strategy.
 Our
          ability to execute Cold Spring’s strategy will depend upon a number of factors,
          including the following:
 ·
 the
          availability of attractive real estate opportunities;
 ·
 our
          ability to acquire properties for such development opportunities on economically
          attractive terms;
 ·
 our
          ability to market and sell ownership interests or other products at newly
          developed or acquired clubs or other real estate;
 ·
 our
          ability to manage newly developed or acquired clubs or other real estate
          in a
          manner that satisfies purchasers of interests in projects developed thereon;
          and
 ·
 the
          availability of financing on attractive terms, or at all.
 14
 There
          is
          no assurance that we will be successful with respect to any or all of these
          factors.
 **We
          may face a variety of risks if and when we expand our
          operations.**
 We
          anticipate that Sedona will have certain inventory available for sale as
          of the
          closing. We also plan on developing additional fractional interests, homesites
          and condominiums on the property that Sedona currently owns at Seven Canyons.
          As
          indicated above, we also intend to acquire additional real estate assets
          that
          are entirely independent of Sedona, although there can be no assurance
          that we
          will be successful. Risks associated with the future development at Seven
          Canyons and the acquisition and development of additional properties by
          Sedona
          include the following:
 ·
 acquisition
          and construction costs may exceed original estimates;
 ·
 we
          may be
          unable to complete construction, conversion or required legal registrations
          and
          approvals as scheduled, and delays may lead to loss of revenue, increased
          expenses and borrowing costs, and fluctuations in our quarterly financial
          results;
 ·
 we
          may be
          unable to control the timing, quality and completion of any construction
          activity;
 ·
 there
          may
          not be sufficient market demand;
 ·
 the
          value
          of our inventories may decline; and
 ·
 increased
          regulation when initiating operations in new jurisdictions.
 Any
          of
          the foregoing could adversely affect profitability in a material way. There
          is
          no assurance that we will complete all of our planned development or expansion
          of our properties or, if completed, that such development or expansion
          will be
          profitable.
 Moreover,
          to successfully implement our strategy, we may need to integrate the newly
          acquired or developed properties into Sedona’s existing sales and marketing
          programs, or develop new sales and marketing programs. During the start-up
          phase
          of a new club or residential community project, we could experience lower
          operating margins at that project until its operations mature. The lower
          margins
          could be substantial and could negatively impact our cash flow and financial
          results. We cannot provide any assurance that we will maintain or improve
          our
          operating margins as our projects achieve maturity and our new projects
          and
          communities may reduce our overall operating margins.
 **Claims
          for development-related defects could adversely affect our financial condition
          and operating results.**
 Sedona
          engages third-party contractors to install roads and utilities and to construct
          residences and club facilities and otherwise to improve and develop projects.
          However, purchasers of residences, condominiums or fractional interests
          may
          assert claims against Sedona and/or us for construction defects or other
          perceived development defects, including structural integrity, expansion
          or
          subsidence of soils, the presence of mold as a result of leaks or other
          defects,
          water intrusion, asbestos, electrical issues, plumbing issues, road
          construction, water and sewer defects, and the like. In addition, certain
          state
          and local laws may impose liability on property developers with respect
          to
          development defects discovered in the future. Claims for development-related
          defects could adversely affect our liquidity, financial condition, and
          operating
          results.
 **Cold
          Spring will depend on Cavan Management Services, L.L.C. in operating Sedona,
          and
          the loss of Cavan Management Services, L.L.C. as manager would have an
          adverse
          effect on Sedona’s business.**
 Cold
          Spring will enter into a management services agreement with Cavan Management
          Services, L.L.C. at the closing of the Sedona Acquisition. Pursuant to,
          and
          subject to the terms of, the agreement, Cavan Management Services, of which
          David V. Cavan is the controlling owner, will be the exclusive manager
          of Seven
          Canyons. As in all projects of this nature, the performance of the management
          company is important to the overall success of the project. If Cold Spring
          wishes to terminate Cavan Management Services as manager in the absence
          of an
          explicit breach of the management agreement or other events allowing
          termination, Cold Spring would be required to pay a termination fee of
          up to
          $1,000,000. Cavan Management Services may terminate the management agreement
