**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**





**FORM
      10-Q**





**(Mark
      One)**





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





**For
      the quarterly period ended March 31, 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
      filer ý





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 May 5, 2006.














**COLD
      SPRING CAPITAL INC.**





TABLE
      OF
      CONTENTS





Item
                Number
            PagePART
                I: FINANCIAL INFORMATION
            2Item
                1.
            Financial
                Statements
            2Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            9Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            11Item
                4.
            Controls
                and Procedures
            11PART
                II: OTHER INFORMATION
            11Item
                1.
            Legal
                Proceedings
            11Item
                1A.
            Risk
                Factors
            11Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            12Item
                3.
            Defaults
                upon Senior Securities
            12Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            12Item
                5.
            Other
                Information
            12Item
                6.
            Exhibits
            12SIGNATURES
            13





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 any
      acquisition or 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 dependence on key personnel, some of
      whom
      may join us following an initial transaction, our personnel allocating their
      time to other businesses and potentially having conflicts of interest with
      our
      business, our potentially being unable to obtain additional financing to
      complete an initial transaction, 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 or 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**





**ASSETS**
            
            
            March
                31, 2006
              (Unaudited)
            
            
            December
                31, 2005Current
                Assets:Cash
            
            $
            1,777,441
            
            $
            2,528,516Investments
                held in Trust Fund (Note 1)
            
            
            111,536,136
            
            
            110,450,408Prepaid
                Expenses
            
            
            203,480
            
            
            223,653Total
                current assets
            
            
            113,517,057
            
            
            113,202,577Deferred
                Tax Asset
            
            
            357,064
            
            
            99,000Total
                Assets
            
            $
            113,874,121
            
            $
            113,301,577**LIABILITIES
                & STOCKHOLDERS’ EQUITY**Current
                Liabilities:Accounts
                Payable and Accrued Expenses
            
            $
            203,883
            
            $
            351,100Income
                and Capital Taxes Payable
            
            
            490,297
            
            
            301,277Deferred
                Underwriting Fees
            
            
            2,400,000
            
            
            2,400,000Deferred
                Interest
            
            
            341,856
            
            
            124,818Total
                Liabilities
            
            
            3,436,036
            
            
            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
            
            
            446,061
            
            
            132,358Total
                stockholders’ equity
            
            
            88,963,628
            
            
            88,649,925Total
                Liabilities and Stockholders’ Equity
            
            $
            113,874,121
            
            $
            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
              March
                31, 2006
            
            
            Cumulative
                amount from inception
              (May
                26, 2005) to
              March
                31, 2006Interest
                Income
            
            $
            879,633
            
            $
            1,380,804General
                & Administrative Expense
            
            
            344,493
            
            
            621,306Net
                Income before Provision for Income Taxes
            
            
            535,140
            
            
            759,498Provision
                for Income Taxes
            
            
            (221,437
            )
            
            (313,437
            )Net
                Income
            
            $
            313,703
            
            $
            446,061Weighted
                Average Number of Shares Outstanding-
                Basic and Diluted
            
            
            25,000,000
            
            
            14,126,214Earnings
                Per Share - Basic and Diluted
            
            $
            0.01
            
            $
            0.03








*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 March 31, 2006**





Common
                Stock
            
            
            AdditionalPaid-In
            
            
            EarningsAccumulatedDuring
                  theDevelopment
            
            
            TotalStockholders’Shares
            
            
            Amount
            
            
            Capital
            
            
            Stage
            
            
            EquityStock
                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 period
            
            
            
            
            
            
            
            
            
            
            
            313,703
            
            
            313,703Balance
                as of March 31, 2006
            
            
            25,000,000
            
            $
            25,000
            
            $
            88,492,567
            
            $
            446,061
            
            $
            88,963,628








*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)**





Three
                months ended
              March
                31, 2006
            
            
            Cumulative
                amount from inception
              (May
                26, 2005) to
              March
                31, 2006**CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                Income
            
            $
            313,703
            
            $
            446,061Adjustments
                to reconcile net income to net cash used in operating
                activities:Increase
                in value of investments held in trust
            
            
            (1,085,728
            )
            
            (1,710,136
            )Increase
                in deferred income tax benefit
            
            
            (258,064
            )
            
            (357,064
            )Changes
              in operating assets and liabilities:Increase
                in accrued expenses
            
            
            111,177
            
            
            203,883Increase
                in income and capital taxes payable
            
            
            189,020
            
            
            490,297Decrease
                (increase) in prepaid expense
            
            
            20,173
            
            
            (203,480
            )Increase
                in deferred interest
            
            
            217,038
            
            
            341,856Net
                cash used in operating activities
            
            
            (492,681
            )
            
            (788,583
            )**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
            
            
            __
            
            
            25,000Proceeds
                from issuance of option
            
            
            __
            
            
            100Payment
                of costs of public offering
            
            
            (258,394
            )
            
            (7,633,076
            )Net
                cash provided by financing activities
            
            
            (258,394
            )
            
            112,392,024Net
                (decrease) increase in cash
            
            
            (751,075
            )
            
            1,777,441Cash
                at beginning of period
            
            
            2,528,516
            
            
            __Cash
                at end of period
            
            $
            1,777,441
            
            $
            1,777,441**SUPPLEMENTAL
                SCHEDULE OF NON-CASH FINANCING ACTIVITIES**Accrual
                of deferred underwriting fees
            
            $
            -
            
            $
            2,400,000





*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**


**March
      31, 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’’).  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 December 31, 2005 balance sheet has been derived from the
      audited finacial statements.




