SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549











FORM
      10-KSB










[X]
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934





For
      the
      fiscal year ended December 31, 2005





OR





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


For
      the
      transition period from to





Commission
      File No. 000-32429





GOLDSPRING,
      INC.


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





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




P.O.
      Box
      1118


Virginia
      City, NV 89440


(775)
      847-5272


(Address,
      including zip code, and telephone number,


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





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


Yes
      [x]
      No [ ]





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





State
      issuer's revenues for the most recent fiscal year: $ 2,632,112





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates based on the average bid and asked price as of March 31, 2006:
      $
      8,600,000





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the last practicable date: 537,197,775 shares of Common Stock, $0.000666
      Par Value, as of March 31, 2006.





2


TABLE
      OF
      CONTENTS





PART
      I


ITEM
                  1
              
              DESCRIPTION
                  OF BUSINESS
              
              3ITEM
                  2
              
              DESCRIPTION
                  OF PROPERTY
              
              11ITEM
                  3
              
              LEGAL
                  PROCEEDINGS
              
              14ITEM
                  4
              
              SUBMISSION
                  OF MATTERS TO VOTE OF SECURITY HOLDERS
              
              16PART
                  IIITEM
                  5
              
              MARKET
                  FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS
              
              17ITEM
                  6
              
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
              
              17ITEM
                  7
              
              FINANCIAL
                  STATEMENTS
              
              20ITEM
                  8
              
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              
              20ITEM
                  8A
              
              CONTROLS
                  AND PROCEDURES
              
              20ITEM
                  8B
              
              OTHER
                  INFORMATION
              
              20PART
                  IIIITEM
                  9
              
              DIRECTORS
                  AND EXECUTIVE OFFICERS OF THE REGISTRANT
              
              20ITEM
                  10
              
              EXECUTIVE
                  COMPENSATION
              
              20ITEM
                  11
              
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS  AND MANAGEMENT AND
                  RELATED STOCKHOLDER MATTERS
              
              20ITEM
                  12
              
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              
              21ITEM
                  13
              
              EXHIBITS
                  AND REPORTS ON FORM 8-K
              
              21ITEM
                  14
              
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              
              22SIGNATURES
              
              23INDEX
                  TO CONSOLIDATED FINANCIAL STATEMENTS
              
              F-1
 
 **Statement
        Regarding Forward-Looking Statements**





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




3


**PART
      I**




**Item
      1****.****Description
      of Business**




***Overview***




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




2005
      has
      been a year filled with challenges for our Company. In addition to trying to
      bring our Plum Mine operation into profitable production, we have continued
      to
      experience the costs and distractions of the litigation between the Company
      and
      its founder that has impacted our Company since December 2004. The litigation
      has been a drain on our scarce capital and human resources. (See Part I, Item
      3,
“Legal Proceedings” for a detailed discussion.) We are committed to finding a
      resolution to our pending legal matters that will allow our management to focus
      on building a successful, profitable operation. We are actively seeking
      financing to meet our working capital needs and fuel our growth. If we are
      unable to secure such financing, we may be unable to continue as a going
      concern.




In
      March
      2005, we initiated a program to improve the operational efficiency of our mining
      operation. As part of this program, we consolidated our corporate office with
      the Plum Mine office. We also made improvements to our processing plant and
      took
      over crushing operations from our third-party contractor, reducing costs and
      increasing our control over the crushing process. Our improvement program
      continued throughout the year. In November 2005, we retained licensed mining
      engineer Jim Golden to conduct a comprehensive review of all aspects of the
      Plum
      Mine operation, including the overall mine plan, with the objective of further
      improving efficiency, increasing production, and reducing costs. Mr. Golden
      has
      over twenty years of experience in the mining industry, including ten years
      with
      Peter Kiewit’s mining division, where he was a district manager. Since 1990, Mr.
      Golden has owned his own consulting firm, where he has provided consulting
      services throughout the world for over fifty mining companies. We have also
      assembled a team of professional mining consultants, who are recognized experts
      in their respective disciplines, to assist in the process of reviewing the
      operation. The team includes Jeff Butwell, a metallurgist; John Esser, an
      electrical engineer; Dennis Anderson, a geologic, soils and environmental
      engineer; and Stephen Russell, a geologist with twenty-five years of
      comprehensive mining experience. Furthermore we have retained Mine Development
      and Associates of Reno, Nevada to update our mine plan and model. Recent changes
      have included revising the mine plan to reflect the current higher gold prices;
      adding various efficiencies in the processing area; and re-positioning personnel
      to maximize overall performance. We believe that these improvements will result
      in increased gold production and reduced production costs. As we move into
      2006,
      we continue to move forward with the operational improvement plan and the
      implementation of the various process modifications.




The
      following table sets forth certain information regarding our current
      projects.




**Name**
            **Location**
            **Type**Plum Mine
            Storey and Lyon County, Nevada
            Gold and silver lode claims- open pit
              test
              miningComo
            Lyon County, Nevada
            Gold
              and silver lode claimsGold Canyon
            Lyon County, Nevada
            Placer gold claimsSpring Valley
            Lyon
              County, Nevada
            Placer
              gold claimsBig Mike
            Pershing County, Nevada
            Lode
              and Placer copper claims





Our
      Plum
      exploration project is located between Carson City and Virginia City, Nevada,
      about 30 miles southeast of Reno in an area known as American Flat. Our Gold
      Canyon and Spring Valley placer claims are located five miles south of our
      Plum
      property, in Lyon County, Nevada. Our Big Mike Copper property is located
      approximately two hours east of Reno near Winnemucca, Nevada.




4




Our
      Plum
      exploration activities include open pit gold and silver test mining. As defined
      by SEC Industry Guide 7, we have not yet established any proven or probable
      reserves at this project. Therefore, all of our activities are considered test
      mining and exploratory in nature. Test mining at Plum commenced in the third
      quarter of 2004. We have not as yet explored or developed our Como claims.
      We
      also have not completed any exploratory activities on our Gold Canyon, Spring
      Valley, or Big Mike properties. We have not established reserves on any of
      these
      properties. Therefore, there can be no assurance that we will be able to produce
      sufficient gold to recover our investment and operating costs.




***Employees***




We
      have
      20 employees, including our managers, administrative staff, engineers,
      geologists, lab technicians, and process operators. We use consultants with
      specific skills to assist with various aspects of our operation, including
      project evaluation, due diligence, and acquisition initiatives. We also use
      subcontractors in our test mining operations, which involve approximately 20
      people, including a test mining and screening foreman.




***Principal
      Markets***





We
      plan
      to sell our production on world markets at prices established by market forces.
      These prices are not within our control.




***Government
      Regulation***




Mining
      operations and exploration activities are subject to various national, state,
      and local laws and regulations in the United States, which govern prospecting,
      development, mining, production, exports, taxes, labor standards, occupational
      health, waste disposal, protection of the environment, mine safety, hazardous
      substances, and other matters. We have obtained or have pending applications
      for
      those licenses, permits, and other authorizations currently required to conduct
      our exploration and other programs. We believe that we are in compliance in
      all
      material respects with applicable mining, health, safety, and environmental
      statutes and regulations.




***Reclamation***




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




The
      Nevada Revised Statutes and regulations promulgated thereunder by the Nevada
      State Environmental Commission and the Nevada Division of Environmental
      Protection, Bureau of Mining and Reclamation require a surety bond to be posted
      for mining projects to assure we will leave the site safe, stable and capable
      of
      providing for a productive post-mining land use. Pursuant to the approved
      Reclamation Plan for Billie the Kid, we posted a surety bond in the amount
      of
      $553,000, of which $377,000 was in the form of a cash deposit and the balance
      was secured from a surety agent.




***Competition***




We
      compete with other mineral exploration and mining companies in connection with
      the acquisition of gold and other mineral properties. There may be competition
      for gold acquisition opportunities, some of which may involve other companies
      having substantially greater financial resources than we do.




***Officers
      of our Company***




Robert
      T.
      Faber, CPA* **** has
      served as President and Chief Executive Officer of our company since September
      2004 and Chief Financial Officer since June 2003. Mr. Faber is an executive
      with
      20 years of diverse senior financial and operational management, business and
      acquisition experience, including 10 years of international experience. Mr.
      Faber was named Chief Executive Officer and President of GoldSpring in September
      2004. Prior to his appointment, he had served as Chief Financial Officer since
      June 2003. Mr. Faber served from 2002 until 2003 as Vice President of United
      Site Services, Inc., a privately held service consolidator in the waste service
      industry. Additionally, Mr. Faber served as an executive with Allied Waste
      Industries from 2001 until 2002, overseeing a $1.2 billion multi-state area
      and
      served as Chief Financial Officer with Frontier Waste Services, LLC from 1999
      until 2001. Prior to Frontier Waste, Mr. Faber spent 17 years with Waste
      Management, Inc., a publicly traded environmental services company, during
      which
      time he served in senior positions both internationally and domestically. Mr.
      Faber’s positions included Director of Finance of Waste Management’s $1.4
      billion multi-country International operations based in London, England and
      Vice
      President and Controller for several $100 million plus multi-state market areas.
      (*Not licensed to practice)




5




***Financing
      Events and Restructuring***




In
      2004,
      we offered securities in a private placement transaction completed during
      March 2004 (the “March Offering”). In connection with the offering, we
      received gross proceeds of $10 million from a group of accredited institutional
      and individual investors. Subsequent to the offering’s close, we failed to meet
      certain requirements of the offering regarding filing an effective registration
      statement with the Securities and Exchange Commission. Under the terms of the
      March 2004 subscription agreement, failure to have an effective registration
      statement by the required date resulted in liquidated damages in the amount
      of
      2% of the principal investment amount (i.e., $200,000) for each 30-day period
      until the registration statement was declared effective. We accrued
      approximately $1.1 million in liquidated damages through November 30, 2004
      associated with our failure to cause our registration statement to be effective.




During
      the SEC review process of the registration statement we filed in connection
      with
      the March Offering, we learned that our founder and former Chief Executive
      Officer may have misrepresented the value of certain mineral properties that
      his
      company sold to us in a June 2003 transaction. Our discussions with the SEC
      led
      to our decision to restate our annual and quarterly SEC filings to reflect
      our
      reevaluation of the value of those mineral properties. This reevaluation led
      to
      an investigation into the activities of our founder. On November 9, 2004, we
      filed a lawsuit in Maricopa County (Arizona) Superior Court against Stephen
      B.
      Parent and four other defendants, together with their spouses, and Ecovery,
      Inc.
      (See - Legal Proceedings). In essence, the complaint alleges that Stephen Parent
      misrepresented the value of certain placer mining claims that his company,
      Ecovery, sold to us in 2003 in exchange for approximately 99,000,000 shares
      of
      our stock and $100,000 in cash; that Ecovery no longer had good title to the
      mining claims when they were sold to us; that Mr. Parent and the other
      named defendants conspired to defraud us out of approximately 24,000,000 shares
      of our stock; and that Mr. Parent misappropriated more than $300,000 in company
      funds.




The
      allegations made in our lawsuit raised questions about the representations
      that
      our founder made during the March 2004 Offering. The delay in effectiveness
      of
      our registration statement combined with the allegations raised in the lawsuit
      caused concern among the investors in the March 2004 Offering. We worked with
      the investors to address their concerns in a manner that would not force us
      to
      pay a large cash penalty or face a lawsuit, both of which would be detrimental
      to our shareholders. In consideration for restructuring the original
      transaction, the investors agreed to grant us a release for any
      misrepresentations that may have been made, allowed us to capitalize the accrued
      liquidated damages, and provided us with an additional 90 days to cause the
      registration statement to become effective, thereby avoiding potential
      liquidated damages of $600,000 if the registration statement were to be filed
      before December 30, 2004.




As
      a
      result, and effective November 30, 2004, we restructured the private
      placement transaction. In connection with the restructuring, we exchanged the
      21,739,129 shares of common stock and the 21,739,129 warrants to purchase shares
      of common stock issued to the investors in the March Offering for 8% convertible
      notes in the aggregate principal amount of approximately $11.1 million and
      four-year warrants to purchase 27,750,000 shares of common stock at an exercise
      price of $0.20 per share, subject to anti-dilution adjustments. The principal
      amount of the convertible notes consists of the original $10.0 million
      investment plus approximately $1.1 million of accrued contractual penalties
      associated with the delay in effectiveness of our registration statement
      covering the resale of the shares of common stock held by the investors. The
      restructured subscription agreement also permitted the convertible note holders
      to convert their notes into common stock at a discounted conversion rate if
      they
      delivered their notices of conversion within 20 trading days of the November
      30,
      2004 restructuring closing date.




On
      or
      about December 9, 2004, Mr. Parent and fellow directors Jerrie W. Gasch and
      Purnendu K. Rana Medhi purportedly seized control of our company. They attempted
      to remove the remaining seven members of our board and announced their intention
      not to honor the restructured subscription agreement of November 30, 2004,
      which
      both Mr. Medhi and Mr. Gasch had approved. On December 21, 2004, Mr. Parent
      caused our pending registration statement to be withdrawn from SEC
      consideration, resulting in further delays to the registration process and
      additional liquidated damages. Mr. Parent remained in control of our corporate
      office until February 16, 2005 (See - Legal Proceedings). During his period
      of
      purported control of our company, Mr. Parent refused to honor our obligations
      under either the March 2004 subscription agreement or the restructured November
      2004 subscription agreement.




6




On
      December 20, 2004, we received notice from holders of approximately $3.8 million
      of convertible notes payable of their intention to convert into shares of our
      common stock. As a result, we recorded the issuance of 33,817,594 shares on
      December 20, 2004. We were required to deliver certificates representing
      unrestricted, free-trading stock within three business days of our receipt
      of
      the notices of conversion. As discussed above, our former Chief Executive
      Officer did not deliver the stock certificates within the required period,
      resulting in material financial damages to our company.