          without payment upon six months advance notice at any time after the third
          anniversary of the closing of the Sedona Acquisition. In addition, if the
          role
          of Cavan Management Services as manager of Seven Canyons terminates for
          any
          reason Cold Spring may have difficulty in locating, or incur significant
          additional expense in identifying and hiring, a replacement management
          company
          or management personnel capable of performing the functions that Cavan
          Management Services will be performing under the management agreement.
  15
 **We
          may face additional risks if we expand into new
          markets.**
 We
          anticipate that Sedona will have certain inventories available for sale
          as of
          the closing. We also plan on developing additional fractional interests,
          homesites and condominiums on the property Sedona currently owns at Seven
          Canyons. We also intend to acquire additional real estate assets that are
          entirely independent of Seven Canyons, although there can be no assurance
          that
          we will be successful. The success which Sedona has had in the market in
          which
          it currently operates does not ensure our continued success as we acquire,
          develop or operate future projects in new markets. Accordingly, in connection
          with expansion into new markets, we may be exposed to a number of additional
          risks, including the following:
 ·
 our
          lack
          of familiarity and understanding of regional or local consumer
          preferences;
 ·
 our
          inability to attract, hire, train, and retain additional sales, marketing,
          and
          club staff at competitive costs; and
 ·
 our
          inability to obtain, or to obtain in a timely manner, necessary permits
          and
          approvals from government agencies and qualified construction services
          at
          acceptable costs.
 **Extensive
          laws and regulations affect the way we conduct our
          business.**
 The
          federal government and the states and local jurisdictions in which Sedona
          conducts business have enacted extensive regulations that affect the manner
          in
          which Sedona conducts its business. In addition, many states have adopted
          specific laws and regulations regarding the sale of fractional interests
          and
          communities that provide amenities through private membership clubs. Many
          states
          also extensively regulate the creation, marketing, sale and management
          of
          properties, the escrow of purchaser funds and other property prior to the
          completion of construction and closing, and the content and use of advertising
          and sales materials. Although Sedona believes that securities laws do not
          apply
          to its current project, to the extent that we acquire new projects, certain
          types of club memberships may be subject to regulation under federal and
          state
          securities laws and may be marketed and sold only if they are registered
          with
          the appropriate governmental agencies or if there is an applicable exemption
          from registration. Most states also have other laws that regulate our
          activities, such as:
 ·
 project
          registration laws;
 ·
 real
          estate licensure laws;
 ·
 anti-fraud
          laws;
 ·
 consumer
          protection laws;
 ·
 subdivision,
          public report and other disclosure laws;
 ·
 telemarketing
          laws;
 ·
 prize,
          gift, and sweepstakes laws; and
 ·
 consumer
          credit laws.
 Currently,
          most states have taxed fractional ownership interests as real estate, imposing
          property taxes that are billed to the respective property owners’ associations
          that maintain the related clubs and have not sought to impose sales tax
          upon the
          sale of the fractional ownership interest or accommodations tax upon the
          use of
          the fractional ownership interest by owners of fractional interests. From
          time
          to time, however, various states have attempted to promulgate new laws
          or apply
          existing laws impacting the taxation of vacation ownership interests, to
          require
          that sales tax or accommodations be collected. Should new state or local
          laws be
          implemented or interpreted to impose sales or accommodations taxes on fractional
          ownership interests, our business could be materially adversely
          affected.
  16
 **If
          agents or employees of Sedona violate applicable regulations or licensing
          requirements, their acts or omissions could materially and adversely affect
          our
          business.**
 Sedona
          believes it is in material compliance with applicable federal, state, and
          local
          laws and regulations relating to the sale and marketing of its products.
          From
          time to time, however, purchasers of club memberships, fractional interests,
          homesites, condominiums or other property interests may file complaints
          against
          Sedona in the ordinary course of its business. Although Sedona has not
          incurred
          any material liabilities in connection with such complaints in the past, we
          could be required to incur significant costs to resolve any future complaints.
          There is no assurance that Sedona is, or that after the closing will remain
          in
          material compliance with applicable federal, state and local laws and
          regulations, or that violations of applicable laws will not have adverse
