##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the Quarterly Period Ended September 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from  to .
 Commission File No. 333-135376
 PIEDMONT MINING COMPANY, INC.
  North Carolina
    
    56-1378516(State or Other Jurisdiction
    
    (I.R.S. Employer IdentificationOf Incorporation or Organization)
    
    Number)18124 Wedge Parkway, Suite 214Reno, Nevada
    
    89511(Address of Principal Executive Offices)
    
    (Zip Code)
 (212) 734-9848
  Yes þ           No o
  Yes o           No þ
  Transitional Small Business Disclosure Format (Check one):
    
    Yes o           No þ




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##### 



PIEDMONT MINING COMPANY, INC.
 FORM 10-QSB INDEX
 Page NumberPART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2006 (Unaudited) and December 31, 2005
    
    
    3Consolidated Statements of Loss (Unaudited) for the Nine and Three Months Ended
September 30, 2006 and 2005
    
    
    4Consolidated Statements of Stockholders Deficit (Unaudited) For the Nine Months
Ended September 30, 2006 For the Year Ended December 31, 2005
    
    
    5Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September
30, 2006 and 2005
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    19Item 3. Controls and Procedures
    
    
    23PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    24Signature Page
    
    
    25EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents

'

PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PIEDMONT MINING COMPANY, INC.
(An Exploration Stage Company)
 
 CONSOLIDATED BALANCE SHEETS
 SEPTEMBER 30, 2006 (UNAUDITED) and DECEMBER 31, 2005
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)
    
    
    (audited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    123,209
    
    
    $
    400Prepaid expenses and other
    
    
    31,942
    
    
    
    20,559Total Current Assets
    
    
    155,151
    
    
    
    20,959Long Lived Assets, net
    
    
    1,992
    
    
    
    1,667Other AssetsExploration projects
    
    
    172,167
    
    
    
    75,500Total Assets
    
    $
    329,310
    
    
    $
    98,126LIABILITIES AND STOCKHOLDERS DEFICITCurrent LiabilitiesAccounts payable
    
    $
    19,001
    
    
    $
    2,281Bank overdraft
    
    
    
    
    
    
    8,247Accrued expenses
    
    
    51,504
    
    
    
    43,839Accrued expenses  due to officers
    
    
    107,164
    
    
    
    264,234Other liabilities
    
    
    
    
    
    
    9,809Due to directors
    
    
    
    
    
    
    123,940Convertible notes
    
    
    
    
    
    
    27,000Total Current Liabilities
    
    
    177,669
    
    
    
    479,350Stockholders DeficitPreferred stock, $1.00 par value; 25,000,000 shares
authorized; no shares issued or outstanding at September
30, 2006 and December 31, 2005
    
    
    
    
    
    
    Common stock, no par value; 100,000,000 shares
authorized; 53,963,660 shares issued and outstanding
at September 30, 2006; 43,958,041 shares issued and
outstanding at December 31, 2005
    
    
    14,057,188
    
    
    
    12,820,971Contributed capital
    
    
    371,075
    
    
    
    371,075Contributed capital  stock warrants
    
    
    119,781
    
    
    
    Contributed capital  stock options
    
    
    24,700
    
    
    
    Accumulated deficit
    
    
    (12,564,287
    )
    
    
    (12,564,287
    )Deficit accumulated during exploration stage
    
    
    (1,856,816
    )
    
    
    (1,008,983
    )Total Stockholders Equity (Deficit)
    
    
    151,641
    
    
    
    (381,224
    )Total Liabilities and Stockholders Equity (Deficit)
    
    $
    329,310
    
    
    $
    98,126
  3




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##### Table of Contents



PIEDMONT MINING COMPANY, INC.
(An Exploration Stage Company)
 
 CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED)
 FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
 ExplorationStage PeriodThree Months Ended
    
    
    Nine Months Ended
    
    
    January 1, 2002September 30,
    
    
    September 30,
    
    
    through2006 (unaudited)
    
    
    2005 (unaudited)
    
    
    2006 (unaudited)
    
    
    2005 (unaudited)
    