The
      registration statement for 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 a Business Combination.  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 $111,536,136 at March 31, 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, after signing a definitive agreement for the acquisition
      of a target business, will submit such transaction 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 March 31, 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 if certain extension criteria have been
      satisfied.  There is no assurance that the Company will be able to
      successfully effect a Business Combination 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
      December 2004, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 123 (revised 2004) (“SFAS 123(R)”), “Share
      Based Payment”. SFAS 123(R) requires all share based payments to employees,
      including grants of employee stock options, to be recognized in the financial
      statements based on their fair values. The Company adopted SFAS 123(R) effective
      January 1, 2006. ****** The
      adoption of SFAS 123(R) did not have a significant impact on the Company's
      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.




**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 or 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.




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 an initial transaction.  Upon
      the consummation of an initial transaction, 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.




7


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 and $33,750, respectively, for the three months ended March
      31,
      2006 and for the cumulative amount for the period from inception (May 26, 2005)
      to March 31, 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. 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.





**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
      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 March 31, 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 .





We
      are
      currently in the process of evaluating and identifying targets for an initial
      transaction. We are not presently engaged in, and will not engage in, any
      substantive commercial business until we consummate an initial transaction.
      We
      intend to utilize cash derived from the proceeds of our initial public offering,
      our capital stock, debt or a combination of cash, capital stock and debt, in
      effecting an
      initial transaction .
      The
      issuance of additional shares of our capital stock:


•
              may
                  significantly reduce the equity interest of our current
                  stockholders;
 
 •
              may
                  subordinate the rights of holders of common stock if preferred
                  stock is
                  issued with rights senior to those afforded to our common
                  stock;
  •
              will
                  likely cause a change in control if a substantial number of our
                  shares of
                  common stock or preferred stock are issued, which may affect, among
                  other
                  things, our ability to use our net operating loss carry forwards,
                  if any,
                  and most likely also result in the resignation or removal of one
                  or more
                  of our present officers and directors;
                  and
 
 •
              may
                  adversely affect prevailing market prices for our
                  securities.




9


Similarly,
      if we issued debt securities, it could result in:




•
            default
                and foreclosure on our assets, if our operating revenues afteran
                initial transactionwere
                insufficient to pay our debt
                obligations;




•
            acceleration
                of our obligations to repay the indebtedness, even if we have made
                all
                principal and interest payments when due, if the debt security contained
                covenants that required the maintenance of certain financial ratios
                or
                reserves and any such covenant were breached without a waiver or
                renegotiation of that covenant;





•
            our
                immediate payment of all principal and accrued interest, if any,
                if the
                debt security was payable on demand;
                and




•
            our
                inability to obtain additional financing, if necessary, if the debt
                security contained covenants restricting our ability to obtain additional
                financing while such security was
                outstanding.





Net
      income for the three months ended March 31, 2006 was $313,703 which
      consisted of $879,633 in
      interest income partially offset by $221,437 in
      income
      taxes and $344,493 in expenses consisting of $42,811 for D&O and other
      insurance, $206,844 for legal and accounting fees unrelated to our initial
      public offering, $33,071 for travel expenditures, $23,795 for Delaware franchise
      taxes, $544 for printing, supplies and phone expenses, $22,500 paid to Full
      Circle LLC, an affiliate of Richard A. Stratton, our Chief Executive Officer
      and
      Chairman of the Board, through March 31, 2006 for our office space and other
      general and administrative services, $2,000 for capital based taxes and $12,928
      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 cumulative period from inception (May 26, 2005) to March 31,
      2006
      was $446,061 which consisted of $1,380,804 in interest income partially offset
      by $313,437 in income taxes and $621,306 in expenses consisting of  $62,914 for
      D&O and other insurance, $284,253 for legal and accounting fees unrelated to
      our initial public offering, $54,988 for travel expenditures, $45,072 for
      Delaware franchise taxes, $11,301 for printing, supplies and phone expenses,
      $33,750 paid to Full Circle LLC, an affiliate of Richard A. Stratton, our Chief
      Executive Officer and Chairman of the Board, through March 31, 2006 for our
      office space and other general and administrative services, $91,000
      for capital based taxes and $38,028 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.