          implications for us, including, negative public relations, potential litigation,
          and regulatory sanctions. The expense, negative publicity, and potential
          sanctions associated with any failure to comply with applicable laws or
          regulations could have a material adverse effect on our results of operations,
          liquidity or financial position.
 **Environmental
        liabilities, including claims with respect to mold or hazardous or toxic
        substances, could have a material adverse impact on our
        business.**
 Under
        various federal, state and local laws, ordinances and regulations, as well
        as
        common law, Sedona may be liable for the costs of removal or remediation
        of
        certain hazardous or toxic substances, including mold, located on, in, or
        emanating from property that Sedona owns, leases or operates, as well as
        related
        costs of investigation and property damage at such property. These laws often
        impose liability without regard to whether Sedona knew of, or was responsible
        for, the presence of the hazardous or toxic substances. The presence of such
        substances, or the failure to properly remediate such substances, may adversely
        affect our ability to sell or lease our property or to borrow money using
        such
        real property as collateral. Noncompliance with environmental, health or
        safety
        requirements may require us to cease or alter operations at one or more of
        our
        properties. Further, Sedona may be subject to common law claims by third
        parties
        based on damages and costs resulting from violations of environmental
        regulations or from contamination associated with one or more of its
        properties.
 **We
        could incur costs to comply with laws governing accessibility of facilities
        by
        disabled persons.**
 A
        number
        of state and federal laws, including the Fair Housing Act and the Americans
        with
        Disabilities Act, impose requirements related to access and use by disabled
        persons of a variety of public accommodations and facilities. Although Sedona
        believes the Seven Canyons development is substantially in compliance with
        any
        applicable laws governing accessibility by disabled persons, we may incur
        additional costs to comply with such laws at Seven Canyons or subsequently
        acquired projects. Additional federal, state, and local legislation with
        respect
        to access by disabled persons may impose further burdens or restrictions
        on us.
        We cannot forecast the ultimate cost of compliance with such legislation,
        but
        such costs could be substantial and, as a result, could have a material adverse
        effect on our results of operations, liquidity or capital
        resources.
 **If
        Cold Spring decides to offer purchaser financing in the future, it will be
        subject to a number of risks beyond its control.**
 Sedona
        has not offered purchase money financing to its customers in the past. If
        Sedona
        or Cold Spring decides in the future to offer financing and originates
        portfolios of loans to its customers for the purchase of fractional interests,
        homesites, condominiums or other property interests, Sedona or Cold Spring
        will
        be subject to a number of risks. The origination and servicing of loans is
        subject to extensive regulation. The ability of obligors under loans to meet
        their obligations and Sedona’s or Cold Spring’s ability to recover the
        outstanding balances of loans following an event of default could be affected
        by
        circumstances outside of its control, including changes in general economic
        conditions, regulations governing consumer and commercial lending, levels
        of
        employment, consumer confidence, available financing and interest rates.
        If
        defaults under loans in any portfolios that Sedona or Cold Spring may have
        are
        higher than expected, we could incur significant costs, including legal
        compliance costs, and delays in connection with servicing and collecting
        efforts, and could incur legal and other restrictions and delays in foreclosing
        or otherwise realizing upon collateral for loans. In addition, Sedona’s results
        of operations and financial position would be materially adversely affected
        if
        the value of assets serving as collateral for loans declines and Sedona or
        Cold
        Spring incurs significant losses. Disputes with obligors could lead to
        litigation that will result in higher costs than we anticipate. There is
        no
        assurance that Sedona or Cold Spring will implement a customer financing
        program
        or that, if it does, Sedona will be successful in implementing the program.
        To
        the extent we offer financing, because Sedona’s property is at the high-end of
        the real estate market and customers generally have significant net worths,
        some
        customers will have no need for the financing and those who wish to finance
        their purchase may have other financing options.
 17
 **Because
        Sedona has significant indebtedness and we expect to incur significant
        indebtedness, we will be subject to customary risks relating to
        leverage.**
 Sedona
        has incurred and will continue to incur significant debt in connection with
        its
        acquisition and development of property. As of June 30, 2006, Sedona had
        approximately $97.5 million of indebtedness for borrowed money (excluding