    
    September 30, 2006Operating ExpensesGeneral and administrative
    
    $
    22,735
    
    
    $
    10,900
    
    
    $
    64,753
    
    
    $
    43,696
    
    
    $
    335,160Compensation, professional,
legal and accounting
    
    
    108,442
    
    
    
    25,346
    
    
    
    239,673
    
    
    
    77,126
    
    
    
    482,431Depreciation expense
    
    
    465
    
    
    
    250
    
    
    
    965
    
    
    
    750
    
    
    
    143,102Research and development
    
    
    2,313
    
    
    
    3,550
    
    
    
    10,881
    
    
    
    19,841
    
    
    
    69,997Exploration, geological and
geophysical costs
    
    
    171,760
    
    
    
    92,812
    
    
    
    534,234
    
    
    
    125,754
    
    
    
    748,291Loss from operations
    
    
    (305,715
    )
    
    
    (132,858
    )
    
    
    (850,506
    )
    
    
    (267,167
    )
    
    
    (1,778,981
    )Other Income (Expense)Interest income
    
    
    2,039
    
    
    
    
    
    
    
    5,587
    
    
    
    22
    
    
    
    5,619Interest expense
    
    
    (690
    )
    
    
    (6,935
    )
    
    
    (3,183
    )
    
    
    (18,635
    )
    
    
    (37,133
    )Other income
    
    
    50
    
    
    
    472
    
    
    
    269
    
    
    
    3,641
    
    
    
    269Gain on sale of historic gold
bar and mineral rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,410Loss on legal and note receivable
settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93,000
    )Total other income, net
    
    
    1,399
    
    
    
    (6,463
    )
    
    
    2,673
    
    
    
    (14,972
    )
    
    
    (77,835
    )Net Loss
    
    $
    (304,316
    )
    
    $
    (139,321
    )
    
    $
    (847,833
    )
    
    $
    (282,139
    )
    
    $
    (1,856,816
    )Loss per shareBasic
    
    $
    (0.006
    )
    
    $
    (0.004
    )
    
    $
    (0.017
    )
    
    $
    (0.007
    )Diluted
    
    $
    (0.006
    )
    
    $
    (0.004
    )
    
    $
    (0.017
    )
    
    $
    (0.007
    )
  4




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##### Table of Contents



PIEDMONT MINING COMPANY, INC.
(An Exploration Stage Company)
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT (UNAUDITED)
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
 FOR THE YEAR ENDED DECEMBER 31, 2005
 DeficitContributed
    
    Contributed
    
    
    
    
    
    AccumulatedCommon Stock
    
    
    
    
    
    Capital-
    
    Capital-
    
    
    
    
    
    During
    
    TotalNo. of
    
    
    
    
    
    Contributed
    
    Stock
    
    Stock
    
    Accumulated
    
    Exploration
    
    ShareholdersShares
    
    $
    
    Capital
    
    Warrants
    
    Options
    
    Deficit
    
    Stage
    
    DeficitBalance, December 31, 2004
    
    
    37,152,646
    
    
    $
    12,335,434
    
    
    $
    371,075
    
    
    $
    
    
    
    $
    
    
    
    $
    (12,564,287
    )
    
    $
    (546,094
    )
    
    $
    (403,872
    )Stock issued upon conversion of debt
    
    
    4,063,403
    
    
    
    316,037
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316,037Sales of
stock
    
    
    2,441,992
    
    
    
    145,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,000Payments in stock on exploration
projects
    
    
    300,000
    
    
    
    24,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,500Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (462,889
    )
    
    
    (462,889
    )Balance, December 31, 2005
    
    
    43,958,041
    
    
    
    12,820,971
    
    
    
    371,075
    
    
    
    
    
    
    
    
    
    
    
    (12,564,287
    )
    
    
    (1,008,983
    )
    
    
    (381,224
    )Sales of
stock, net of issuance costs
    
    
    10,005,619
    
    
    
    1,236,217
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,236,217Issuance of stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,781
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,781Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,700
    
    
    
    
    
    
    
    
    