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




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




Our
      November 2004 subscription agreement required us to file a registration
      statement with the Securities and Exchange Commission no later than December
      30,
      2004 and to cause the registration statement to be declared effective no later
      than February 14, 2005. As discussed above, our former Chief Executive Officer
      withdrew our pending registration statement and did not submit a new
      registration statement during the period of his purported control of our
      company. His failure to submit the registration statement to the SEC by December
      30, 2004 triggered liquidated damages to accrue under the November 2004
      subscription agreement. Pursuant to the terms of the Subscription Agreement,
      the
      damages may be paid in cash or in unrestricted common stock. If paid in
      unrestricted common stock, we were required to pay 200% of the cash penalty.
      During 2005, we incurred approximately $4.5 million of liquidated damages
      related to our failure to have an effective registration statement. Because
      we
      did not have the cash or free-trading stock to pay the liquidated damages,
      we
      reached a settlement agreement with the investors to pay the liquidated damages
      in restricted common stock valued at $0.03 per share. During 2005, we paid
      liquidated damages totaling $3 million for the period from December 30, 2004
      through July 26, 2005 through the issuance of approximately 99 million shares
      common stock. We filed the SB-2 registration statement in April 2005. The
      registration statement was declared effective on October 3, 2005. For the period
      from July 27, 2005 until October 3, 2005, we incurred liquidated damages of
      $880,000. Because we anticipate paying these damages through the issuance of
      stock, we have recognized an additional expense of $880,000, reflecting the
      200%
      stock payment provision of the subscription agreement.




On
      July
      15, 2005, we completed a financing transaction, which provided us with $800,000
      in funding. In consideration for the financing, we issued promissory notes
      with
      a face value of $1.2 million, reflecting an original issue discount of
      thirty-three and one-third (33.3%) percent. The term of the notes is two years,
      with an optional extension of one year at the option of the investor. The annual
      interest rate on the notes is 15% of the face value and is payable monthly.
      The
      funds were used for working capital and general corporate purposes.




On
      September 28, 2005, we completed another financing transaction under the same
      terms and conditions as the July 2005 financing. The September 2005 financing
      provided us with $200,000 in funding. The funds were used for working capital
      and general corporate purposes.




During
      the fourth quarter of 2005, we completed three financing transactions, which
      provided us with a total of $575,000 in funding. In consideration for the
      financing, we issued promissory notes with a term of ninety (90) days and an
      interest rate of sixteen percent (16%) per annum. The default interest rate
      on
      the notes is twenty-two percent (22%). The funds were used for working capital
      and general corporate purposes.




7




The
      aggregate total of 2005 financing transactions was $1,575,000.




In
      February 2006, we completed an additional financing transaction, which provided
      us with $250,000 in funding. In consideration for the funding, we issued a
      promissory note with a term of ninety (90) days and an interest rate of sixteen
      percent (16%) per annum. The default interest rate on the note is twenty-two
      percent (22%). The funds were used for working capital and general corporate
      purposes. In March 2006, we completed an additional financing transaction,
      which
      provided us with $150,000 in funding under the same terms and conditions as
      the
      February 2006 financing.





***Risk
      Factors***





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




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




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




***We
      have received a qualified report from our independent
      auditors***




The
      report by the independent auditors on our financial statements indicates that
      our financial statements have been prepared assuming that we will continue
      as a
      going concern. The report indicates that our recurring losses from operations
      and working capital deficit raise substantial doubt about our ability to
      continue as a going concern.




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




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




***Our
      corporate officers lack technical training and mining
      experience.***




Our
      corporate officers lack technical training and experience in operating a mine.
      With no direct training or experience in these areas, our corporate officers
      may
      not be fully aware of many of the specific requirements related to working
      within the mining industry. The decisions of our corporate officers may not
      take
      into account standard engineering or managerial approaches that operating mining
      companies commonly use. Consequently, our operations, earnings, and ultimate
      financial success could suffer irreparable harm due to corporate officers’ lack
      of experience in the mining industry.




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




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




8




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




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




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




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




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




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




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




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




9




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




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




***We
      compete with other mineral exploration and mining
      companies***




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




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




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




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




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




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




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




10




***We
      have no insurance for environmental problems.***




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




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




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




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




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




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




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




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




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




11




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




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




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




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




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




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




***Outstanding
      convertible securities and warrants may result in substantial
      dilution.***




At
      December 31, 2005, we had outstanding 325,047,122 shares of common stock. In
      addition, we had outstanding convertible notes and various common stock purchase
      warrants. At December 31, 2005, these notes and warrants were convertible into
      or exercisable for a total of approximately 762 million additional shares of
      our
      common stock, subject to further anti-dilution provisions.




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




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






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




12




**Item
      2.**  **Description
      of Property**




***Plum
      (Billie the Kid/Lucerne)***




*Location,
      Access, and Title to the Property*




We
      own
      the following mineral exploration projects: The Plum Mine gold and silver
      exploration and test mining project and the Como mineral Claims. The Plum
      project is located in Storey and Lyon Counties, Nevada. The Plum property is
      physically situated roughly three miles south of Virginia City, Nevada. Paved
      state highways from Reno, Carson City, and Virginia City provide access to
      the
      property. The Como mineral Claims are located in Lyon County, Nevada,
      approximately 15 miles east of Carson City, and have not been explored or
      developed by us.




Our
      property rights to the mineral properties consist of several mineral leases,
      unpatented mineral claims, and fee ownership of real property. We have a mineral
      exploration and mining lease agreement with Claire Obester and the Estate of
      Dorothy Obester dated January 1, 1997 covering mineral rights to five patented
      claims located in both Storey and Lyon Counties, including the Billie the Kid
      and Lucerne patented lode claims. The lease remains in effect for as long as
      exploration, development, mining, or processing operations are conducted on
      a
      continuous basis, without a lapse of activity for more than 180 days. We pay
      a
      royalty to the lessor equal to the greater of $500 per month or a royalty
      percentage on the amount received by us on the sale of the mineral products
      less
      the costs incurred for marketing, distribution, processing and sales, commonly
      referred to as a Net Smelter Return. The royalty percentage varies based on
      the
      price of gold: 3% if gold is less than $400 per ounce, 4% if gold is at least
      $400 per ounce but less than $500 per ounce, and 5% if gold is $500 or greater
      per ounce. We are also responsible for payment and filing of annual maintenance
      fees, if any, and taxes for these claims.




We
      have a
      second mineral exploration and mining lease agreement with the Donovan Silver
      Hills, LLC dated September 1, 1999 covering seven patented claims and 13
      unpatented claims located in Storey and Lyon Counties. The lease remains in
      effect for as long as exploration, development, mining, or processing operations
      are conducted on a continuous basis, without a lapse of activity for more than
      180 days. We pay a royalty to the lessor amounting to the greater of $500 per
      month or a royalty percentage of the Net Smelter Returns. The royalty percentage
      varies based on the price of gold: 3% if gold is less than $400 per ounce,
      4% if
      gold is at least $400 per ounce but less than $500 per ounce, and 5% if gold
      is
      $500 or greater per ounce. We are also responsible for payment and filing of
      annual maintenance fees, if any, and taxes for these claims.




In
      addition to the mineral leases, we hold 20 unpatented mineral claims in Storey
      County, hold eight unpatented mineral claims in Lyon County, and own title
      to 40
      acres of land in Storey County. The W. Hughes Brockbank Living Trust has a
      lien
      against and a security interest in these unpatented mineral claims and the
      40
      acres of land pursuant to a Deed of Trust dated October 31, 2003, entered into
      with W. Hughes Brockbank Living Trust. The Deed of Trust was granted to secure
      a
      promissory note, dated October 31, 2003, in the amount of $1 million for the
      balance of the purchase price for the property. The non-interest bearing
      promissory note requires ten quarterly payments of $100,000 each. As of December
      31, 2005, the outstanding balance of the note was $450,000.




*Present
      Condition of Property and Work Performed*




We
      have
      not completed extensive characterization of mineralized material, geologic
      analysis, metallurgical testing, mine planning, or economic analysis on the
      Plum
      mineral assets. We have not established reserves on this property. Therefore,
      any activity we perform on the property is considered exploratory in nature.
      Part of our exploration includes operating a test mine. The purpose of the
      test
      mine is to determine our capital and operating costs, metallurgical recoveries,
      and other mining factors, and demonstrate that we can make a profit over and
      above our capital and operating costs.




*Description
      of Equipment and other Infrastructure Facilities*




During
      2005 GoldSpring used a mining contractor to dig material from the Billie the
      Kid
      pit. The contractor used 50 ton Caterpillar 773 haul trucks to haul the
      mineralized materials from the Billie the Kid/Lucerne open pit to the crushing
      and process facility located in the northeast corner of the property. The
      mineralized material is crushed, screened, and agglomerated in a self-contained
      portable crushing plant. The mineralized material is fed to a plate feeder
      by a
      front-end loader. The feeder provides a steady feed to a Pioneer jaw crusher
      where material is crushed to -3” minus. Prior to agglomeration, 10 pounds of
      Type II Portland Cement is added for every ton of mineralized material and
      metered on to the pug mill feed conveyor which is then transported to the leach
      pads. A dilute cyanide solution is then applied to the mineralized material
      on
      the leach pads. Pregnant solution is accumulated from the leach pad and is
      then
      pumped to the 300 gpm Merrill-Crowe recovery plant. The resulting zinc
      precipitate collected in the presses is dried and smelted on the property using
      an electric furnace to produce gold dore.




13




Our
      third-party contract mining company owns and provides the haul trucks, front
      end
      shovel, loaders, blade, dozer, hopper, crushers, screen, mobile crane, foot
      roller, water truck, conveyors, and generators. We own the Merrill-Crowe gold
      precipitation plant, the agglomerator, dozers, cement silo with a screw feeder,
      and conveyors. The Merrill-Crowe gold precipitation plant and the mineral
      processing equipment are less than two years old. The total book value of our
      equipment associated with the Billie the Kid and the Lucerne facilities is
      approximately $1,800,000.




*Power
      Utilization at the Plum Property:*




We
      completed the installation of the grid power line to the
      crushing/screening/agglomeration system, replacing a Caterpillar 3516 (1000
      kilowatt) diesel generator. The change has reduced our crushing costs and
      directly attributed to expanding our permit for tons crushed.




*Geology,
      Structure and Mineralization*




Several
      large low angle brecciated structural zones (faults) dominate the geology of
      the
      Billie the Kid/Lucerne deposit. The thickness of these structural zones ranges
      from 20 to 30 feet. Gold mineralization within the Billie the Kid/Lucerne
      deposit is closely associated with dikes and sills that are composed of Alta
      Andesite, a dark-colored, fine-grained volcanic rock, but these rocks are rarely
      or weakly mineralized. Hartford Rhyolite, a fine-grained volcanic rock, hosts
      approximately 70% to 80% of the gold mineralization and the remaining 20% to
      30%
      is associated with Alta Andesite.




*Mineralized
      Material*




We
      have
      not established any proven or probable reserves that meet the requirements
      of
      SEC Industry Guide 7. Therefore, all of our activities are considered
      exploratory in nature. Part of our exploration includes operating a test mine.
      The purpose of the test mine is to determine our capital and operating costs,
      metallurgical recoveries, and other mining factors, and demonstrate that we
      can
      make a profit over and above our capital and operating cost. These test mining
      activities may provide us with sufficient data to prepare a formal mine plan
      and
      establish reserves. .




As
      evidenced by the 213 reverse circulation drill holes drilled between 1990 and
      1993, and aided by surface geological mapping, sampling, mine modeling and
      metallurgical testing, we believe the present Lucerne Pit contains estimated
      gold-bearing mineralized material of approximately 910,000 tons at 0.043 opt
      gold with a potential strip ratio of 0.6:1. The Billie the Kid pit contains
      134,000 tons grading 0.047 opt gold with a potential stripping ratio of 1.5:1.




It
      should
      also be noted that the above-stated tonnage of mineralized material does not
      reflect waste dilution during test mining or metal value losses in processing.
      Nor do the above numbers reflect the drilling and exploration work performed
      in
      2004 and 2005. We have established procedures to recalculate and update our
      mineral inventory annually, and we plan do so in 2006. Our year-end mineral
      inventory calculations will incorporate test mining depletions and addition
      to
      inventory based on results of mine optimization and exploration work performed
      during 2004 and 2005.




*Future
      Exploration Potential*




We
      are
      conducting an exploration program to test surface mineral targets as well as
      deep underground bonanza targets by using geological mapping,
      geochemical/geophysical investigations and drilling.




***Gold
      Canyon and Spring Valley (Placer Claims)***




We
      own a
      100% interest in the 25 federal unpatented placer claims located in Lyon County,
      Nevada known as the Gold Canyon and Spring Valley claims. The 25 unpatented
      placer claims cover approximately 850 acres and are located about 30 miles
      southeast of Reno and four miles south of Virginia City, Nevada. We have not
      completed any exploration activity on the Gold Canyon or Spring Valley
      properties. The properties are undeveloped and do not contain any open-pit
      or
      underground mines. We have not established any proven or probable reserves
      on
      the mineral claims. All of our activities associated with these properties
      are
      exploratory in nature. We purchased an RMS-Ross processing plant in late 2003
      for use on these properties. The processing plant is stored at our Plum Mining
      property in American Flat, Nevada. We have no plans to begin test mining
      operations on these properties in the near-term.




14




***The
      “Big Mike” Copper Project***




We
      own a
      100% interest in the 17 unpatented lode claims and one placer claim covering
      a
      total of 310 acres in Pershing County, Nevada that comprise the Big Mike Copper
      property. The Big Mike Copper property is located approximately 32 miles south
      of Winnemucca in Pershing County, Nevada. Access to this site is available
      by
      way of Grass Valley Road, a county maintained paved and gravel road, for 30
      miles and then two miles on a BLM gravel road. The property is situated at
      an
      elevation of 5,000 to 5,500 feet. We have not completed any exploration activity
      or undertaken any geologic, engineering or economic studies on the Big Mike
      Copper property. The property includes an open pit, mineralized material in
      a
      stockpile, and waste dumps. As the site was previously mined, there are also
      roads and graded areas on the property. Two cased water wells with rights to
      two
      cubic feet per second are also present on the property.




We
      are
      seeking a partner to develop this project. Because we have not established
      reserves on this property, any work that will be conducted on the property
      would
      be considered exploratory in nature.




***Mineral
      Permits Acquired in Alberta, Canada***




In
      May
      2004, the Alberta government granted us mineral permits for all non-energy
      minerals on nearly 800 square miles of Alberta, Canada mining mineral property.
      Sedimentary Oolitic iron bearing material was discovered in 1953 from oil and
      gas drilling on the area of our mineral permits. From 1995 through 1997, a
      series of tests were performed that showed the mineralized material present
      was
      amenable to treatment to produce enriched iron. This is an early stage project
      and our activities associated with this mineral area are exploratory in nature.
      We have not established any reserves on this property. The scope and size of
      this potential project will require substantial capital, time and outside
      assistance during both the pre- and post-feasibility stages.