        amounts due to related parties). In the future, to the extent that Sedona
        offers
        financing of the purchase price of fractional interests, homesites, condominiums
        and other property interests to its customers, we will be required to borrow
        against the notes receivable for liquidity. We expect that Sedona will have
        significant outstanding indebtedness as of the closing of the Sedona
        Acquisition. Moreover, we expect to continue to require external sources
        of
        liquidity to:
 ·
 support
        our operations, including our development costs;
 ·
 complete
        the construction of additional fractional interest villas, whole ownership
        condominiums and the full planned amenity package, including the club
        village;
 ·
 finance
        the acquisition of additional real estate, additional businesses or
        assets;
 ·
 finance
        the installation of roads and utilities and the construction of residences
        and
        club improvements;
 ·
 finance
        a
        portion of our sales, to the extent we offer customer financing;
        and
 ·
 satisfy
        our debt and other obligations.
 Our
        ability to service or to refinance our indebtedness or to obtain additional
        financing will depend on our future performance, which is subject to a number
        of
        factors, including our ability to repay debt from sale proceeds, our business
        and properties, results of operations, leverage, financial condition and
        business prospects, the performance of any loan portfolio(s) to the extent
        we
        provide financing to our customers, prevailing interest rates, general economic
        conditions and perceptions about the industries in which we operate. No
        assurance can be given that we will be able to obtain sufficient external
        sources of liquidity on attractive terms, or at all. The existing Sedona
        debt
        agreements include and, to the extent we use debt financing, our debt agreements
        will include, various representations and warranties, conditions to funding,
        eligibility requirements for collateral, affirmative, negative and financial
        covenants and events of default. If we are unable to comply with one or more
        of
        the covenants in our debt agreements, including Sedona’s debt agreements, or if
        we breach any of the provisions in our debt agreements, we could default
        on our
        indebtedness. We can provide no assurance that a default could be remedied,
        or
        that our creditors would grant a waiver or amend the terms of the debt
        agreements. If an event of default occurs, our lenders could, among other
        things, elect to declare all amounts outstanding under a particular facility
        to
        be immediately due and payable, terminate all commitments, or refuse to extend
        further credit, or exercise foreclosure or power of sale remedies. An event
        of
        default or acceleration under one debt agreement could cause a cross-default
        or
        cross-acceleration of another debt agreement. If an event of default occurs,
        or
        if other debt agreements cross-default, and the lenders under the affected
        debt
        agreements accelerate the maturity of any loans or other debt outstanding,
        we
        may not have sufficient liquidity to repay amounts outstanding under existing
        debt agreements or to continue to acquire and develop property and operate
        our
        business. Any default under the documents governing our indebtedness could
        have
        a material adverse effect on our business and the value of our
        securities.
 The
        Sedona and future Cold Spring credit facilities will require us to pledge
        certain collateral to the lenders. For example, if we finance purchases of
        fractional interests, homesites, condominiums and other property interests
        in
        the future, a credit facility may have a borrowing base requirement pursuant
        to
        which lender(s) will lend up to a specified percentage of the outstanding
        principal balance of eligible loans. The eligibility requirements may limit
        our
        ability to borrow against certain assets, and assets that were initially
        eligible may cease to qualify if, for example, the obligor fails to make
        payments or otherwise defaults on its obligations to us. If this were to
        occur,
        we would be required to add additional eligible loans as collateral and/or
        repay
        a portion of our indebtedness in order to comply with the borrowing base
        requirements.
 As
        is the
        case with many golf resorts, Sedona has the obligation to return certain
        membership deposits to members, without interest, after they have been members
        for thirty years. In addition, if a member withdraws from the golf club,
        Sedona
        is obligated to return the member’s membership deposit, without interest, when
        the resigned membership is reissued to another member. The amount of such
        refundable deposits is treated as a long-term liability on Sedona’s balance
        sheet and, as of June 30, 2006, the amount of such liability was
        $27.6 million. To the extent a member is entitled to a refund of his or her
        membership deposit or other amounts after thirty years, or to the extent
        the
        amount received by Sedona upon reissuance of a membership is less than the
        membership deposit that is refundable to a member who withdraws before thirty
        years of membership, Sedona will need to use available funds or to seek external
        sources of liquidity to satisfy the refund obligation.
 18
 Our
        level