    
    
    24,700Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (847,833
    )
    
    
    (847,833
    )Balance, September 30, 2006
    
    
    53,963,660
    
    
    $
    14,057,188
    
    
    $
    371,075
    
    
    $
    119,781
    
    
    $
    24,700
    
    
    $
    (12,564,287
    )
    
    $
    (1,856,816
    )
    
    $
    151,641
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##### Table of Contents



PIEDMONT MINING COMPANY, INC.
(An Exploration Stage Company)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
 Exploration StagePeriod January 1,Nine Months Ended
    
    
    2002September 30,
    
    

through2006
    
    
    2005
    
    
    September 30, 2006Cash Flows from Operating Activities:Net loss
    
    $
    (847,833
    )
    
    $
    (282,139
    )
    
    $
    (1,856,816
    )Adjustments to reconcile net loss
to net cash used in operating activities:Gain on sale of mineral rights
    
    
    
    
    
    
    
    
    
    
    (40,000
    )Loss on settlement of note receivable
    
    
    
    
    
    
    
    
    
    
    19,000Stock-based
compensation
    
    
    24,700
    
    
    
    
    
    
    
    24,700Depreciation
    
    
    965
    
    
    
    750
    
    
    
    143,102Changes due to (increase) decrease in operating assets:Prepaid expenses and other
    
    
    (11,383
    )
    
    
    (7,600
    )
    
    
    (28,993
    )Changes due to increase (decrease) in operating liabilities:Accounts payable and accrued expenses
    
    
    (132,685
    )
    
    
    100,719
    
    
    
    138,213Bank overdraft
    
    
    (8,247
    )
    
    
    
    
    
    
    Other liabilities
    
    
    (9,809
    )
    
    
    (9,563
    )
    
    
    Net cash used in operating activities
    
    
    (984,292
    )
    
    
    (197,833
    )
    
    
    (1,600,794
    )Cash Flows from Investing Activities:Purchase of long lived assets
    
    
    (1,290
    )
    
    
    
    
    
    
    (4,290
    )Proceeds from note receivable
    
    
    
    
    
    
    
    
    
    
    57,125Proceeds from sale of mineral rights
    
    
    
    
    
    
    
    
    
    
    40,000Payments made on exploration projects
    
    
    (86,667
    )
    
    
    (51,000
    )
    
    
    (137,667
    )Net cash used in investing activities
    
    
    (87,957
    )
    
    
    (51,000
    )
    
    
    (44,832
    )Cash Flows from Financing Activities:Sales of
stock and warrants, net of issuance costs
    
    
    1,345,998
    
    
    
    125,000
    
    
    
    1,490,998Payments on convertible debt
    
    
    (27,000
    )
    
    
    
    
    
    
    (27,000
    )Proceeds on convertible debt
    
    
    
    
    
    
    75,000
    
    
    
    318,145Proceeds from revolving note  due to officer
and advances from directors
    
    
    
    
    
    
    54,500
    
    
    
    157,309Payments on revolving note  due to officer
and advances from directors
    
    
    (123,940
    )
    
    
    
    
    
    
    (171,314
    )Net cash provided by financing activities
    
    
    1,195,058
    
    
    
    254,500
    
    
    
    1,768,138Net increase in cash and cash equivalents
    
    
    122,809
    
    
    
    5,667
    
    
    
    122,512Cash and cash equivalents at beginning of period
    
    
    400
    
    
    
    1,041
    
    
    
    697Cash and cash equivalents at end of period
    
    $
    123,209
    
    
    $
    6,708
    
    
    $
    123,209
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##### Table of Contents



1.
    
    Nature of Business and Significant Accounting Policies
 a.
    
    Nature of Business  Piedmont Mining Company, Inc. (the Company) was
incorporated in 1983 under the laws of North Carolina and is an exploration stage company
engaged in the exploration for gold and silver. All properties currently under exploration
are located in Nevada.b.
    
    Basis of Presentation  The accompanying consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United
States of America.c.
    