In
      February 2006, we executed a Letter of Intent to sell these mineral rights
      for
      CDN$1,100,000. CDN$100,000 of the sales price is to be paid in cash and CDN$1
      million is to be paid through a 3% Net Smelter Royalty on Production of Iron
      Pellets or Ingots. We closed this transaction in March 2006.




**Item
      3.**  **Legal
      Proceedings**





***The
      State Court Case***




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




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




On
      November 29, 2004, we moved for a temporary restraining order, or TRO,
      prohibiting Mr. Parent and his spouse from selling, transferring, assigning,
      or
      otherwise disposing of up to approximately 123,000,000 shares of our stock
      in
      their possession. After a hearing, at which the Parents appeared through
      counsel, the Honorable Anna M. Baca granted the motion, conditioned on the
      posting of an $8 million bond. We did not post the bond, and the TRO was
      subsequently dissolved.




15




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




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




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




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




***The
      Federal Court Case***




*Background*




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




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




*The
      Temporary Restraining Order*




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




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




16




*The
      Preliminary Injunction and Notice of Appeal*




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




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




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




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




Therefore,
      on February 28, 2005, our company filed a legal memorandum with the Court
      addressing these issues. In it, we pointed out that applicable federal
      securities laws require us to provide shareholders with current financial
      statements, which will not be available until March 31, 2005, and that Florida
      law and our company’s bylaws require that a record date be fixed in advance
      rather than in the past. On March 14, 2005, the Court held a hearing on these
      issues. After hearing argument of counsel, the Court indicated that it agreed
      with our position.




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




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




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




17




*The
      Investors’ Motion to Intervene*




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




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




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




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




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




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




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




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




*The
      “New” Consent Resolutions*




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




18




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




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




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





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





The
      2005
      Annual Meeting of Stockholders of GoldSpring, Inc. was held on October 26,
      2005.
      At the meeting, the slate of directors nominated by management—consisting of
      Christopher L. Aguilar, Todd S. Brown, Stanley A. Hirschman, Bill Nance and
      Rex
      Outzen—was elected. Each director was elected to serve until the next annual
      meeting or until his successor is appointed, unless his office is earlier
      vacated in accordance with the By-laws of the Corporation.




The
      matters voted upon and passed at the meeting were: (1) the election of the
      above-listed directors; (2) the
      approval of the Company’s 2005 Stock Option and Incentive Plan; (3) the approval
      of the proposal to authorize Serial Preferred Stock; (4) the approval of the
      authorization of additional common stock; and (5) the ratification of the
      Company’s selection of Jewett, Schwartz & Associates as the Company’s
      Independent Auditor.




The
      results of the voting on those matters are outlined in the following table:


(1)  Election
      of directors:




**VOTES
                FOR**
            **AGAINST**
            **ABSTAIN**Christopher
                L. Aguilar
            192,612,585
            45,957,250
            53,831,289Todd
                S. Brown
            192,584,865
            45,957,250
            53,859,009Stanley
                A. Hirschman
            184,615,285
            45,957,250
            61,828,589Bill
                Nance
            192,586,585
            45,957,250
            53,857,289Rex
                L. Outzen
            192,876,365
            45,957,250
            53,567,509





19




**VOTES
                FOR**
            **AGAINST**
            **ABSTAIN**(2)
                The approval of the Company’s 2005 Stock Option and Incentive
                Plan:
            147,022,455
            105,060,941
            20,950(3)
                The approval of the proposal to authorize Serial Preferred
                Stock
            145,058,501
            105,995,765
            1,050,080(4)
                The approval of the authorization of additional common
                stock
            184,922,191
            107,383,603
            95,330(5)
                The ratification of the Company’s selection of Jewett, Schwartz &
                Associates as the Company’s Independent Auditor
            190,524,562
            96,341,516
            5,535,046





20


**PART
      II**





**Item
      5.**  **Market
      for Common Equity, Related Stockholder Matters and Small Business Issuer
      Purchases of Equity Securities**







PRICE
      RANGE OF COMMON STOCK






Our
      common stock is currently traded on the OTC Bulletin Board under the symbol
      “GSPG:OB”. The following table sets forth the high and low bid prices for our
      common stock since for the last three years.





**Year**
            
            **Quarter**
            **High**
            **Low**2003
            
            First
            1.05
            0.062003
            
            Second
            0.16
            0.012003
            
            Third
            0.49
            0.052003
            
            Fourth
            0.84
            0.272004
            
            First
            1.04
            0.662004
            
            Second
            0.85
            0.282004
            
            Third
            0.42
            0.172004
            
            Fourth
            0.22
            0.102005
            
            First
            0.23
            0.062005
            
            Second
            0.10
            0.032005
            
            Third
            0.11
            0.052005
            
            Fourth
            0.06
            0.02




As
      of
      December 31, 2005, we had over 2,000 holders of our common stock. That does
      not
      include the number of beneficial holders whose stock is held in the name of
      broker-dealers or banks. At December 31, 2005, we had 325,047,122 shares of
      common stock outstanding. The above quotations reflect the inter-dealer prices
      without retail mark-up, mark-down or commissions and may not represent actual
      transactions.




We
      have
      never paid dividends and do not expect to pay any dividends in the foreseeable
      future.





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





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





The
      following discussion addresses matters we consider important for an
      understanding of our financial condition and results of operations as of and
      for
      the year ended December 31, 2005, as well as our future results.





*Overview*





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




21




2005
      has
      been a year filled with challenges for our Company. In addition to trying to
      bring our Plum Mine operation into profitable production, we have continued
      to
      experience the costs and distractions of the litigation between the Company
      and
      its founder that has impacted our Company since late 2004. The litigation has
      been a drain on our scarce capital and human resources. (See Part I, Item 3,
      “Legal Proceedings” for a detailed discussion.) We are committed to finding a
      resolution to our pending legal matters that will allow our management to focus
      on building a successful, profitable operation. We are actively seeking
      financing to meet our working capital needs and fuel our growth. If we are
      unable to secure such financing, we may be unable to continue as a going
      concern.




In
      2005,
      we continued to look for growth opportunities to expand our footprint at the
      Plum Mine as well as to add additional properties to our portfolio. During
      September and October of 2005, we acquired twenty-two mining claims from
      Comstock Gold, LLC. These claims included the Justice, Woodville and Keystone
      patented claims, which are adjacent to our operations at the Plum Mine. We
      also
      acquired an additional twelve claims in the Comstock Lode, known as the
      Vindicator claims, in November of 2005. We intend to continue to pursue growth
      opportunities in 2006.




On
      October 3, 2005, the SEC declared our SB-2 Registration Statement effective,
      ceasing the liquidated damages we had incurred since the March 2004 financing.
      Pursuant to the March 2004 subscription agreement, our Company was
      obligated to pay
      damages of two percent per month on the outstanding principal balance. These
      damages totaled $290,000 per month.




In
      March
      2005, we initiated a program to improve the operational efficiency of our mining
      operation. As part of this program, we consolidated our corporate office with
      the Plum Mine office. We also made improvements to our processing plant and
      took
      over crushing operations from our third-party contractor, reducing costs and
      increasing our control over the crushing process. Our improvement program
      continued throughout the year. In November 2005, we retained licensed mining
      engineer Jim Golden to conduct a comprehensive review of all aspects of the
      Plum
      Mine operation, including the overall mine plan, with the objective of further
      improving efficiency, increasing production, and reducing costs. Mr. Golden
      has
      over twenty years of experience in the mining industry, including ten years
      with
      Peter Kiewit’s mining division, where he was a district manager. Since 1990, Mr.
      Golden has owned his own consulting firm, where he has provided consulting
      services throughout the world for over fifty mining companies. We have also
      assembled a team of professional mining consultants, who are recognized experts
      in their respective disciplines, to assist in the process of reviewing the
      operation. The team includes Jeff Butwell, a metallurgist; John Esser, an
      electrical engineer; Dennis Anderson, a geologic, soils and environmental
      engineer; and Stephen Russell, a geologist with twenty-five years of
      comprehensive mining experience. Furthermore we have retained Mine Development
      and Associates of Reno, Nevada to update our mine plan and model. Recent changes
      have included revising the mine plan to reflect the current higher gold prices;
      adding various efficiencies in the processing area; and re-positioning personnel
      to maximize overall performance. We believe that these improvements will result
      in increased gold production and reduced production costs. As we move into
      2006,
      we continue to move forward with the operational improvement plan and the
      implementation of the various process modifications.





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




Our
      Plum
      Mine, which is located in Storey County, Nevada, went into test mining
      production in late third quarter 2004. We have not established reserves on
      this
      exploration project. Therefore, all of our activities on this property are
      considered test mining or exploratory in nature. One of our top priorities
      in
      2005 was to improve efficiencies and increase test mining production at our
      Plum
      Mine. In
      March
      2005, we initiated a program to improve the operational efficiency of our mining
      operation. As part of this program, we consolidated our corporate office with
      the Plum Mine office. We also made improvements to our processing plant and
      took
      over crushing operations from our third-party contractor, reducing costs and
      increasing our control over the crushing process. Our improvement program
      continued throughout the year. In November 2005, we retained licensed mining
      engineer Jim Golden to conduct a comprehensive review of all aspects of the
      Plum
      Mine operation, including the overall mine plan, with the objective of further
      improving efficiency, increasing production, and reducing costs. Mr. Golden
      has
      over twenty years of experience in the mining industry, including ten years
      with
      Peter Kiewit’s mining division, where he was a district manager. Since 1990, Mr.
      Golden has owned his own consulting firm, where he has provided consulting
      services throughout the world for over fifty mining companies. We have also
      assembled a team of professional mining consultants, who are recognized experts
      in their respective disciplines, to assist in the process of reviewing the
      operation. The team includes Jeff Butwell, a metallurgist; John Esser, an
      electrical engineer; Dennis Anderson, a geologic, soils and environmental
      engineer; and Stephen Russell, a geologist with twenty-five years of
      comprehensive mining experience. Furthermore Mine Development and Associates
      of
      Reno, Nevada is expected to complete a detailed mine plan and a reserve report
      for the Plum Mine by the end of May 2006. Recent changes have included revising
      the mine plan to reflect the current higher gold prices; adding various
      efficiencies in the processing area; and re-positioning personnel to maximize
      overall performance. The mine plan and reserve report are the culmination of
      a
      twelve-month undertaking by our Company and Mine Development & Associates.
      We believe that these improvements, including the updated mine plan, will
      improve our overall performance at the Plum Mine.




22




Inclement
      weather in northern Nevada in late 2005 and early 2006 presented a challenge
      to
      our Plum Mine operation. The mine received twelve inches of rain between
      mid-December and mid-January, filling our leach ponds nearly to capacity. This
      situation impacted our ability to mine and to process at our normal capacity,
      thus decreasing production. Our team at the mine did an excellent job, in a
      challenging situation, to insure the environmental integrity of our operation.
      The team worked closely with the regulatory authorities throughout this process.
      In mid-January, we ceased mining operations to allow time for our crew to
      stabilize the leach ponds and the processing plant. We anticipate our mining
      operations to resume May 1, 2006. During this interruption from mining, we
      took
      steps to implement additional process modifications identified through our
      operational improvement plan.




We
      also
      plan to continue our exploration program in 2006. In March 2006, we retained
      Larry Martin, a registered geologist, to oversee our exploration program at
      the
      Plum Mine and in the Comstock Lode district. Mr. Martin has over twenty-five
      years of diverse geological and exploration experience in the mining industry.
      He has worked for several major mining enterprises, including Peter Kiewit,
      where he served as manager of geological services. We have allocated a budget
      of
      $500,000 to explore and develop our claims at the Plum Mine. We expect to begin
      exploration in late spring or early summer of 2006. We intend to target our
      exploration toward replenishing and expanding our mineralized material inventory
      at our existing mine and toward developing new mineral properties. The
      successful location of additional mineralized material on the existing property
      would allow us to expand the size and the lifespan of the Plum mining project,
      exclusive of new property acquisitions. It is our belief that we possess an
      advantage with our status as likely the only heap leach gold mining permit
      holder in the area. This permit is relatively difficult to obtain, and it is
      one
      that we can expand to include new areas in the event we locate and wish to
      process new deposits.




We
      held
      our Annual Shareholders’ Meeting on October 26, 2005 in Carson City, Nevada. At
      that meeting, our shareholders elected the following slate of five independent
      directors: Christopher L. Aguilar, Todd S. Brown, Stanley A. Hirschman, Bill
      Nance and Rex L. Outzen. The new Board of Directors elected Mr. Aguilar to
      serve
      as Chairman of the Board. The Board also re-elected Robert Faber to serve as
      our
      Company’s President and Chief Executive Officer and elected Lisa Boksenbaum to
      serve as our Company’s Secretary and Treasurer. Lisa Boksenbaum resigned from
      her position with our company in February 2006.




In
      December 2005, we initiated a review of the invoices of our mining contractor.
      Specifically, we sought to reconcile the volume of material for which we were
      billed with the volume of material that was actually mined. We used an outside
      surveyor to conduct a comprehensive analysis of bank cubic yards mined. The
      results of the survey indicated that we had been over-billed by over $400,000.
      We met with the mining contractor in early 2006 to discuss this issue and
      presented our proposed billing adjustment. The mining contractor has contracted
      an engineering firm to perform an independent analysis of the data generated
      from our surveys to determine the accuracy of our calculations. We anticipate
      a
      resolution of this issue by June of 2006.




***Placer
      Claims, Water Rights, and Mineral Permits***




We
      originally became a mineral company through an acquisition of unpatented placer
      mineral claims and the Big Mike copper claims in June 2003 from Ecovery, Inc.
      The transaction had an effectuation date of March 11, 2003. Specifically, that
      acquisition provided us with a number of Nevada-based placer claims, including
      the Gold Canyon and Spring Valley claims, and 17 unpatented lode claims called
      the Big Mike Copper property. This acquisition did not include any real property
      rights. In November 2003, we acquired the Plum mine facility as well as water
      rights that are usable at Plum Mine and the Gold Canyon and Spring Valley placer
      claims. In a separate transaction, we obtained mineral permits in Alberta,
      Canada in May 2004




The
      Big
      Mike Copper property is located in Pershing County, Nevada. It covers a total
      of
      310 acres and consists of 17 unpatented lode claims and one placer claim. We
      have not established any proven or probable reserves that meet the requirements
      of SEC Industry Guide 7. We have not completed any exploration activity on
      the
      project. The property includes an open pit, mineralized material in a stockpile
      and waste dumps. We are actively exploring opportunities to bring this project
      into production. The options being considered include finding a joint venture
      partner or selling the property and retaining a production royalty.