        of debt and debt service requirements will have several important effects
        on our
        future operations, including the following:
 ·
 we
        will
        have significant cash requirements to service debt, thereby reducing funds
        available for operations and future business opportunities and increasing
        our
        vulnerability to adverse economic and industry conditions;
 ·
 our
        leveraged position may increase our vulnerability to competitive
        pressures;
 ·
 the
        financial covenants and other restrictions contained in the agreements relating
        to our indebtedness will require us to meet certain financial tests and will
        restrict our ability to, among other things, borrow additional funds, dispose
        of
        assets or pay cash dividends on, or repurchase, preferred or common stock;
        and
 ·
 funds
        available for working capital, capital expenditures, acquisitions and general
        corporate purposes may be limited.
 Many
        of
        our competitors will likely operate on a less leveraged basis and will have
        greater operating and financial flexibility than we will. There can be no
        assurance that our cash flow and capital resources will be sufficient for
        payment of our indebtedness in the future. If we are not able to satisfy
        our
        debt service obligations, we could default on our indebtedness, which would
        entitle the holders of such indebtedness to, among other things, accelerate
        the
        maturity thereof and to exercise foreclosure or power of sale remedies that
        could result in the loss of collateral that secures our indebtedness. Any
        default under the documents governing our indebtedness could have a material
        adverse effect on our business and the value of our securities.
 **If
        Cold Spring provides financing to customers, it would incur substantial losses
        if purchasers default on their obligations to pay the balance of the purchase
        price.**
 Sedona
        or
        Cold Spring may offer financing to customers in the future. If it does, we
        will
        need to maintain pledged receivables facilities. Under the terms of these
        facilities we may be required, under certain circumstances, to replace
        receivables or to pay down the loan to within permitted loan to value ratios
        if
        pledged receivables reach certain levels of delinquency. Additionally, the
        terms
        of securitization-type transactions (in which we sell receivables to third
        parties) would require us to repurchase or replace loans if we breach any
        of the
        representations and warranties we make at the time we sell the receivables.
        Further, if defaults and other performance criteria adversely differ from
        estimates used to value our retained interests in notes receivable sold in
        the
        securitization transactions, we may be required to write down these assets,
        which could have a material adverse effect on our results of operations.
        To the
        extent we service the notes, we may also be required to advance delinquent
        payments to the extent we deem them recoverable. Accordingly, we will bear
        some
        risks of delinquencies and defaults by purchasers who finance their purchases
        through us, regardless of whether we sell or pledge their loans to a third
        party.
 Although
        in many cases Sedona would have recourse against a buyer for the unpaid purchase
        price where loan receivables are past due, certain states have laws that
        limit
        the ability of a company to recover personal judgments against borrowers
        who
        have defaulted on their loans or the cost of doing so may not be justified.
        Irrespective of the remedy, in the event of a default Sedona would not be
        able
        to recover the marketing, selling, and administrative costs associated with
        the
        original sale, and would have to incur such costs again to resell the
        property.
 **Because
        Sedona may, in the future, hold loan portfolios, changes in interest rates
        may
        result in our being less profitable than anticipated or not profitable at
        all or
        in our being unable to meet our obligations under borrowing
        arrangements.**
 Sedona
        may, in the future, offer financing and hold note receivables originated
        on
        sales. This will subject us to a number of risks relating to interest rates.
        The
        interest rates applicable to loans in some or all of our portfolios may be
        less
        than prevailing market rates from time to time, and the spread between the
        rates
        obligors on our loans pay to us and the prevailing interest rates at which
        we
        borrow money from our lenders may be lower than anticipated or negative.
        In such
        event, our results of operations and financial position may be materially
        adversely affected and we may be unable to meet our obligations under our
        borrowing arrangements. In addition, applicable state laws may limit the
        effective interest rates that we may charge, which would limit our ability
        to
        effectively manage our business and our interest rate risk. To the extent
        we
        take steps to seek to manage our interest rate risk, such as through the
        purchase of interest swaps or caps, we will be subject to credit risks with
        respect to the financial institutions that provide us with interest rate
        protection and the steps we take to manage our interest rate risk may not
        prove
        to be effective.
  19
 **Risks
      Associated with the Acquisition of Sedona**