    Basis of Consolidation  The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries, NetColony, LLC and
Piedmont Gold Company, Inc. Neither subsidiary has material operations, tangible assets or
liabilities. All significant intercompany accounts and transactions, if any, have been
eliminated in consolidation.d.
    
    Use of Estimates  The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported amounts and
disclosures, such as the allowance for doubtful accounts and various accruals. Accordingly,
actual results could differ from those estimates.e.
    
    Long Lived Assets  Long lived assets are comprised of websites and equipment.
They are recorded at cost and depreciated using the straight-line basis over their useful
lives. Depreciation expense for the three and nine months ended September 30, 2006 was $465
and $965, respectively. Depreciation expense for the three and nine months ended September
30, 2005 was $250 and $750, respectively.f.
    
    Cash and Cash Equivalents  For purposes of the statement of cash flows, the
Company considers all holdings of highly liquid investments with original maturities of
three months or less and investments in money market funds to be cash equivalents. At
September 30, 2006, the Companys cash in bank balances exceeded the federally insured
limits by $35,291.g.
    
    Advertising  The Company expenses advertising costs as they are
incurred. Advertising expenses for the three and nine months ended September 30, 2006 were
$4,985 and $11,453 respectively. No advertising expenses were incurred during the three
and nine months ended September 30, 2005.h.
    
    Research and Development Costs and Exploration Projects  Pursuant to
Emerging Issues Task Force (EITF) 04-02 mineral rights are capitalized at cost.
This includes lease payments under exploration agreements. The projects are assessed for
write-off when facts and circumstances indicate their carrying values exceed their
recoverable values, such as failure to discover mineable ore. If a mineable ore body is
found, these costs will be amortized when production begins using a units-of-production
method. These costs are recorded to exploration projects on the consolidated balance
sheets. Other exploration and geological costs and research and development costs are
expensed as incurred.i.
    
    Net Loss Per Share  In accordance with Statement of Financial Accounting
Standard (SFAS) No. 128, Earnings Per Share,and SEC Staff Accounting Bulletin No. 98,
basic earnings/loss per common share (EPS) is computed by dividing net loss for the period
by the weighted average number of common shares outstanding during the period. Under SFAS
128, diluted earnings/loss per share is computed by dividing the net loss for the period,
with interest expense added back, by the weighted average number of common and common
equivalent shares, such as stock options and warrants, outstanding during the period.
 
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1.
    
    Nature of Business and Significant Accounting Policies  continued
 i.
    
    Net Loss Per Share  continued - Net loss used in determining basic EPS was
($304,316) and ($847,833) for the three and nine months ended September 30, 2006 and
($139,321) and ($282,139) for the three and nine months ended September 30, 2005. The
weighted average number of shares of common stock used in determining basic EPS was 53.62
and 50.18 million for the three and nine months ended September 30, 2006 and 38.47 and
37.62 million for the three and nine months ended September 30, 2005.Net loss used in determining diluted EPS was ($304,316) and
($847,833) for the three and
nine months ended September 30, 2006 and ($136,675) and ($275,611) for the three and nine
months ended September 30, 2005. The weighted average number of shares of common stock used
in determining diluted EPS was 53.62 and 50.18 million for the three and nine months ended
September 30, 2006 and 38.47 and 37.62 million for the three and nine months ended September
30, 2005.j.
    
    Income Taxes The Company provides for income taxes under SFAS 109,
Accounting for Income Taxes, which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities using the enacted income tax
rate expected to apply to taxable income in the period in which the deferred tax liability
or asset is expected to be settled or realized. SFAS 109 requires that a valuation
allowance be established if necessary, to reduce the deferred tax assets to the amount that
management believes is more likely than not to be realized. The provision for federal
income tax differs from that computed by applying federal statutory rates to income before
federal income tax expense mainly due to expenses that are not deductible and income that
is not taxable for federal income taxes, including permanent differences such as
non-deductible meals and entertainment.k.
    