In
      May
      2004, the Alberta government granted us mineral permits for all non-energy
      minerals on nearly 800 square miles of Alberta, Canada mineral property. Iron
      bearing material was discovered in the area covered by our mineral permits
      in
      1953 from oil and gas drilling. From 1995 through 1997, a series of tests were
      performed that showed the mineralized material present was amenable to treatment
      to produce iron pellets and pig iron. We have reviewed the existing data and
      conducted a preliminary pre-feasibility study on the property. We have not
      established any reserves on this property. In February 2006, we executed a
      Letter of Intent to sell these mineral rights for CDN$1,135,000. CDN$135,000
      of
      the sales price is to be paid in cash and CDN$1 million is to be paid through
      a
      3% Net Smelter Royalty on Production of Iron Pellets or Ingots.




23





***Comparative
      Financial Information***





**Twelve
                Months ended December 31, 2005**
            
            
            **Twelve
                Months ended December 31, 2004**
            
            
            **Difference**Revenue
            
            $
            2,632,112
            
            $
            955,380
            
            $
            1,676,732Reclamation,
                Exploration and Test Mining Expenses
            
            
            4,419,353
            
            
            6,800,011
            
            
            (2,380,658
            )Consulting
                & professional
            
            
            773,390
            
            
            659,931
            
            
            113,459Liquidated
                Damages
            
            
            4,619,144
            
            
            1,627,308
            
            
            2,991,836Interest
                Expense
            
            
            2,309,479
            
            
            65,997
            
            
            2,243,482Net
                Loss
            
            $
            (11,353,026
            )
            $
            (9,569,535
            )
            $
            (1,783,491
            )





We
      sold
      6,073 ounces of gold at an average price of $ 433 per ounce during the
      twelve-month period ended December 31, 2005 compared to gold sales of  2,836
      ounces at an average price of $ 351 per ounce during the same period of 2004.
      We
      spent the first six months of 2004 completing the required infrastructure to
      complete our “test mine” and did not sell any gold until the third quarter of
      2004.





Reclamation,
      Exploration and Test Mining Expenses were $ 2,380,658 less for the year ended
      December 31, 2005 than for the year ended December 31, 2004. This 2005 expense
      decrease reflects the transition to full-time “test mining” in 2005. During the
      first nine months of 2004, our focus was on building the infrastructure for
      our
      mining operation, and the cost of building the infrastructure was included
      in
      our test mining expenses for 2004. The third quarter of 2004 was the first
      quarter in which we conducted full-scale test mining. Our Company is an
      Exploration Stage enterprise as defined by SEC Industry Guide 7, and, in
      accordance with SEC Industry Guide 7, infrastructure expenditures such as haul
      roads, leach pads and start-up costs were expensed.








**Quarter
                ended December 31, 2005**
            
            
            **Quarter
                ended December 31, 2004**
            
            
            **Difference**Revenue
            
            $
            476,574
            
            $
            505,128
            
            $
            (28,509
            )Reclamation,
                Exploration and Test Mining Expense
            
            
            549,037
            
            
            6,109,155
            
            
            (5,560,118
            )Liquidated
                Damages
            
            
            -0-
            
            
            1,627,308
            
            
            (1,627,308
            )Interest
                Expense
            
            
            703,892
            
            
            98,743
            
            
            605,149Net
                Loss
            
            $
            (1,700,313
            )
            $
            (8,217,932
            )
            $
            (6,517,619
            )




During the
      fourth quarter
      of 2005 we sold 875 ounces of gold at an average price of $ 545 per ounce
      compared to gold sales of 1,183 ounces at an average price of $ 426 per ounce
      during the same period of 2004. Our “test mine” became operational in late third
      quarter 2004, which was our first quarter of selling gold. The fourth quarter
      of
      2004 was our first full quarter of test mining.





Reclamation,
      Exploration and Test Mining Expenses in the fourth quarter of 2005 were $  5,560,118
      less than the fourth quarter of 2004. This variance reflects the exploration
      drilling performed during the fourth quarter of 2005 offset by the shift from
      infrastructure construction to “test mining.” As detailed above, our Company is
      an Exploration Stage enterprise and in accordance with Industry Guide 7
      infrastructure expenditures such as haul roads, leach pads and start-up costs
      were expensed.




24





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




At
      December 31, 2005, our Company had approximately $16,197,000 of outstanding
      debt
      bearing an average interest rate of 15% of which $13,462,000 originated from
      our
      November 2004 restructuring of the March 2004 private placement. (See “Recent
      Financing Events and Restructuring,” above) Prior to November 2004, our Company
      had no outstanding interest-bearing debt.




***Restatement
      of Financial Statements***




Upon
      review of the standards for reporting mineral reserves as defined by SEC
      Industry Guide 7 (“Guide 7”), we have concluded that we did not have sufficient
      information to establish the existence of reserves as of December 31, 2004
      and
      that certain costs that we had incurred in the development of our mining
      facility must be expensed as exploration or “test mining” costs. We have
      restated our 2004 financial statements to classify all costs previously
      capitalized (the recovery of which is dependent upon the economical extraction
      of gold from the mineralized material we are currently processing), as test
      mining expenses. These costs, which total approximately $4.5 million net of
      accumulated depreciation, include our asset retirement obligation asset of
      $453,786. In connection with our restatement of our mineral property assets,
      we
      have also restated our asset retirement obligation liability, classifying it
      as
      an environmental reclamation liability and not an asset retirement obligation
      as
      described by Financial Accounting Standards Board Statement No.
      143.




We
      have
      also restated our shareholders’ equity. On December 20, 2004, we received notice
      from holders of approximately $3.8 million of convertible notes of their
      intention to convert into shares of our common stock. In connection with the
      notice we reduced convertible notes payable by $3.8 million and recorded an
      additional 33,817,594 shares (converted at approximately $0.11 per share) at
      December 31, 2004. Upon further consideration, we have determined that since
      the
      shares had not been physically issued prior to year end, the liability and
      stockholders’ equity accounts should not be adjusted until the shares have been
      issued. Accordingly, we restated our convertible note and stock holder equity
      accounts by approximately $3.8 million. The restatement has no affect on net
      loss or cash flows as previously reported.




Pursuant
      to our decision to make the above-referenced restatements, the financial
      statements have been restated and are presented, as restated, within this
      filing.




***Liquidity
      and Capital Resources***




We
      recognize that our cash resources are limited. Our continued existence and
      plans
      for future growth depend on our ability to obtain the capital necessary to
      operate, through the generation of revenue or the issuance of additional debt
      or
      equity. In 2005, we raised an aggregate of $1,575,000 through five financing
      transactions. In February 2006, we completed an additional financing
      transaction, which provided us with $250,000 in funding. While this additional
      funding may meet our immediate working capital needs, if we are not able to
      generate sufficient revenues and cash flows or obtain additional or alternative
      funding, we will be unable to continue as a going concern. We have yet to
      realize an operating profit at our Plum Mine location. As disclosed in the
      report of our independent registered public accounting firm in our financial
      statements included in this Form 10-KSB for the year ended December 31, 2005,
      our recurring losses and negative cash flow from operations raise substantial
      doubt about our ability to continue as a going concern.




Furthermore,
      the litigation in which our Company has been involved since late 2004 has
      strained the Company’s financial resources. (See Part I, Item 3, “Legal
      Proceedings,” for a detailed discussion.) If we are unable to resolve the
      litigation in the near future, the ongoing legal costs may impact our ability
      to
      continue as a going concern.




25




In
      connection with our acquisition of the Plum Mining Company, LLC, we issued
      a
      promissory note to the seller for $1 million (the balance of the purchase
      price). At September 30, 2005, the outstanding balance on the Note was $400,000.
      We are in default on this Note.




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




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




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




We
      are
      working with the above-referenced note holders to cure the defaults. The above
      referenced notes have a total value of approximately $14,680,000 at December
      31,
      2005. The total principal and interest arrearage related to these notes was
      approximately $6,441,000 as of December 31, 2005. While failure to reach a
      resolution would likely cause us to seek external funding in order to meet
      our
      obligations, there can be no assurance that such funding would be available.




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




The
      aggregate proceeds from 2005 financing transactions totaled
      $1,575,000.




In
      the
      first quarter of 2006, we completed additional financing transactions, which
      provided us with $400,000 in funding. In consideration for the funding, we
      issued promissory notes with a term of ninety (90) days and an interest rate
      of
      sixteen percent (16%) per annum. The default interest rate on the note is
      twenty-two percent (22%). The funds were used for working capital and general
      corporate purposes.




We
      expect
      to expand our existing leach pads, which currently number three, to a total
      of
      five leach pads during 2006. The cost of this expansion will be approximately
      $600,000. We intend to finance our leach pad expansion project and any other
      capital expenditures in 2006 through the issuance of debt or equity instruments
      to existing shareholders and other parties. There can be no assurance that
      such
      financing will be available.


**Item
      7.**  **Financial
      Statements**




See
      index
      to Financial Statements and Financial Statements Schedules beginning on page
      F-1
      of this Form 10-KSB.




**Item
      8.**  **Changes
      and Disagreements with Accountants on Accounting and Financial
      Disclosure**




Not
      applicable.




**Item
      8A.**  **Controls
      and Procedures**




Based
      on
      the most recent evaluation, which was completed as of the end of the period
      covered by this Form 10-KSB, we believe our company’s disclosure controls and
      procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e) are
      effective to ensure that information required to be disclosed by us in this
      report is accumulated and communicated to our management, including our
      principal executive officer and principal financial officer, as appropriate,
      to
      allow timely decisions regarding required disclosure. Our executive officers
      have also concluded that our disclosure controls and procedures are also
      effective to give reasonable assurance that the information required to be
      disclosed in our filings is recorded, processed, summarized and reported within
      the time periods specified in the rules and forms of the SEC.




26




We
      have
      identified conditions as of December 31, 2005 that we believe are significant
      deficiencies in internal controls that include: 1) a lack of segregation of
      duties in accounting and financial reporting activities; and 2) the lack of
      a
      sufficient number of qualified accounting personnel. We have taken corrective
      measures to remedy these deficiencies. These measures include our consolidation
      of the corporate office with the office at the Plum Mine operation. This
      consolidation has provided the corporate office with additional accounting
      personnel. We believe that the presence of additional qualified accounting
      personnel will allow us to effectively correct the lack of segregation of duties
      in accounting and financial reporting activities.




O ur
      former
      Chief Financial Officer became our Chief Executive Officer in September 2004.
      Our Company has not hired another individual to act as Chief Financial Officer.
      We believe the absence of a full-time Chief Financial Officer or Chief
      Accounting Officer has resulted in a significant deficiency with respect to
      the
      lack of qualified accounting personnel. We have been able to mitigate this
      deficiency by engaging outside consultants to assist the Company in its
      accounting activities, but believe that the only effective long-term solution
      to
      our accounting needs is to hire a qualified CFO. Due to our budgetary
      constraints and the small size of our company we are uncertain as to when we
      will be able to accomplish this.




We
      are in
      the process of taking additional corrective measures to remedy the deficiencies
      in future periods.




**Item
      8B.**  **Other
      Information**




Not
      applicable.




**Item
      9.****Directors
      and Executive Officers of the Registrant**




The
      following table sets forth certain information regarding our directors and
      officers:




**Name**
            **Age**
            **Position**Christopher
                L. Aguilar
            43
            Chairman
                of the Board of DirectorsTodd
                S. Brown
            49
            Director,
                Audit Committee ChairStanley
                A. Hirschman
            59
            Director,
                Compensation Committee ChairWilliam
                J. Nance
            62
            DirectorRex
                L. Outzen
            52
            DirectorRobert
                T. Faber
            46
            President,
                Chief Executive Officer, and acting- Chief Financial
                Officer




*Christopher
      L. Aguilar* has been
      a director of our Company since October 2004. Mr. Aguilar has been the
      General Counsel and Chief Compliance Officer of Merriman Curhan Ford & Co.,
      a securities brokerage and investment banking subsidiary of MCF Corporation
      since March 2000. During the same period of time, he also served as General
      Counsel and Secretary of MCF Corporation, the publicly traded financial services
      holding Company that provides institutional sales and trading, research,
      investment banking, corporate services, and asset management services through
      its wholly owned subsidiaries. From August 1995 to March 2000,
      Mr. Aguilar was a partner at Bradley, Curley & Asiano, a law firm
      located in San Francisco, California. Mr. Aguilar is an adjunct professor
      at the University of California, Hastings College of the Law.




*Todd
      S. Brown* has been
      a director of our Company since October 2004. Mr. Brown has been a
      senior financial executive with Brown Capital Advisors, Inc., an advisory
      services Company providing a wide range of services, including strategic
      planning, transactional assistance, due diligence, and financial management
      since 1999. Prior to joining Brown Capital Advisors, Mr. Brown was Senior
      Vice President, Chief Financial Officer, and a director of the Phoenix
      Restaurant Group, Inc. from 1994 to 1999. Mr. Brown previously was employed
      by an international accounting firm for 14 years, most recently as a senior
      manager.




*Stanley
      A. Hirschman* has been
      a director of our Company since October 2004. Mr. Hirschman has served
      since 1996 as President of CPointe Associates, Inc., an executive management
      consulting firm that specializes in solutions for companies with emerging
      technology-based products. He is Chairman of the Board of Bravo Foods
      International, a director of 5G Wireless Communications and iWorld Projects
      & Systems, an advisor to Redwood Grove Capital Management, LLP, and former
      chairman of Mustang Software, Inc. Prior to establishing CPointe Associates
      in
      1996, he was Vice President Operations of Software Etc., Inc., a 396 retail
      store software chain. He also held senior management positions with T.J. Maxx,
      Gap Stores, and Banana Republic.




27




*William
      J. Nance* has been
      a director of our Company since October 2005. Mr. Nance is a Certified
      Public Accountant and private consultant to the real estate and banking
      industries. He is also President of Century Plaza Printers, Inc. Mr. Nance
      is also a Director of Intergroup Corporation, Santa Fe and
      Portsmouth.




*Rex
      L. Outzen* has been
      a director of our Company since October 2005. Mr. Outzen is a
      metallurgical engineer with over 25 years of experience in the mining industry.
      Since 1999, he has been an independent consultant providing metallurgical
      engineering advice and services to the mining industry. Prior to 1999,
      Mr. Outzen held senior management positions, both domestically and
      internationally with Dayton Mining Corp., MinVen Gold Corp., Tenneco Minerals
      Company, ASARCO INC. and Metallica Resources. Mr. Outxen holds a B. Sc. In
      Metallurgical Engineering from the University of Utah.