The
      net
      proceeds to us from the sale of our units, 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 i n
      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 March 31, 2006, we had cash outside of the trust account of
      $1,777,441, investments held in the trust account of $ 111,536,136 ,
      prepaid
      expenses of $203,480 and total liabilities of $3,436,036. 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 $1,648,363 as of May 1, 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
      do not believe we will need to raise additional funds in order to meet the
      expenditures required for operating our business. However, we may need to raise
      additional funds through a private offering of debt or equity securities if
      such
      funds are required to consummate an
      initial transaction that
      is
      presented to us. We would only consummate such a fund raising simultaneously
      with the consummation of an
      initial transaction .




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.





10


**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. $107,426,000 of the net offering proceeds 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 March 31, 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.




**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 for disclosure previously provided
      regarding the Company’s ongoing litigation with Ferris, Baker Watts, Inc. No
      material developments have occurred with respect to the litigation described
      therein.





**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.*





**Because
      there are numerous companies with a business plan similar to ours seeking to
      effectuate a business combination or acquisition, it may be more difficult
      for
      us to complete a transaction.**





Based
      upon publicly available information as of May 3, 2006, we believe there are
      approximately 48 similarly structured blank check companies which have gone
      public since August 2003, of which approximately six have actually
      completed a business combination. As of such date, the remaining 42 blank check
      companies have raised more than $2.7 billion and are seeking to complete
      business combinations. Of these companies, approximately 14 have announced
      that
      they have entered into definitive agreements for business combinations but
      not
      yet consummated these transactions. Furthermore, there are a number of
      additional offerings for blank check companies that are still in the
      registration process but have not completed initial public offerings and there
      are likely to be more blank check companies filing registration statements
      for
      initial public offerings after the date of this Quarterly Report on Form 10-Q
      and prior to our completion of a business combination. While some of the blank
      check companies must complete their respective business combinations in specific
      industries, a significant number of them may consummate their business
      combinations in any industry they choose or have very broad definitions of
      the
      industries they will target. Therefore, we may be subject to competition from
      these and other companies seeking to consummate a business combination. We
      cannot assure you that we will be able to successfully compete for an attractive
      business combination. In addition, because of this competition, we cannot assure
      you that we will be able to effectuate an initial transaction within the
      required time period. Further, the fact that only six of such companies have
      completed a business combination and only 14 additional of such companies have
      entered into a definitive agreement for a business combination may be an
      indication that there are only a limited number of attractive targets available
      to such entities or that many targets are not inclined to enter into a
      transaction with a blank check company. Moreover, we will also compete with
      private equity funds, financial institutions and numerous other buyers for
      potential acquisitions. If we are unable to consummate an initial transaction
      within the prescribed time period, we will be forced to liquidate.





11


**We
      may have insufficient resources to cover our operating expenses, the costs
      and
      expenses of litigation and the expenses of consummating an initial
      transaction.**





We
      have
      reserved $2,540,925 from the proceeds of our initial public offering to cover
      our operating expenses and the costs and expenses associated with litigation
      in
      which we are involved through May 16, 2007 and to cover the expenses incurred
      in
      connection with our initial transaction. As of May 1, 2006, we had $1,648,363
      remaining outside of the trust account to cover our operating costs and expenses
      associated with litigation. This amount is based on management's estimates
      of
      the costs needed to fund our operations through May 16, 2007 and consummate
      our
      initial transaction. Those estimates may prove inaccurate, especially if a
      portion of the available proceeds is used to pay legal costs of, to settle,
      or
      to pay a judgment in outstanding litigation or make a down payment or pay
      exclusivity or similar fees in connection with our initial transaction or if
      we
      expend a significant portion of the available proceeds in pursuit of a business
      combination or portfolio acquisition that is not consummated. If we do not
      have
      sufficient proceeds available to fund our expenses, we may be forced to obtain
      additional financing (including loans), either from our management or the
      existing stockholders or from third parties. We may not be able to obtain
      additional financing and our existing stockholders and management are not
      obligated to provide any additional financing. If we do not have sufficient
      proceeds and cannot find additional financing, we may be forced to liquidate
      prior to consummating a business combination or portfolio
      acquisition.





**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 $1,380,804 in interest through
      March 31, 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.


12





**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




**COLD
                SPRING CAPITAL INC.**Date:
                May 15, 2006
            
            By:
            
            /s/
                Richard A. StrattonName:
                Richard A. StrattonTitle:
                Chairman of the Board and Chief Executive Officer(Principal
                Executive Officer)Date:
                May 15, 2006
            
            By:
            
            /s/
                Joseph S. WringartenName:
                Joseph S. WeingartenTitle:
                President and Treasurer(Principal
                Financial Officer)




13


**EXHIBIT
      INDEX**





**Exhibit
                No.**
            
            **Description**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 ofJoseph
                S. Weingarten.






14