    Stock Options  Prior to January 1, 2006, the Company followed Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and
related interpretations in accounting for stock options issued to employees and directors.
Under APB 25, when the exercise price of stock options equals or is less than the fair
market value of the underlying stock of the date of grant, no compensation expense is
recognized. For options issued to service providers, the Company follows SFAS No. 123,
Accounting for Stock-Based Compensation, which requires recording the options at the fair
value of the service provided.Beginning January 1, 2006, the Company adopted SFAS 123(R), Share-Based Payment, which calls
for recording stock-based compensation under the fair value method for stock options awarded
to employees.
 2.
    
    Going Concern  The Company has had no revenues or cash flow from operations. This is
because the Company is an exploration stage company, exploring mineral properties but not yet
generating any revenue from those properties. These factors create an uncertainty as to how
the Company will fund its operations and maintain sufficient cash flow to operate as a going
concern.In response to these adverse conditions, management is continuing to look for financing from
various sources, including private placements from investors and institutions. Management
believes these efforts will contribute toward funding the Companys activities until revenue
can be earned from the properties or a sale can be consummated. The Companys ability to
meet its cash requirements in the next year is dependent upon obtaining this financing and
satisfying certain obligations, such as compensating its officers and consultants through
non-cash means including the issuance of stock options. If this is not achieved, the Company
may be unable to obtain sufficient cash flow to fund its operations and obligations, and
therefore, may be unable to continue as a going concern.
 8




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##### Table of Contents



2.
    
    Going Concern  continuedThe accompanying consolidated financial statements have been prepared on a going
concern basis, and accordingly, do not include any adjustments relating to the
recoverability and classification of recorded asset amounts nor do they include adjustments
to the amounts and classification of liabilities that might be necessary should the Company
be unable to continue in existence or be required to sell its assets.3.
    
    Exploration Stage Company  As discussed in Note 1, the Company was formed in 1983.
However, significant changes to the Companys business and operations occurred from 1983
through 2002. The Company is currently in an exploration stage, which is characterized by
significant expenditures for the examination and development of exploration opportunities. The
Companys focus for the foreseeable future will continue to be on exploration of various
existing mineral properties and exploration of new properties.4.
    
    Convertible Promissory Notes  During 2003, the Company issued $85,000 of convertible
promissory notes bearing interest at 5% per annum and maturing at various dates. During 2004,
the Company issued an additional $158,145 of convertible promissory notes bearing interest at
5% per annum. During 2005, the Company issued $75,000 of convertible promissory notes, also
bearing interest at 5% per annum. During 2005, most of these notes and the related accrued
interest of $24,892 were converted into 4,063,403 shares of common stock. Conversion prices
varied per agreement. One $27,000 convertible note remained unconverted at December 31, 2005
and was repaid in February 2006.Two of the converted notes were with related parties. One of the Companys
directors held a note totaling $15,000 which converted into 170,156 shares. Also, this
director is the chief operating officer of a company which held a note totaling $40,000
that converted into 656,298 shares.5.
    
    Related Party Transactions  The unpaid portion of the annual compensation of the
Companys President is included in accrued liabilities in the accompanying consolidated
balance sheets. The unpaid amount included in accrued liabilities is $105,000 at September 30,
2006 and $14,500 at December 31, 2005. From time to time, the Companys officers and directors
advance monies to the Company under an unwritten arrangement accruing 5% interest annually.
The unpaid balances related to these advances at September 30, 2006 and December 31, 2005 are
$0 and $123,940, respectively. The unpaid interest related to these advances at September 30,
2006 and December 31, 2005 was $0 and $1,405, respectively. The Company pays rent for office
space to the President, which totaled $3,600 and $10,400 for the three and nine months ended
September 30, 2006 and $3,000 and $9,000 for the three and nine months ended September 30,
2005.Various other related party transactions are disclosed in other notes.
 9




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##### Table of Contents



6.
    