**Executive
      Officers**




*Robert
      T. Faber* has
      served as President and Chief Executive Officer of our Company since
      September 2004 and Chief Financial Officer since June 2003.
      Mr. Faber served from 2002 until 2003 as Vice President of United Site
      Services, Inc., a privately held service consolidator in the waste service
      industry. Additionally, Mr. Faber served as an executive with Allied Waste
      Industries from 2001 until 2002, overseeing a $1.2 billion multi-state area
      and served as Chief Financial Officer with Frontier Waste Services, LLC from
      1999 until 2001. Prior to joining Frontier Waste, Mr. Faber spent 17 years
      with Waste Management, Inc., a publicly traded environmental services company,
      during which time he served in senior positions both internationally and
      domestically. Mr. Faber’s positions included Director of Finance of Waste
      Management’s $1.4 billion multi-country International operations based in
      London, England and Vice President and Controller for several $100 million
      plus multi-state market areas. Mr. Faber is a certified public
      accountant.





**Information
      Relating to Corporate Governance and the Board of
      Directors**




Our
      Board
      of Directors has determined, after considering all the relevant facts and
      circumstances, that Messrs. Todd S. Brown, Stanley A. Hirschman, William J.
      Nance and Rex L. Outzen are independent directors, as “independence” is defined
      by Nasdaq, because they have no relationship with us that would interfere with
      their exercise of independent judgment. Mr. Aguilar is an officer of our
      principal investment banking firm.




Our
      Board
      of Directors has established three standing committees: an Audit Committee,
      a
      Compensation Committee, and a Nominations and Corporate Governance Committee.
      A
      majority of the members of our Audit Committee, Compensation Committee, and
      Nominations and Corporate Governance Committee consist of independent directors.




Our
      Board
      of Directors has adopted charters for the Audit, Compensation, and Nominations
      and Corporate Governance Committees describing the authority and
      responsibilities delegated to each committee by the board. Our Board of
      Directors has also adopted Corporate Governance Guidelines, a Code of Conduct,
      and a Code of Ethics for the CEO and Senior Financial Officers. The charters
      of
      our Audit, Compensation, and Nominations and Corporate Governance Committees;
      our Corporate Governance Guidelines, Code of Conduct, and Code of Ethics for
      the
      CEO and Senior Financial Officers, and any amendments or waivers thereto; and
      any other corporate governance materials contemplated by SEC or Nasdaq
      regulations are available in print to any stockholder requesting a copy in
      writing from our corporate secretary at our executive offices set forth in
      this
      filing.




We
      regularly schedule executive sessions at which independent directors meet
      without the presence or participation of management. The presiding director
      of
      such executive session rotates among the Chairs of the Audit Committee,
      Compensation Committee, and the Nominations and Corporate Governance
      Committee.




Interested
      parties may communicate with our Board of Directors or specific members of
      our
      Board of Directors, including our independent directors and the members of
      our
      various board committees, by submitting a letter addressed to the Board of
      Directors of GoldSpring, Inc. c/o any specified individual director or directors
      at the address listed herein. Any such letters are sent to the indicated
      directors.




*The
      Audit Committee*




The
      purpose of the Audit Committee is to oversee the financial and reporting
      processes of our company and the audits of the financial statements of our
      company and to provide assistance to our Board of Directors with respect to
      the
      oversight of the integrity of the financial statements of our company, our
      company’s compliance with legal and regulatory matters, the independent
      auditor’s qualifications and independence, and the performance of our company’s
      independent auditor. The primary responsibilities of the Audit Committee are
      set
      forth in its charter and include various matters with respect to the oversight
      of our company’s accounting and financial reporting process and audits of the
      financial statements of our company on behalf of our Board of Directors. The
      Audit Committee also selects the independent auditor to conduct the annual
      audit
      of the financial statements of our company; reviews the proposed scope of such
      audit; reviews accounting and financial controls of our company with the
      independent auditor and our financial accounting staff; and reviews and approves
      transactions between us and our directors, officers, and their affiliates.




28




The
      Audit
      Committee currently consists of Messrs. Brown, Nance, and Outzen, each of whom
      is an independent director of our company under Nasdaq rules as well as under
      rules adopted by the SEC pursuant to the Sarbanes-Oxley Act of 2002. The Board
      of Directors has determined that Mr. Brown (whose background is detailed above)
      qualifies as an “audit committee financial expert” in accordance with applicable
      rules and regulations of the SEC. Mr. Brown serves as the Chairman of the Audit
      Committee.




*The
      Compensation Committee*




The
      purpose of the Compensation Committee includes determining, or recommending
      to
      our Board of Directors for determination, the compensation of the Chief
      Executive Officer and other executive officers of our company and discharging
      the responsibilities of our Board of Directors relating to compensation programs
      of our company. The Compensation Committee currently consists of Messrs.
      Hirschman, Aguilar and Outzen, with Mr. Hirschman serving as
      Chairman.




*The
      Nominations and Corporate Governance Committee*




The
      purposes of the Nominations and Corporate Governance Committee include the
      selection or recommendation to the Board of Directors of nominees to stand
      for
      election as directors at each election of directors, the oversight of the
      selection and composition of committees of the Board of Directors, the oversight
      of the evaluations of the Board of Directors and management, and the development
      and recommendation to the Board of Directors of a set of corporate governance
      principles applicable to our company. The Nominations and Corporate Governance
      Committee currently consists of Messrs. Aguilar, Hirschman and Nance, with
      Mr.
      Aguilar serving as Chairman.




The
      Nominations and Corporate Governance Committee will consider persons recommended
      by stockholders for inclusion as nominees for election to our Board of Directors
      if the names, biographical data, and qualifications of such persons are
      submitted in writing in a timely manner addressed and delivered to our company’s
      corporate secretary at the address listed herein. The Nominations and Corporate
      Governance Committee identifies and evaluates nominees for our Board of
      Directors, including nominees recommended by stockholders, based on numerous
      factors it considers appropriate, some of which may include strength of
      character, mature judgment, career specialization, relevant technical skills,
      diversity, and the extent to which the nominee would fill a present need on
      our
      Board of Directors. As discussed above, the members of the Nominations and
      Corporate Governance Committee are independent, as that term is defined by
      Nasdaq.




The
      Board
      of Directors held a total of eight meetings during the fiscal year ended
      December 31, 2005. The Audit Committee met separately at three meetings during
      the fiscal year ended December 31, 2005. The Compensation Committee held a
      total
      of two meeting during the fiscal year ended December 31, 2005. The Nominations
      and Corporate Governance Committee held a total of two meetings during the
      fiscal year ended December 31, 2005. Each of our directors attended at least
      75%
      of the aggregate of (1) the total number of meetings of our Board of Directors
      held during fiscal 2005, and (2) the total number of meetings held by all
      committees of our Board of Directors on which such person served during fiscal
      2005.




**Compensation
      of Directors**




Prior
      to
      the election of a new slate of directors on October 26, 2005, we had an
      arrangement to pay our independent directors $3,000 a month, and the Chairman
      of
      the Audit Committee $4,000 a month. We are in arrears on these payments. The
      arrearage totals $52,500. We have not entered into a compensation agreement
      with
      the current slate of directors. We reimburse the members of our Board of
      Directors for actual expenses incurred in attending board meetings.




With
      the
      exception of the employment agreement for Robert T. Faber described below,
      our
      officers and directors do not have employment agreements or consulting
      agreements relating to termination of employment or change-in-control
      agreements.




29




**Item
      10. Executive Compensation**




The
      following table sets forth, for the periods indicated, the total compensation
      for services provided to us in all capacities by our Chief Executive Officer.
      No
      other executive officer received aggregate compensation exceeding $100,000
      during 2005.




**SUMMARY
      COMPENSATION TABLE**




**Long-Term****Compensation****Awards****Securities**
            
            **All
                Other****Annual
                Compensation(1)**
            
            **Underlying**
            
            **Compensation****Name
                and Principal Position**
            
            **Year**
            
            **Salary
                ($)**
            
            **Bonus
                ($)**
            
            **Options
                (#)(2)**
            
            **($)**Robert
                T. Faber(2) (3)
              President
                and Chief Executive Officer; Chief Financial Officer
            
            2005
              2004
              2003
            
            $120,000
              $115,000
              $33,000
            
            $0
              $10,000
              $0
            
            0
              0
              0
            
            $0
              0
              0


__________________




(1)
            Executive
                officers received certain perquisites, the value of which did not
                exceed
                the lesser of $50,000 or 10% of that officer’s salary and bonus during
                fiscal 2004.




|(2) | Mr.
              Faber has served as President and Chief Executive Officer since September
              2004 and Chief Financial Officer since June
              2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | $25,000
              of Mr. Faber’s 2005 salary has not yet been paid. We intend to pay this
              amount in 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------



**Stock
      Options**




We
      did
      not grant stock options to directors, officers, or employees in 2005. There
      were
      no shares of common stock underlying unexercised stock options at December
      31,
      2005.




**Employment
      Agreements**




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




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




**Item
      11.**  **Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**




The
      following table sets forth certain information regarding the beneficial
      ownership of our common stock as of March 31, 2006 by (1) each person who is
      known by us to be the beneficial owner of more than five percent of our issued
      and outstanding shares of common stock, (2) each of our directors and executive
      officers, and (3) all directors and officers as a group.




30




**Shares
                Beneficially****Owned****Name
                of Beneficial Owner**
            
            
            **Number(1**)****
            
            
            **Percent(2**)******Directors
                and Executive Officers:**Robert
                T. Faber (1) (2)
            
            
            2,054,683
            
            
            0.4
            %Christopher
                L. Aguilar
            
            
            157,775
            
            
            0.01
            %Todd
                S. Brown
            
            
            ―
            
            
            0.0
            %Stanley
                A. Hirschman
            
            
            ―
            
            
            0.0
            %Bill
                Nance
            
            
            ―
            
            
            0.0
            %Rex
                Outzen
            
            
            ―
            
            
            0.0
            %All
                directors and executive officersas
                a group (six persons)
            
            
            2,212,458
            
            
            0.4
            %**5%
                Shareholders:**John
                W. Winfield(4)
            
            
            464,876,252
            
            
            46.6
            %Stephen
                B. Parent (1)
            
            
            45,962,750
            
            
            8.6
            %Longview
                Equity Fund and Longview International Equity Fund (5)
            
            
            75,108,939
            
            
            12.4
            %Jubilee
                Investment Trust (6)
            
            
            39,500,000
            
            
            7.4
            %Capital
                Ventures International (7)
            
            
            49,118,642
            
            
            8.5
            %Longview
                Fund, L.P. (8)
            
            
            54,513,526
            
            
            9.3
            %


_______________




|(1) | Includes,
              when applicable, shares owned of record by such person’s minor children
              and spouse and by other related individuals and entities over whose
              shares
              of common stock such person has custody, voting control, or power of
              disposition. Also includes shares of common stock that the identified
              person had the right to acquire within 60 days of May 1, 2006 by the
              exercise of vested stock options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Mr.
              Faber has purchased additional shares through a Section 10(b)(5) share
              purchase program. This program is still in place, and Mr. Faber continues
              to purchase shares on a monthly basis
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The
              percentages shown include the shares of common stock that the person
              will
              have the right to acquire within 60 days of March 31, 2006. In calculating
              the percentage of ownership, all shares of common stock which the
              identified person will have the right to acquire within 60 days of
              March
              31, 2006 upon the conversion of convertible notes or the exercise of
              warrants or stock options are deemed to be outstanding for the purpose
              of
              computing the percentage of shares of common stock owned by such person,
              but are not deemed to be outstanding for the purpose of computing the
              percentage of shares of common stock owned by any other
              person.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | .Includes
              shares beneficially owned by John W. Winfield, Santa Fe Financial Corp.,
              Portsmouth Square, Inc. and InterGroup Corporation. Mr. Winfield’s address
              is 820 Moraga Drive, Los Angeles, California
              90049.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | The
              address for Longview is c/o Redwood Grove Capital Management, 600
              Montgomery Street, 44thFloor, San Francisco, California 94111.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | The
              address for Jubliee Investment Trust and Pearl Corporate Finance Limited
              is One Great Cumberland Place, London W1H
              7AL.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | The
              address for Capital Ventures International is c/o Heights Capital
              Management, 101 California St., Suite 3250, San Francisco, CA
              94111.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | The
              address for Longview Fund, L.P. is c/o Viking Asset Management, LLC,
              600
              Montgomery Street, 44thFloor, San Francisco, California 94111.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



**Item
      12.**  **Certain Relationships and Related Transactions**




Not
      applicable.




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




31




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





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



Report
                  of Independent Registered Public Accounting Firm
              
              F
                  -
                  2Consolidated
                  Balance Sheet as of December 31, 2005
              
              F
                  -
                  3Consolidated
                        Statements of Operations for the years ended December 31,
                        2005 and
                        2004
              
              F
                  -
                  5Consolidated
                        Statements of Changes in Stockholders' Equity for the year
                        ended December
                        31, 2005 and 2004
              F
                  -
                  6Consolidated
                  Statements of Cash Flows for the year ended December 31, 2005 and
                  2004
              
              F
                  -
                  7Notes
                  to Consolidated Financial Statements
              
              F-9-21




(2)
            Exhibits
                filed as part of this Report:






Exhibit Number
              Exhibit23.1
              Consent of Jewett, Schwartz &
                Associates31.1
              Certification of Chief Executive Officer
                pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under
                the
                Securities Exchange Act of 1934, as amended.31.2
              Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a),
                promulgated under the Securities Exchange Act of 1934, as
                amended.32.1
              Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 200232.2
              Certification pursuant to 18 U.S.C.
                Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002




(b)
      Reports filed on Form 8-K during the quarter ended December 31,
      2005:




None.