***Cold
      Spring may not be able to consummate the Sedona Acquisition within the required
      time frame, in which case it would be required to
      liquidate.***


Under
      the
      terms of its initial public offering, Cold Spring must complete, by May 16,
      2007, a business combination with a fair market value of at least 80% of its
      net
      assets at the time of the Sedona Acquisition. If Cold Spring fails to consummate
      the Sedona Acquisition within the required time frame, it will be required
      to
      liquidate.


In
      a
      liquidation, the net proceeds of Cold Spring’s initial public offering held in
      the trust account, plus any interest earned thereon (net of applicable taxes
      on
      the interest), will be distributed pro rata to the holders of Cold Spring’s
      common stock issued in the initial public offering. If Cold Spring is forced
      to
      liquidate its assets, the per-share liquidation will be $5.49, plus interest
      accrued thereon (net of applicable taxes on the interest) until the date of
      liquidation. Furthermore, there will be no distribution with respect to Cold
      Spring’s outstanding warrants and, accordingly, the warrants will expire
      worthless.


***If
      the benefits of the Sedona Acquisition do not meet the expectations of financial
      or industry analysts, the market price of Cold Spring’s securities may
      decline.***


The
      market price of Cold Spring’s publicly traded securities may decline following
      the Sedona Acquisition if:


·


Cold
      Spring does not achieve the perceived benefits of the Sedona Acquisition as
      rapidly as, or to the extent anticipated by, financial or industry analysts;
      or


·


the
      effect of the Sedona Acquisition on Cold Spring’s financial results is not
      consistent with the expectations of financial or industry analysts.


Accordingly,
      investors may experience a loss as a result of a decreasing stock and warrant
      price and we may not be able to raise future capital, if necessary, in the
      equity markets on attractive terms or at all.


***A
      substantial number of Cold Spring’s shares will become eligible for future
      resale in the public market after the Sedona Acquisition, which could result
      in
      dilution and an adverse effect on the market price of Cold Spring’s
      securities.***


Warrants
      to purchase 40,000,000 shares of Cold Spring common stock issued in connection
      with the Cold Spring initial public offering will become exercisable on
      consummation of the Sedona Acquisition. The $45 million convertible note to
      be issued to the seller of Sedona in the Sedona Acquisition will be convertible
      into 7,000,000 shares of Cold Spring common stock from and after the first
      anniversary of the consummation of the Sedona Acquisition. Moreover, 5,000,000
      shares of Cold Spring common stock purchased by its stockholders prior to the
      initial public offering will be released from escrow six months after the
      consummation of the Sedona Acquisition, at which time they will be eligible
      for
      resale in the public market subject to compliance with applicable law. In
      addition, the managing underwriter of our initial public offering has an option,
      exercisable upon consummation of the Sedona Acquisition, to purchase from us
      up
      to 1,000,000 units, each unit consisting of one share of common stock and two
      warrants to purchase common stock. Consequently, at various times after
      completion of the Sedona Acquisition, a substantial number of additional shares
      of Cold Spring common stock will be eligible for resale in the public market.
      Sales of substantial numbers of such shares in the public market, or the
      possibility that warrants may be exercised and convertible notes may be
      converted and sold, could adversely affect the market price of Cold Spring’s
      securities.