    Income Taxes  Income taxes are paid only to the United States government and
applicable state governments. The federal and state income tax expense (benefit) consists of
the following:
 Nine months ended September 30,2006
    
    
    2005Current:Federal
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    Total current
    
    
    
    
    
    
    Deferred:Federal
    
    
    (296,578
    )
    
    
    (96,582
    )State
    
    
    (59,316
    )
    
    
    (19,717
    )Total deferred
    
    
    (355,894
    )
    
    
    (116,299
    )Less valuation allowance
    
    
    355,894
    
    
    
    116,299Income tax expense
    
    $
    
    
    
    $
    
 A reconciliation of the provision (benefit) for income taxes with amounts determined by
applying the statutory U.S. federal income tax rate to income before income taxes is as
follows:
 Nine months ended September 30,2006
    
    
    2005Net loss before taxes
    
    $
    (847,833
    )
    
    $
    (281,758
    )Statutory rate
    
    
    42
    %
    
    
    42
    %Total computed tax expense (benefit)
    
    
    (356,090
    )
    
    
    (118,338
    )(Decrease) increase in taxes resulting from:Temporary differences
    
    
    196
    
    
    
    2,039Increase in valuation allowance
    
    
    355,894
    
    
    
    116,299Income tax expense from continuing
operations
    
    $
    
    
    
    $
    Effective income tax rate
    
    
    0
    %
    
    
    0
    %
 10




---



##### Table of Contents



6.
    
    Income Taxes  continued - The deferred tax assets result from net operating loss
carry-forwards. These assets will therefore reverse either upon their utilization against
taxable income or upon their statutory expiration. Federal net operating loss carry-forwards
of $12,536,743 remained at September 30, 2006, and
expire as follows:
 Net OperatingExpiration
    
    Loss2009
    
    $
    2,126,0002010
    
    
    1,695,0002011
    
    
    2,958,0002012
    
    
    1,300,0002017
    
    
    778,0002018
    
    
    573,0002019
    
    
    336,0002020
    
    
    1,368,0002021
    
    
    202,0002022
    
    
    179,0002023
    
    
    171,5452024
    
    
    161,7552025
    
    
    271,5862026
    
    
    416,857$
    12,536,743
 The Companys deferred tax asset as of September 30, 2006 and December 31, 2005 was
$5,526,539 and $5,170,645, respectively. These were fully offset by valuation allowances,
resulting in a net deferred tax asset of $0 for each period.7.
    
    Supplemental Cash Flow Information  The Company paid no cash for income taxes or
interest for the three and nine months ended September 30, 2006 or 2005. The Company paid
$10,000 in common stock pursuant to the terms of the Antelope Ridge property agreement during
the three and nine months ended September 30, 2006 and $24,500 in common stock pursuant to the
terms of various other property agreements during the nine months ended September 30, 2005.
The Company converted promissory notes totaling $172,285 in principal and interest to common
stock during the nine months ended September 30, 2005. The Company awarded non-cash
compensation in the form of stock options. See footnote 8 for further discussion.8.
    
    Stock Based Compensation and Other Equity Transactions  The Company does not
have a stock based compensation plan in place. The Companys compensation committee makes
recommendations to the Board of Directors for the granting of awards of stock options to
its officers and directors on a case-by-case basis. Prior to January 1, 2006, the Company
accounted for this plan in accordance with APB 25. Therefore, no stock-based employee
compensation expense for stock options was reflected in the income for the three and nine
months ended September 30, 2005. Had compensation cost been recorded based on the fair
value at grant date, the effect on net loss would have been immaterial. In making this
determination, the Company estimated the fair market value of the options issued during the
three and nine months ended September 30, 2005, using the Black-Scholes option pricing
model with the following assumptions:
 
 11




---



##### Table of Contents



8.
    
    Stock Based Compensation and Other Equity Transactions  continued
 Risk-free interest rate
    
    
    2.54
    %Volatility factor
    
    
    17.00
    %Contractual life of options, in years
    
    
    5 to 7
 Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS
No. 123(R), Share-Based Payments. The fair value of options issued during the three and
nine months ended September 30, 2006 was determined using the Black-Scholes option
pricing model with the following assumptions:
 Three months
    
    Nine monthsended
    
    endedSeptember 30, 2006
    
    September 30, 2006Risk-free interest rates
    
    
    4.79
    %
    
    4.43% to 4.79%Volatility factor
    
    
    22
    %
    
    22% to 26%Contractual life of options, in
years
    
    
    5
    
    
    