**Item
      14.**  **Principal
      Accountants Fees and Services**




The
      aggregate fees billed to our company by Jewett Schwartz, for the fiscal years
      ended December 31, 2004 and December 31, 2005, are as follows:




**2004**
            
            
            **2005**Audit
                fees
            
            $
            28,500
            
            $
            32,000Audit-related
                fees
            
            
            0
            
            $
            14,000Tax
                fees
            
            
            0
            
            
            0All
                other fees
            
            
            0
            
            
            0




32




**Audit
      Committee Pre-Approval Policies**




The
      charter of our Audit Committee provides that the duties and responsibilities
      of
      our Audit Committee include the pre-approval of all audit, audit-related, tax,
      and other services permitted by law or applicable SEC regulations (including
      fee
      and cost ranges) to be performed by our independent auditor. Any pre-approved
      services that will involve fees or costs exceeding pre-approved levels will
      also
      require specific pre-approval by the Audit Committee. Unless otherwise specified
      by the Audit Committee in pre-approving a service, the pre-approval will be
      effective for the 12-month period following pre-approval. The Audit Committee
      will not approve any non-audit services prohibited by applicable SEC regulations
      or any services in connection with a transaction initially recommended by the
      independent auditor, the purpose of which may be tax avoidance and the tax
      treatment of which may not be supported by the Internal Revenue Code and related
      regulations.




To
      the
      extent deemed appropriate, the Audit Committee may delegate pre-approval
      authority to the Chairman of the Audit Committee or any one or more other
      members of the Audit Committee provided that any member of the Audit Committee
      who has exercised any such delegation must report any such pre-approval decision
      to the Audit Committee at its next scheduled meeting. The Audit Committee will
      not delegate to management the pre-approval of services to be performed by
      the
      independent auditor.




Our
      Audit
      Committee requires that our independent auditor, in conjunction with our Chief
      Financial Officer, be responsible for seeking pre-approval for providing
      services to us and that any request for pre-approval must inform the Audit
      Committee about each service to be provided and must provide detail as to the
      particular service to be provided. Our Audit Committee Chair and Audit Committee
      Financial Expert is Todd Brown.




33




SIGNATURES





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized. GoldSpring,
              Inc.By:
            /s/
              Robert T.
              FaberRobert T. FaberPresident
              and
              Chief Executive Officer






**Signature**
            **Capacity**
            **Date**/s/
                Christopher L. Aguilar
            Chairman
                of the Board
            __________,
                2006Christopher
                L. Aguilar/s/
                Robert T. Faber
            President,
                Chief Executive Officer (Principal Executive Officer), and Chief
                Financial
                Officer (Principal Accounting and Financial Officer)
            __________,
                2006Robert
                T. Faber/s/
                Todd S. Brow
            Director
            __________,
                2006Todd
                S. Brown/s/
                Stanley A. Hirschman
            Director
            __________,
                2006Stanley
                A. Hirschman/s/
                William J. Nance
            Director
            __________,
                2006William
                J. Nance/s/
                Rex L. Outzen
            Director
            __________,
                2006Rex
                L. Outzen





34


**GOLDSPRING,
      INC.**




**INDEX
      TO FINANCIAL STATEMENTS**







**Page**Report
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheet as of December 31, 2005
            F-3Consolidated
                Statements of Operations for the years ended December 31, 2005 and
                2004
            F-5Consolidated
                Statements of Changes in Stockholders’ Deficiency for the years ended
                December 31, 2005 and 2004
            F-6Consolidated
                Statements of Cash Flows for the years ended December 31, 2005 and
                2004
            F-7Notes
                to Consolidated Financial Statements
            F-8-24





F-1




Report
      of
      Independent Registered Public Accounting Firm





To
      the
      board of directors and shareholders of


Goldspring,
      Inc.




We
      have
      audited the accompanying consolidated balance sheet of Goldspring, Inc. as
      of
      December 31, 2005 and the related consolidated statements of operations, changes
      in shareholders’ deficiency and cash flows for the years ended December 31, 2005
      and 2004. These consolidated financial statements are the responsibility of
      the
      Company’s management. Our responsibility is to express an opinion on these
      financial statements based on our audits.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provided a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Goldspring, Inc. as of December
      31,
      2005, and the results of its operations and its cash flows for the years then
      ended 2005 and 2004 in conformity with accounting principles generally accepted
      in the United States.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As more fully described in Note 1 to the
      financial statements, the Company has incurred recurring operating losses and
      has a working capital deficit at December 31, 2005. The Company is working
      on
      various alternatives to improve the Company’s financial resources which are also
      described in Note 1. Absent the successful completion of one of these
      alternatives, the Company’s operating results will increasingly become
      uncertain. These conditions raise substantial doubt about the Company’s ability
      to continue as a going concern; however, the financial statements do not include
      any adjustments to reflect the possible future effects on the recoverability
      and
      classification of assets or the amounts and classification of liabilities that
      may result from the outcome of this uncertainty.





The
      financial statements as of and for the year ended December 31, 2004 have been
      restated to account for certain costs incurred in the development of the mining
      facility previously capitalized to exploration or test mining costs and
      shareholders’ equity have been restated to reinstate the convertible notes
      payable all further described in Note 1 to the financial
      statements.








/s/
      Jewett, Schwartz & Associates


Jewett,
      Schwartz, & Associates





Hollywood,
      Florida


March
      23,
      2006




F-2





**GOLDSPRING,
      INC.**


**CONSOLIDATED** **BALANCE
      SHEETS**




**December
                31, 2005****ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            
            26,865Prepaid
                expenses and other current assets
            
            
            27,500Inventories
            
            
            52,000Deferred
                financing fees, net
            
            
            476,150Total
                Current Assets
            
            
            582,515**PLANT,
                EQUIPMENT, AND MINERAL PROPERTIES**Mineral
                properties
            
            
            1,669,837Plant
                and Equipment
            
            
            1,007,416Total
                Property and Equipment
            
            
            2,677,253**OTHER
                ASSETS**Reclamation
                deposit
            
            
            377,169Equipment
                purchase deposit
            
            
            ―Other
            
            
            70,000Total
                Other Assets
            
            
            447,169Total
                Assets
            
            $
            3,706,937




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


F-3


**GOLDSPRING,
      INC.**


**LIABILITIES
      AND STOCKHOLDERS’ DEFICIENCY**








**December
                31, 2005****CURRENT
                LIABILITIES**Accounts
                payable
            
            
            1,270,074Accrued
                expenses
            
            
            360,886Accrued
                liquidated damages
            
            
            1,913,418Accrued
                interest payable
            
            
            1,321,919Short-term
                lease obligations
            
            
            28,870Convertible
                debentures
            
            
            13,461,941Promissory
                Notes
            
            
            2,075,000Other
                notes payable & current portion of long-term debt
            
            
            423,108Total
                Current Liabilities
            
            
            20,855,216**LONG-TERM
                DEBT AND OTHER LONG-TERM LIABILITIES**Long-term
                debt, net of current portion
            
            
            130,243Long-term
                lease obligation, net of current portion
            
            
            77,846Long-term
                reclamation liability
            
            
            553,190Total
                long-term debt and other Long-term Liabilities
            
            
            761,279Total
                Liabilities
            
            
            21,616,495**STOCKHOLDERS’
                DEFICIT**Common
                stock, $.000666 par value, 500,000,000 shares authorized,
              325,047,122
                and 171,120,482 shares issued and outstanding
            
            
            216,481Treasury
                Stock
            
            
            (67
            )Additional
                paid-in capital
            
            
            5,398,330Accumulated
                deficit - Prior years
            
            
            (12,171,276
            )Accumulated
                deficit - Current year
            
            
            (11,353,026
            )Total
                Stockholders’ Deficiency
            
            
            (17,909,558
            )Total
                Liabilities and Stockholders’ Deficiency
            
            $
            3,706,937




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




F-4




**GOLDSPRING,
      INC.**


**CONSOLIDATED** **STATEMENTS
      OF OPERATIONS**




**Years
                EndedDecember 31,******(As
                Restated)**2005**
            
            
            **2004**Revenue
                from gold sales, net
            
            $
            2,632,112
            
            $
            955,380Cost
                and ExpensesCosts
                applicable to sales (exclusive of depreciation and
              amortization
                shown separately below)
            
            
            ―
            
            
            ―Depreciation
                and amortization
            
            
            302,753
            
            
            219,834Reclamation,
                Exploration and Test Mining Expenses
            
            
            4,810,643
            
            
            6,800,011General
                and Administrative
            
            
            1,183,255
            
            
            1,430,596Consultants
                and Professional Fees
            
            
            773,390
            
            
            659,9317,070,041
            
            
            9,110,372Other
                Income (Expense):Liquidated
                damages expense (See Note 11)
            
            
            (4,619,144
            )
            
            (1,627,308
            )Gain
                on derivative investments, net
            
            
            ---
            
            
            238,620Interest
                income
            
            
            13,526
            
            
            40,142Interest
                expense
            
            
            (2,309,479
            )
            
            (65,997
            )(6,915,097
            )
            
            (1,414,543
            )Net
                Loss:
            
            
            (11,353,026
            )
            
            (9,569,535
            )Net
                loss per common share - basic
            
            
            (0.045
            )
            $
            (0.051
            )Basic
                weighted average common shares outstanding
            
            
            252,930,064
            
            
            186,800,478





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




F-5




**GOLDSPRING,
      INC.**


**STATEMENT
      OF CHANGES IN STOCKHOLDERS’ DEFICIENCY**


**For
      the Years Ended December 31, 2005 and 2004**





**(Common
      Stock Par value, $.000666 per share; 800,000,000 shares
      authorized)**




Shares
                Issued
            
            
            Shares
                Issued -Forward Stock Split
            
            
            Total
                Shares Issued After Forward Stock Split
            
            
            Par
                value $.000666 pershare
            
            
            Additional
                Paid-in Capital
            
            
            Treasury
                Stock (at cost)
            
            
            Accumulated
                Defici**t**
            
            
            **Total**Balance
                - December 31, 2003, Restated
            
            
            161,198,576
            
            
            15,627,654
            
            
            172,627,149
            
            
            114,970
            
            
            4,327,420
            
            
            -
            
            
            (2,601,741
            )
            
            1,840,649Issuance
                of common stock for cash, net of issuance costs
            
            
            
            
            
            
            
            
            22,182,462
            
            
            14,773
            
            
            9,414,008
            
            
            
            
            
            
            
            
            9,428,781Common
                stock issued for consulting services
            
            
            
            
            
            
            
            
            50,000
            
            
            33
            
            
            41,967
            
            
            
            
            
            
            
            
            42,000Repurchase
                and retirement of common stock
            
            
            
            
            
            
            
            
            (2,000,000
            )
            
            (1,332
            )
            
            (148,668
            )
            
            
            
            
            
            
            
            (150,000
            )Stock
                buyback and return to treasury
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (74,933
            )
            
            (67
            )
            
            
            
            
            (75,000
            )November
                Restructuring
            
            
            
            
            
            
            
            
            (21,739,129
            )
            
            (14,478
            )
            
            (9,985,522
            )
            
            
            
            
            
            
            
            (10,000,000
            )


Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (9,569,535
            )
            
            (9,569,535
            )Balance
                - December 31, 2004, Restated
            
            
            155,492,828
            
            
            15,627,654
            
            
            171,120,482
            
            
            113,966
            
            
            3,574,272
            
            
            (67
            )
            
            (12,171,276
            )
            
            (8,483,105
            )Mandatory
                redemption
            
            
            
            
            
            
            
            
            -0-
            
            
            -0-
            
            
            (3,457,182
            )
            
            
            
            
            
            
            
            (3,457,182
            )March
                2005 liquidated damages
            
            
            
            
            
            
            
            
            59,203,484
            
            
            39,430
            
            
            1,736,674
            
            
            
            
            
            
            
            
            1,776,104August
                2005 liquidated damages
            
            
            
            
            
            
            
            
            35,103,534
            
            
            23,379
            
            
            1,029,727
            
            
            
            
            
            
            
            
            1,053,106Common
                Stock issued for mining property
            
            
            
            
            
            
            
            
            3,444,444
            
            
            2,294
            
            
            167,706
            
            
            
            
            
            
            
            
            170,000Common
                stock issued for debenture principal
            
            
            
            
            
            
            
            
            28,201,478
            
            
            18,782
            
            
            1,100,212
            
            
            
            
            
            
            
            
            1,118,994Common
                stock issued for debenture interest
            
            
            
            
            
            
            
            
            23,729,909
            
            
            15,804
            
            
            771,871
            
            
            
            
            
            
            
            
            787,675December
                2004 conversion shares issued in 2005
            
            
            
            
            
            
            
            
            4,243,791
            
            
            2,826
            
            
            475,050
            
            
            
            
            
            
            
            
            477,876Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (11,353,026
            )
            
            (11,353,026
            )Balance,
                December 31, 2005
            
            
            
            
            
            
            
            
            325,047,122
            
            
            216,481
            
            $
            5,398,330
            
            
            (67
            )
            $
            (23,524,302
            )
            $
            (17,909,558
            )





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


F-6


**GOLDSPRING,
      INC.**


**CONSOLIDATED** **STATEMENTS
      OF CASH FLOWS**





**Years
                Ended December 31,****2005**
            
            
            **2004**(As
                Restated)**CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (11,353,026
            )
            $
            (9,569,535
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            445,193
            
            
            219,834Liquidated
                damages from March 2004 financing and November 2004
                restructuring
            
            
            4,619,144
            
            
            1,627,308Consulting
                services provided in exchange for common stock
            
            
            ―
            
            
            42,000(Increase)
                decrease in operating assets:Inventories
            
            
            236,688
            
            
            (288,688
            )Prepaid
                and other current assets
            
            
            7,705
            
            
            290,360Other
                current assets
            
            
            100,000
            
            
            ―Increase
                (decrease) in operating liabilities:Accounts
                payable
            
            
            677,275
            
            
            480,847Accrued
                expenses
            
            
            2,803,339
            
            
            216,902Reclamation
                liability
            
            
            ―
            
            
            553,190Other
            
            
            (541,472
            )
            
            (13,934
            )Total
                Adjustments to Reconcile Net Loss Used in Operating
                Activities
            
            
            8,347,872
            
            
            3,127,819Net
                cash used in operating activities
            
            
            (3,005,154
            )
            
            (6,441,716
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**:Reclamation
                bond deposit
            
            
            ―
            
            
            (232,169
            )Equipment
                / acquisition deposit
            
            
            (50,000
            )
            
            (10,000
            )Acquisition
                of plant and equipment
            
            
            (150,390
            )
            
            (532,232
            )Net
                used in investing activities
            
            
            (200,390
            )
            
            (774,401
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Net
                proceeds from the issuance of common stock
            
            
            ―
            
            
            9,428,781Principal
                payments on Note Payable
            
            
            (294,393
            )
            
            (400,000
            )Purchase
                and cancellation of Company’s Common Stock
            