**Cold
      Spring’s directors’ and officers’ interests in obtaining reimbursement for
      out-of-pocket expenses incurred by them or indemnity payments made by them
      may
      lead to a conflict of interest in determining whether a particular target
      business is appropriate for a business combination and in the public
      stockholders’ best interest.**


Cold
      Spring’s existing stockholders, including all of its officers and directors,
      will not receive reimbursement for any out-of-pocket expenses incurred by them
      or any indemnity payments made by them for Cold Spring’s benefit, including in
      connection with outstanding litigation, to the extent that such expenses exceed
      the amount of available proceeds not deposited in the trust account unless
      the
      Sedona Acquisition is consummated. The financial interest of Cold Spring’s
      directors and officers could influence their motivation in proceeding with
      the
      Sedona Acquisition, and thus, there may be a conflict of interest in determining
      whether the transaction is in the public stockholders’ best
      interest.




20


**Cold
      Spring’s initial stockholders, including its officers and directors, control a
      substantial interest in Cold Spring and this may influence certain actions
      requiring a stockholder vote.**


Certain
      members of the Cold Spring board have agreements or arrangements that provide
      them with interests in the Sedona Acquisition that differ from, or are in
      addition to, those of Cold Spring stockholders generally. Cold Spring’s
      executives and directors are not entitled to receive any of the net proceeds
      of
      Cold Spring’s initial public offering that may be distributed from the trust
      account upon liquidation of Cold Spring. Therefore, if the Sedona Acquisition
      is
      not approved, the shares of common stock and warrants held by Cold Spring’s
      executives and directors may be worthless.


**The
      Sedona Acquisition involves a number of inherent risks, any of which could
      cause
      us not to realize the anticipated benefits.**


All
      combinations and acquisitions involve inherent risks, such as:


·


uncertainties
      in assessing the value, strengths and potential profitability of, and
      identifying the extent of all weaknesses, risks, contingent and other
      liabilities of the target;


·


the
      potential of key management and employees of an acquired business;


·


the
      ability to achieve identified operating and financial synergies and cost savings
      anticipated to result from a combination or acquisition;


·


problems
      that could arise from the integration of the acquired business or assets;
      and


·


unanticipated
      changes in business, industry or general economic conditions that affect the
      assumptions underlying the combination or acquisition.


Any
      one
      or more of these factors could cause us not to realize the benefits anticipated
      to result from the Sedona Acquisition, or could result in our incurring
      unexpected liabilities. For example, Sedona is currently the subject of an
      audit
      by the Internal Revenue Services. Although Cold Spring does not believe that
      the
      results of the audit are likely to have any effect on Sedona, in part because
      as
      a limited liability company Sedona is a disregarded entity for purposes of
      federal income taxes and the owner of Sedona, which Cold Spring is not
      acquiring, is responsible for all federal income taxes, there can be no
      assurance that the audit will not have a material adverse effect on
      Sedona.


**The
      inability of the seller of Sedona to fulfill its indemnification obligations
      to
      us under our purchase agreement could increase our liabilities and adversely
      affect our results of operations and financial
      position.**


The
      Sedona purchase agreement includes provisions pursuant to which the seller
      agrees to indemnify us against certain damages resulting from certain
      third-party claims or other liabilities, including the IRS audit referred to
      in
      the preceeding risk factor. The failure of the seller to satisfy its
      indemnification obligations could have an adverse effect on our results of
      operations and financial position. The seller’s indemnification obligations are
      limited, for most representations and warranties, to an aggregate amount of
      $8.5 million, and claims may be asserted against the seller only if the
      aggregate amount of all claims exceeds $250,000. In addition, subject to some
      exceptions, the survival period for claims under the agreement is limited to
      one
      year following the closing of the Sedona Acquisition. The assertion of
      third-party claims after the expiration of the applicable indemnification period
      or in excess of the applicable coverage limit, or the failure of the seller
      to
      satisfy its indemnification obligations with respect to breaches of its
      representations, warranties and covenants, could have an adverse effect on
      our
      results of operations and financial position.


**The
      American Stock Exchange may delist our securities from quotation on its exchange
      which could limit investors’ ability to make transactions in our securities and
      subject us to additional trading restrictions.**


Our
      securities are listed on the American Stock Exchange, a national securities
      exchange, and have been since the consummation of the initial public offering.
      We cannot assure you that our securities will continue to be listed on the
      American Stock Exchange in the future. Additionally, in connection with the
      Sedona Acquisition, the American Stock Exchange may require us to file a new
      initial listing application and meet its initial listing requirements as opposed
      to its more lenient continued listing requirements. We cannot assure you that
      we
      will be able to meet those initial listing requirements at that
      time.