            
            ―
            
            
            (150,000
            )Purchase
                of Company’s Common Stock and returned to treasury
            
            
            ―
            
            
            (75,000
            )Proceeds
                from the issuance of note payable to related party
            
            
            1,575,000
            
            
            ―Net
                cash provided by financing activities
            
            
            1,280,607
            
            
            8,803,781Net
                increase in cash and cash equivalents
            
            
            (1,924,937
            )
            
            1,587,664Cash
                and cash equivalents, beginning of year
            
            
            1,951,802
            
            
            364,138Cash
                and cash equivalents, end of year
            
            $
            26,865
            
            $
            1,951,802**Supplemental
                disclosure of non-cash investing and financing
                activities:**Issuance
                of notes for liquidated damages for failure to deliver
                shares
            
            $
            403,175
            
            $
            -Issuance
                of notes for mandatory redemption payment plus accrued interest
            
            $
            6,885,184
            
            $
            -Issuance
                of company stock for acquisition of mining claims
            
            $
            170,000
            
            $
            -Issuance
                of company stock for interest
            
            $
            787,675
            
            $
            -Issuance
                of company stock for liquidated damages
            
            $
            2,829,210
            
            $
            -Issuance
                of note for acquisition of mining claims
            
            $
            160,000
            
            $
            -Conversion
                of debt into company’s common shares
            
            $
            1,118,994
            
            $
            -


Purchase
                of assets under capital leases
            
            $
            -
            
            $
            168,202Purchase
                of assets by long-term debt
            
            $
            -
            
            $
            63,269


Convertible
                notes issued in connection with the Nov. 2004
                restructuring
            
            $
            -
            
            $
            11,100,649




F-7





**Note
      1 — Summary of Significant Accounting Policies**




Summarized
      below are the significant accounting policies of GoldSpring, Inc. (“we,”
“GoldSpring,” or the “Company”)




We
      were
      incorporated in the state of Florida effective October 19, 1999 under the name
      of Click and Call, Inc.. On June 7, 2000, we filed an amendment to our Articles
      of Incorporation changing our name to STARTCALL.COM, INC. On March 10, 2003,
      we
      changed our name to GoldSpring, Inc. The primary nature of our business is
      the
      exploration and development of mineral producing properties.




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




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




Unless
      otherwise indicated, amounts provided in these notes to the financial statements
      pertain to continuing operations.




*Restatement
      of Financial Statements*




Our
      2004
      financial statements have been restated as follows:




Upon
      review of the standards for reporting mineral reserves as defined by SEC
      Industry Guide 7 (“Guide 7”), we have concluded that we did not have sufficient
      information to establish the existence of reserves as of December 31, 2004
      and
      that certain costs that we had incurred in the development of our mining
      facility must be expensed as exploration or “test mining” costs. We have
      restated our 2004 financial statements to classify all costs previously
      capitalized (the recovery of which is dependent upon the economical extraction
      of gold from the mineralized material we are currently processing), as test
      mining expenses. These costs, which total approximately $4.5 million net of
      accumulated depreciation, include our asset retirement obligation asset of
      $453,786. In connection with our restatement of our mineral property assets,
      we
      have also reversed depletion taken on our mineral properties totaling $43,256.




F-8




GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




The
                effect of the restatements on the December 31, 2004 consolidated
                statement
                of operations is as follows




As
                Previously
            
            
            Effect
                of
            
            
            AsReported
            
            
            Restatement
            
            
            RestatedMineral
                Properties
            
            $
            1,729,885
            
            
            ($395,048
            )
            $
            1,334,837Plant,
                Property and Equipment
            
            $
            5,171,863
            
            $
            (4,012,083
            )
            $
            1,159,780ARO/Reclamation
                Liability
            
            $
            470,803
            
            $
            82,387
            
            $
            553,190Net
                Loss
            
            
            ($5,080,016
            )
            
            ($4,489,519
            )
            
            ($9,569,535
            )Net
                Loss per share
            
            
            ($0.3
            )
            
            ($0.02
            )
            
            ($0.05
            )


**Note
      1 — Summary of Significant Accounting Policies - Continued**




*Principles
      of Consolidation*




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




*Cash
      and Cash Equivalents*




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




*Fair
      Value of Financial Instruments*




The
      carrying amounts of cash and cash equivalents, accounts receivable, accounts
      payable, and accrued expenses approximate fair market value because of the
      short
      maturity of those instruments. Furthermore, convertible debenture and other
      notes payable amounts approximate fair value at December 31, 2005 and 2004.




*Credit
      Risk*




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




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




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




F-9


GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004


SFAS
      No.
      144 retains the fundamental provisions of SFAS No. 121 for recognizing and
      measuring impairment losses on long-lived assets held for use and long-lived
      assets to be disposed of by sale, while also resolving significant
      implementation issues associated with SFAS No. 121. We adopted SFAS No. 144
      in
      our evaluation of the fair value of certain assets described in Notes 2 and
      3.




*Inventories*




We
      state
      inventories at the lower of average cost or net realizable value. At December
      31, 2005 and 2004, our inventories consisted of $52,000 and $239,943,
      respectively, of doré and bullion in our accounts at refineries. At December 31,
      2004 we had $48,744 of supplies and reagents compared to $0 at December 31,
      2005. We were unable to estimate our in-process inventories at December 31,
      2004, as our gold production processes are still in their inception stage,
      and
      we do not yet have sufficient data available to accurately calculate in-process
      inventory. We value inventories at the lower of full cost of production or
      net
      realizable value based on current metals prices. We determine net realizable
      value by estimating value based on current metals prices, less cost to convert
      stockpiled and in-process inventories to finished products.




**Note
      1 — Summary of Significant Accounting Policies — Continued**




*Revenue
      Recognition*




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




*Stock
      Issued For Services*




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




*Deferred
      Financing Charges*




During
      2005 we recorded deferred financing charges associated with the issue of
      promissory notes payable totaling $614,590. We amortize the charges over the
      respective lives of the promissory notes payable as interest expense. During
      the
      year ended December 31, 2005 we recognized $142,400 of interest expense related
      to the amortization of deferred financing fees.




*Plant
      and Equipment*




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




We
      capitalize expenditures for renewals and improvements that significantly extend
      the useful life of an asset. We charge expenditures for maintenance and repairs
      to operations when incurred. When assets are sold or retired, the cost of the
      asset and the related accumulated depreciation are removed from the accounts
      and
      any gain or loss is recognized at such time. We use the straight-line method
      of
      depreciation for financial reporting purposes, depreciating assets over useful
      lives ranging from 3 to 7 years.




F-10


GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




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




*Mineral
      Properties*




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




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




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




**Note
      1 — Summary of Significant Accounting Policies — Continued**




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




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




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




*Reclamation
      Liabilities and Asset Retirement Obligations*




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




In
      August
      2001, the Financial Accounting Standards Board issued SFAS No. 143, “Accounting
      for Asset Retirement Obligations.”




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




F-11


GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




*Earnings
      Per Common Share*




In
      calculating earnings per common share, we compute basic earnings per share
      by
      dividing net loss by the weighted average number of common shares outstanding,
      excluding the dilutive effects of common stock equivalents. For the years ended
      December 31, 2005 and 2004, we had net losses for which the affect of common
      stock equivalents would be anti-dilutive, accordingly only basic loss per share
      is presented.




*Recent
      Authoritative Pronouncements*




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




**Note
      1 — Summary of Significant Accounting Policies — Continued**




currently
      account for share-based payments to employees using APB 25's intrinsic value
      method. We expect to adopt Statement 123(R) on January 1, 2006 using the
      modified prospective method.




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


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





*Use
      of Estimates*




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




F-12




GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




*Risks
      and Uncertainties*




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




*Income
      Taxes*




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




**Note
      2 — Mineral Properties**




At
      December 31, 2005 and December 31, 2004, our mineral properties consisted of
      the
      following:




**MINERAL
                PROPERTIES**:
            
            
            **Dec.
                31, 2005**
            
            
            **Dec.
                31, 2004**Placer Gold Properties
            
            $
            100,000
            
            
            100,000Big Mike Copper Property
            
            
            119,138
            
            
            119,138Plum Gold Properties
            
            
            1,360,699
            
            
            1,025,699Water rights
            
            
            90,000
            
            
            90,000Balance
            
            $
            1,669,837
            
            
            1,334,837


**Note
      2 — Mineral Properties - Continued**





*Placer
      Gold Properties and Big Mike Copper Property*




In
      June
      2003, we acquired GoldSpring, LLC (the Placer Gold properties) and Ecovat Copper
      Nevada, LLC (the Big Mike Copper property). Total consideration paid for the
      Placer Gold mineral properties and Big Mike Copper property was $100,000 cash
      and the issuance of 90,000,000 shares of common stock to Ecovery’s 128
      shareholders, valued at $119,138 (Ecovery’s book value for the Big Mike Copper
      property), respectively.




We
      are
      required to pay a 2% net smelter royalty for gold production at the Placer
      Gold
      properties once the $4,650,000 20% net proceeds contingent production royalty
      obligation has been satisfied.




*Plum
      Gold Properties*




We
      acquired the Plum Mining Company, LLC (“Plum LLC”) in November of 2003 for a
      total of $1,400,000, consisting of a cash payment of $200,000, 549,177
      restricted common shares valued at $200,000, and a non-interest bearing
      promissory note payable (See Note 5) for $1,000,000. The Plum LLC’s primary
      assets were the Plum Gold Properties. In 2005, we acquired the Keystone,
      Justice, Vindicator and Woodville mining claims and 19 other mineral leases
      that
      are near or contiguous to our existing Plum Gold property for
      $335,000.




We
      are
      required to pay royalties to the two lessors of our Billie the Kid/Lucerne
      project, totaling the greater of $1,000 per month or a percentage of the Net
      Smelter Returns. The percentage varies based on the price of gold: 3% if gold
      is
      less than $400 per ounce, 4% if gold is in the $400’s per ounce, and 5% if gold
      is $500 or greater per ounce.




**Note
      3 — Plant, Property and Equipment**




At
      December 31, 2005 and December 31, 2004, plant, property and equipment consisted
      of the following (See Note 1):




F-13


GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




**Dec.
                31, 2005**
            
            
            **Dec.
                31, 2004**Plant,
                Property and Equipment at Plum Mine location
            
            $
            1,504,309
            
            $
            1,364,789Equipment,
                Corporate
            
            
            18,195
            
            
            14,825Less
                Accumulated Depreciation
            
            
            (515,087
            )
            
            (219,834
            )Balance
                at 12/31/05
            
            $
            1,007,417
            
            $
            1,159,780





Included
      in plant, property and equipment at our Plum Mine location at December 31,
      2005,
      is equipment under capital lease of $167,636. Future minimum lease payments
      for
      the related obligation under capital lease are $34,772 for 2006, $32,772 for
      2007, and $43,210 for 2008. We recorded depreciation expense on equipment under
      capital lease totaling $33,527 during the year ended December 31,
      2004.




**Note
      4 — Reclamation Liability**




The
      Nevada Revised Statutes and regulations promulgated by the Nevada State
      Environmental Commission and Division of Environmental Protection require a
      surety bond to be posted for mining projects to assure that a site is left
      safe,
      stable, and capable of providing for a productive post-mining land use. Pursuant
      to the approved Reclamation Plan for Billie the Kid, we posted a surety bond
      in
      the amount of $553,000, of which $377,000 was in the form of a cash deposit
      and
      the balance was secured from a surety agent.





We
      have
      accrued a long-term liability of $553,000 as of December 31, 2005, with regard
      to our obligations to reclaim our Plum Mine facility based on our reclamation
      plan submitted and approved by the Nevada State Environmental Commission and
      Division of Environmental Protection. Costs of future expenditures for
      environmental remediation are not discounted to their present value unless
      subject to a contractually obligated fixed payment schedule. Such costs are
      based on management’s current estimate of amounts expected to be incurred when
      the remediation work is performed within current laws and regulations. It is
      reasonably possible that, due to uncertainties associated with the application
      of laws and regulations by regulatory authorities and changes in reclamation
      or
      remediation technology, the ultimate cost of reclamation and remediation could
      change in the future. We periodically review accrued liabilities for such
      reclamation and remediation costs as evidence becomes available indicating
      that
      our liabilities have potentially changed.





**Note
      5 — Notes Payable — Mineral Property Purchases**




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




During
      2005 we purchased certain mining claims that were near or contiguous to our
      Plum
      Gold Property (See Note 2). In connection with the purchase we issued a note
      payable of $160,000. The note is payable in quarterly installments of $16,000
      and is payable in its entirety on or before March 31, 2007.




At
      December 31, 2005 and December 31, 2004, our balance owing on mineral property
      notes payable was as follows:




F-14




GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




**Dec.
                31, 2005**
            
            
            **Dec.
                31, 2004**Balance
            
            $
            510,000
            
            $
            600,000Less
                current portion
            
            
            414,000
            
            
            (400,000
            )Non-current
                portion
            
            $
            $96,000
            
            $
            200,000




**Note
      6 —Convertible Debentures and Notes Payable**




*Convertible
      Debentures-Investors*




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




**Note
      6 —Convertible Debentures and Notes Payable - Continued**




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




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




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




F-15




GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




*Convertible
      Debentures-Mandatory Redemption Payment*




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




On
      March
      31, 2005, we entered into a Settlement Agreement (“Settlement”) with the Mr.
      Winfield and agreed to convert the mandatory redemption payment into six
      Convertible Debentures (“the Debentures”). Accordingly, we accrued a liability
      for approximately $6.9 million and reduced our paid-in-capital account for
      approximately $3.5 million (See Note 12). The Debentures are subject to various
      covenants and conditions, including, but not limited to anti-dilution rights
      and
      protective rights.




The
      Debentures accrue interest at 12% per annum and are payable in monthly
      installments of principal and interest over a 24 month period with the remaining
      entire balance of unpaid principal and interest due on March 31, 2007. The
      debentures are subject to the following terms:




**Note
      6 —Convertible Debentures and Notes Payable - Continued**




*Conversion
      Rights*




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




*Security
      Agreement*




Pursuant
      to the terms of the Settlement Agreement, the Debentures are granted a priority
      collateralized position, second only to our note payable to the Brockbank Trust
      (See Note 5) in substantially all of our assets.




*Mandatory
      Registration Rights*




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




F-16


GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




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




Accordingly,
      at December 31, 2005 and December 31, 2004, we classified the following
      convertible debentures as current liabilities as follows:




**Dec.
                31, 2005**
            
            
            **Dec.
                31, 2004**Convertible
                Debentures Payable-Investors
            
            $
            6,220,409
            
            $
            11,100,649Convertible
                Debentures Payable- Mandatory Redemption payment
            
            
            6,885,184
            
            
            –Convertible
                Debentures Payable- Failure to Deliver Shares
            
            $
            356,348
            
            $
            –Total
            
            $
            13,461,941
            
            $
            11,100,649




**Note
      7 —Promissory Notes Payable**




*Promissory
      Notes Payable—July Financing*




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




**Note
      7 —Promissory Notes Payable - Continued**




The
      notes
      are collateralized by substantially all of the Company’s assets subject to the
      security interest of the Brockbank Trust (See Note 5). As of December 31, 2005
      we had failed to make any monthly payments on the notes and are in
      default.




*Promissory
      Notes Payable—September Financing*




In
      September of 2005, we borrowed $300,000 from Longview Fund L.P., a major
      shareholder. Proceeds from the notes were reduced by a 33.3% original issue
      discount and other origination fees. Net proceeds received by the Company from
      the borrowing were $165,500.The notes accrue interest at 15% per annum
      and
      are payable in monthly installments of principal and interest over a 24 month
      period with the remaining entire balance of unpaid principal and interest due
      on
      July 15, 2007. The notes are collateralized by substantially all of the
      Company’s assets subject to the security interest of the Brockbank Trust (See
      Note 5) and the Winfield convertible debentures of March 2005.




The
      notes
      share a security interest with the Winfield notes issued in July 2004. As of
      December 31, 2005 we had failed to make any monthly payments on the notes and
      are in default.




F-17




GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




*Promissory
      Notes Payable—December Financing*




In
      December of 2005, we borrowed $575,000 from Longview Fund L.P., a major
      shareholder. The notes accrue interest at 16% per annum, are uncollateralized
      and are payable including accrued interest on or before March 15,
      2006.




Accordingly,
      at December 31, 2005 we classified the following notes payable as current
      liabilities as follows:




**Dec.
                31, 2005**Promissory
                Notes Payable-July Financing
            
            $
            1,200,000Promissory
                Notes Payable-September Financing
            
            
            300,000Promissory
                Notes Payable-December Financing
            
            
            575,000Total
            
            $
            2,075,000





**Note
      8 —Other Long-term Debt**




*Notes
      Payable- Plum Mine*




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




*Notes
      Payable- Seller Note*




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




*Notes
      Payable- Equipment Financing*




During
      2004, we purchased certain equipment and financed our purchases through GMAC
      and
      Ford Motor Company credit agencies. Aggregated principal and interest due
      pursuant to the financings is due monthly in equal installments of $1,054,
      at an
      averaged interest rate of 7.2%. The equipment purchased is pledged as collateral
      for the debt. At December 31, 2004 and December 31, 2003, we had the following
      amounts due under the financings as follows:




**Dec.
                31, 2005**
            
            
            **Dec.
                31, 2004**Long-term
                Debt-Current Plum Mine
            
            $
            350,000
            
            $
            400,000Long-term
                Debt-Current Seller Note
            
            
            64,000
            
            
            ---Other
                Long-term Debt-Current
            
            $
            9,108
            
            $
            21,127Total
            
            $
            423,108
            
            $
            421,127








F-18


GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004








**Dec.
                31, 2005**
            
            
            **Dec.
                31, 2004**Long-term
                Debt-non current Plum Mine
            
            $
            –
            
            $
            200,000Long-term
                Debt-non current Seller Note
            
            
            96,000
            
            
            –Other
                Long-term Debt -Non-current
            
            
            34,243
            
            
            43,858Total
            
            $
            130,243
            
            $
            243,858





**Note
      8 —Other Long-term Debt-Continued**




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




2006
            $
                9,9642007
            10,6762008
            11,4412009
            11,2702010
                and thereafter
            0





*Convertible
      Notes Payable-Failure to Deliver Shares*




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




*Conversion
      Rights*




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




*Borrower’s
      Repayment Election* .





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




On
      April
      1, 2005, we failed to make our first payment on the convertible debentures
      and
      were in default of the terms of the convertible notes. At December 31, 2005
      and
      December 31, 2004 we classified the following notes payable as current
      liabilities as follows:




**Dec.
                31, 2005**
            
            
            **Dec.
                31, 2005**Convertible
                Notes Payable
            
            $
            13,461,941
            
            $
            11,100,649Promissory
                notes
            
            
            2,075,000
            
            
            –Total
            
            $
            15,536,941
            
            $
            11,100,649





F-19
  GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




**Note
      9 — Liquidated Damages**




Our
      March
      2004 private placement, as restructured in November 2004, is subject to
      Non-Registration Events Provisions (“Non-Registration Provisions”) for the
      investors’ common stock that may be converted from convertible notes principal
      and interest and the exercise of common stock purchase warrants (see Note 12).
      The Non-Registration Provisions required us to file and cause to become
      effective a registration statement with the Securities and Exchange Commission
      so that investors could sell their shares of common stock without restriction.
      Our November 2004 subscription agreement required us to file a registration
      statement with the Securities and Exchange Commission no later than December
      30,
      2004 and to cause the registration statement to be declared effective no later
      than February 14, 2005. Our former Chief Executive Officer withdrew our pending
      registration statement and did not submit a new registration statement. His
      failure to submit the registration statement to the SEC by December 30, 2004
      triggered




**Note
      9 — Liquidated Damages-Continued**




liquidated
      damages to accrue under the November 2004 subscription agreement. Pursuant
      to
      the terms of the Subscription Agreement, liquidated damages accrue at a rate
      of
      percent (2%) of the principal amount of the Debenture for each thirty day period
      or part thereof for not having our Registration Statement declared effective.
      Furthermore, the damages may be paid in cash or in unrestricted common stock.
      If
      paid in stock, we are required to pay 200% of the cash penalty. Because we
      do
      not have the cash or free-trading stock to pay the liquidated damages, we
      reached a settlement agreement with the investors to pay the liquidated damages
      in restricted common stock valued at $0.03 per share. Pursuant to this
      settlement agreement, we issued 59 million shares of restricted common stock
      in
      April 2005 and .approximately 40 million s shares of restricted common stock
      in
      November of 2005.




In
      addition, pursuant to the November 2004 subscription agreement, we were subject
      to liquidated damages for failure to issue shares to holders of convertible
      notes payable (see Note **6** )




We
      recorded liquidated damages and other related expenses due to investors of
      our
      March 2004 offering and the subsequent November 30, 2004 restructuring, during
      December 31, 2005 and December 31, 2004 as follows:




Liquidated
                damages relating to:
            
            
            **Dec.
                31, 2005**
            
            
            **Dec.
                31,2004**Non-Registration
                Provisions
            
            $
            4,520,615
            
            
            1,322,662Failure
                to timely deliver shares upon notice of converting note
                holders
            
            
            98,529
            
            
            304,646$
            4,619,144
            
            
            1,627,308







At
      December 31, 2005 we had accrued $1,913,418 of liquidated damages payable in
      our
      other accrued liabilities.




F-20




GOLDSPRING,
        INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Years
        Ended December 31, 2005 and 2004




**Note
      10 — Income Taxes**




We
      did
      not provide any current or deferred US federal or state income tax provision
      or
      benefit through the years ended December 31, 2005 and 2004, because we have
      experienced operating losses since our inception. We have provided a full
      valuation allowance on the deferred tax asset, consisting primarily of a net
      operating loss, because of the uncertainty regarding its being realizable...




At
      December 31, 2005 and 2004, we had a net operating loss carry forwards of
      approximately $11.4 and $9.8 million, respectively. Utilization of our net
      operating losses, which begin to expire in year 2024, may be subject to certain
      limitations under section 382 of the Internal Revenue Code of 1986, as amended,
      and other limitations under state tax laws. Due to the change in the nature
      of
      our operations and the expected likelihood that the net operating loss carry
      forwards may be utilized, we have elected to recognize a deferred tax benefit
      offset by an equal valuation allowance of approximately $3.9 **** and
      $3.4
      million, respectively, for the years ended December 31, 2005 and 2004,
      respectively.




**Note
      11 - Related Party Transactions**




In
      addition to the related party transactions discussed in Notes 6,7,8 and 12,
      we
      had the following transactions with related parties:




On
      November 9, 2004, we filed a lawsuit in Maricopa County (Arizona) Superior
      Court
      against Stephen B. Parent, our former CEO and one of our directors. The
      complaint alleges that the director




**Note
      11 - Related Party Transactions - Continued**




misrepresented
      the value of certain placer mining claims that his company sold to us in 2003
      in
      exchange for approximately 99,000,000 shares of our stock; that his company
      no
      longer had good title to the claims when they were sold to us; and that the
      director incurred $307,190 in accountable expenses. We have asked, and given
      the
      director the opportunity, to provide appropriate documentation for any portion
      of the $307,190 that he believes to be legitimate business expenses. The
      $307,190 includes debit card withdrawals, credit card charges using the
      company’s accounts, a retainer to the director’s personal attorney and two
      laptop computers that the director has not returned to the company. As of April
      14, 2005, we have received documentation from the director and are in the
      process of reviewing the material to evaluate whether the documentation is
      sufficient to support the expenses as legitimate business expenses. We are
      seeking the return of the portion of the funds that cannot be documented as
      legitimate business expenses and a return of the approximately 45 million shares
      of our common stock that the director received in 2003 in exchange for the
      mining claims.




**Note
      12 — Stockholders’ Equity**




*Common
      Stock issued for Liquidated Damages*




During
      April of 2005 we issued 59,203,484 shares of our common stock to investors
      in
      connection with satisfying liquidated damages totaling $1,776,104 related to
      a
      registration statement filed to register shares of our common stock issued
      in
      our March private placement. In addition, during November 2005 we issued an
      additional 35,103,534 shares of our common stock to investors in connection
      with
      satisfying liquidated damages totaling $1,053,106 pursuant to the terms and
      conditions of the November 30, 2004 Subscription Agreement (See Note
      9).




*Common
      Stock issued for Mining Properties*




During
      2005 we acquired mining claims near or contiguous to our Plum Mining Property
      in
      exchange for a cash payment of $10,000, a note payable of $100,000 and 3,000,000
      restricted shares of our common stock valued at $150,000. We valued the shares
      based upon our estimate of their market value at the time of
      issuance.




F-21


*GOLDSPRING,
        INC.*
 *NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS*
 *Years
        Ended December 31, 2005 and 2004*


During
      October of 2005 the Company issued 444,444 shares of its restricted common
      stock
      to an individual as consideration for the purchase of an entity controlled
      by
      the individual owning property near our Plum Mining property. If we are unable
      to consummate the transaction the shares will be retained the individual. We
      valued the shares at $20,000 based on our estimate of the common stock’s fair
      value at the time of issuance.




*Common
      Stock issued for Convertible Debenture Principal and Interest*




During
      2005 the Company issued 28,201,478 and 23,729,909 shares of its restricted
      common stock in connection with the conversion of $1,118,994 and $787,675 of
      debenture principal and interest, respectively.




*March
      2004 Offering*




We
      completed a private placement of securities transaction during March 2004.
      In connection with the offering, we received gross proceeds of $10 million
      from
      a group of accredited institutional and individual investors through the
      issuance of 21,739,129 shares of unregistered restricted common stock at a
      price
      of $0.46 per share. The investors also received two forms of warrants in this
      transaction. The Green Shoe Warrants allowed the investor group to purchase
      an
      additional 10,869,575 shares of common stock under the same terms and conditions
      at a price of $0.46 per share. The Green Shoe Warrants are exercisable for
      a
      period of 180 days from the effective date of the registration statement. The
      series A warrants allow the investor group to purchase 10,869,575 shares of
      common stock at an exercise price of




**Note
      12 — Stockholders’ Equity - Continued**




$0.86
      per
      share and are exercisable during the four-year period ending March 2008.
      Subsequent to the completion of the offering, we failed to meet certain
      provisions of the offering that required us to provide for an effective
      registration statement with the Securities and Exchange Commission.




As
      a
      result, and effective November 30, 2004, we restructured our
      $10.0 million private placement transaction. In connection with the
      restructuring, we exchanged 8% convertible notes in the aggregate principal
      amount of approximately $11.1 million and four-year warrants to purchase
      approximately 27,800,000 shares of common stock at an exercise price of $0.20
      per share subject to anti-dilution adjustments for 21,739,129 shares of common
      stock and 21,739,129 warrants to purchase shares of common stock issued in
      the
      March Offering. The principal amount of the convertible notes consist of the
      original $10.0 million investment plus approximately $1.1 million of
      accrued penalties associated with the delay in effectiveness of our registration
      statement covering the resale of the shares of common stock held by the
      investors. (See Note 6).




We
      exchanged the securities in reliance upon the exemptions provided by
      (a) Section 3(a)(9) of the Securities Act of 1933, as amended (the
“Securities Act”) as securities exchanged by the issuer with its existing
      security holders exclusively where no commission or other remuneration is paid
      or given directly or indirectly for soliciting such exchange; and
      (b) Section 4(2) of the Securities Act as a transaction by an issuer
      not involving a public offering.




*Stock
      Purchase Warrants*




In
      connection with our November 30, 2004 restructuring agreement, we agreed to
      issue (detachable) 50 Class B Stock Purchase Warrants (“the Warrants”) for each
      one-hundred shares that the convertible notes could be converted into, assuming
      they were converted immediately after closing of the restructuring agreement.
      The Warrants are exercisable at $0.20 within four years of their issue date
      and
      are subject to registration rights. We estimated the fair value of the warrants
      at the time of issuance as nil and have not reflected any discount on the
      convertible notes relating to them.




F-22


*GOLDSPRING,
        INC.*
 *NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS*
 *Years
        Ended December 31, 2005 and 2004*




*Common
      Stock Issued to Related Party for Services*




During
      2004, we issued 50,000 shares of our restricted common stock to a director
      in
      exchange for services. The value of the common stock issued approximated the
      expense of the services we recognized.




*Common
      Stock Issued for Cash*




During
      2004, we issued 22,182,462 shares of our common stock for cash totaling
      $9,428,781, net of direct issuance costs.




*Common
      Stock Purchased*




During
      2004, we purchased 2,000,000 shares of our common stock for $150,000 and
      cancelled the shares.




*Common
      Stock Retired to Treasury*




During
      2004, we purchased 100,000 shares of our common stock for $75,000 and returned
      them to the treasury.




F-23