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If
      the
      American Stock Exchange delists our securities from trading on its exchange,
      we
      could face significant material adverse consequences including:


·


a
      limited
      availability of market quotations for our securities;


·


a
      determination that our common stock is a “penny stock”‘ which will require
      brokers trading in our common stock to adhere to more stringent rules and
      possibly resulting in a reduced level of trading activity in the secondary
      trading market for our common stock;


·


a
      more
      limited amount of news and analyst coverage for our company;


·


a
      decreased ability to issue additional securities or obtain additional financing
      in the future; and


·


a
      decreased ability of our stockholders to sell their securities in certain
      states.




22


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




On November
        16, 2005, we closed our initial public offering of 20,000,000 units with
        each
        unit consisting of one share of our common stock and two redeemable common
        stock
        purchase warrants, each to purchase one share of our common stock at an exercise
        price of $5.00 per share. All of the units registered were sold, at an offering
        price of $6.00 per unit, and generated gross proceeds of $120,000,000. The
        securities sold in our initial public offering were registered under the
        Securities Act of 1933 on a registration statement on Form S-1 (No. 333-125873).
        The SEC declared the registration statement effective on November 11, 2005.
        Deutsche Bank Securities Inc. served as the lead underwriter in our initial
        public offering.





We paid
        a
        total of $6,600,000 in underwriting discounts and commissions and approximately
        $1,033,076 for other costs and expenses related to the offering. We also
        placed
        an additional $2,400,000 into the trust account representing a deferral of
        a
        portion of the underwriters' discount, which the underwriters will be entitled
        to receive upon consummation of an initial transaction. After deducting the
        underwriting discounts and commissions and the other offering expenses, the
        total net proceeds to us from our initial public offering was $109,966,924,
        of
        which $107,426,000 (plus the additional $2,400,000 attributable to the deferred
        underwriters' discount) was placed in a trust account and the remaining proceeds
        ($2,540,926) became available to be used to provide for business, legal and
        accounting due diligence on prospective transactions and continuing general
        and
        administrative expenses. The net proceeds deposited into the trust account
        remain on deposit in the trust account and earned $3,845,917 in interest
        through
        September 30, 2006.





For
      a
      description of the use of the proceeds generated in our initial public offering,
      see Part I, Item 2 of this Form 10-Q.





**Item
      3.**  **Defaults
      upon Senior Securities.**




Not
      applicable.




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




Not
      applicable.





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




Not
      applicable.




**Item
      6.**  **Exhibits.**




The
      Company hereby files as part of this Quarterly Report on Form 10-Q the Exhibits
      listed in the attached Exhibit Index.




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**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.




**COLD
                SPRING CAPITAL INC.**Date: November
              15, 2006
            By:
            /s/ Richard
              A. StrattonName:
                Richard A. StrattonTitle:
                Chairman of the Board and Chief Executive Officer(Principal
                Executive Officer)


Date: November
              15, 2006
            By:
            /s/ Joseph
              S.
              WeingartenName:
                Joseph S. WeingartenTitle:
                President and Treasurer(Principal
                Financial Officer)







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**EXHIBIT
      INDEX**





**Exhibit
                No.**
            
            **Description**2.1
            
            Securities
              Purchase Agreement dated November 3, 2006 by and among Cold Spring
              Inc.,
              Sedona Development Partners, LLC, Seven Canyons Investors, L.L.C.,
              David
              V. Cavan and Cavan Management Services, L.L.C.(1)31.1
            
            Rule
                13a-14(a) Certification of Richard A. Stratton.31.2
            
            Rule
                13a-14(a) Certification of Joseph S. Weingarten.32.1
            
            Section
                1350 Certification of Richard A. Stratton.32.2
            
            Section
                1350 Certification of Joseph S.
                Weingarten.




(1) 
      Filed as an annex to the Company's preliminary proxy statement on Schedule
      14A
      filed on November 13, 2006 and hereby incorporated by reference.






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