    5Service period in years
    
    
    1 to 3
    
    
    
    1 to 3Weighted average calculated
value of options
granted
    
    $
    0.027
    
    
    $
    0.032
 Of those granted during the nine months ended September 30, 2006, 766,667 of the
2,350,000 vested immediately; 816,667 vest in 2007; and the remainder vest in 2008. The
terms of these awards are five years. Total shares able to be purchased, as they vest,
is 2,350,000. If employment is terminated, the employee may exercise within 90 days
only those options that vested. The fair value of these options was $75,450 at the
grant date. Total compensation expense for the three and nine months ended September 30, 2006 equaled
$9,900 and $24,700 respectively, which corresponds to the vesting schedule. As of
September 30, 2006, the total compensation expense related to nonvested awards to be
recognized in future periods is $50,750. It will be recognized equally as it vests on
the anniversary dates of the grants during 2007 and 2008. Of those granted during the
nine months ended September 30, 2005, 1,241,666 of the 2,925,000 vested immediately;
841,667 will vest on the first anniversary date; 841,667 will vest on the second
anniversary date. The terms of these awards range from five to seven years. Total   
shares able to be purchased, as they vest, is 3,425,000. The fair value of these
options was immaterial at the grant date. No cash was received in exchange for any of
the options awarded. Since no options have been exercised, no proceeds have been
received for the nine months ended September 30, 2006 and 2005. Below is a summary of
the stock option activity for the nine months ended September 30, 2006 and 2005:
 
 12




---



##### Table of Contents



8.
    
    Stock Based Compensation and Other Equity Transactions  continued
 Number ofShares
    
    WeightedSubject to
    
    AverageOptions
    
    Exercise PriceOutstanding, December 31, 2004
    
    
    500,000
    
    
    $
    0.300Granted, February 3, 2005
    
    
    2,925,000
    
    
    $
    0.226Outstanding, September 30, 2005
    
    
    3,425,000
    
    
    $
    0.236Outstanding, December 31, 2005
    
    
    3,425,000
    
    
    $
    0.236Granted, February 8, 2006
    
    
    1,200,000
    
    
    $
    0.230Expired, April 13, 2006
    
    
    (500,000
    )
    
    $
    0.300Granted, June 16, 2006
    
    
    1,150,000
    
    
    $
    0.250Outstanding, September 30, 2006
    
    
    5,275,000
    
    
    $
    0.232
 WeightedAverageNonvested
    
    FairOptions
    
    ValueNonvested OptionsNonvested options, December 31, 2005
    
    
    1,683,333
    
    
    $
    Granted, February 8, 2006
    
    
    1,200,000
    
    
    $
    0.037Granted, June 16, 2006
    
    
    1,150,000
    
    
    $
    0.027Vested
    
    
    (1,608,333
    )
    
    $
    0.015Nonvested options, September 30, 2006
    
    
    2,425,000
    
    
    $
    0.019
 If the options are exercised, the Company will issue stock from shares authorized but
unissued. There is no policy for reserving shares to be issued upon exercise, nor is
there a policy for repurchasing shares issued.The following tables summarize information and terms of the options outstanding and
exercisable:
 As of September 30, 2005:
 Options Outstanding
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    AverageRemaining
    
    Weighted
    
    
    
    
    
    Remaining
    
    WeightedRange of
    
    Number
    
    Contractual
    
    Average
    
    Number
    
    Contractual
    
    AverageExercise Prices
    
    of Shares
    
    Life (in years)
    
    Exercise Price
    
    of Shares
    
    Life (in years)
    
    Exercise Price$0.20-0.30
    
    
    3,425,000
    
    
    
    4.42
    
    
    $
    0.236
    
    
    
    1,741,667
    
    
    
    4.093
    
    
    $
    0.243
 13




---



##### Table of Contents



8.
    
    Stock Based Compensation and Other Equity Transactions  continued
 As of September 30, 2006:
 Options Outstanding
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    AverageRemaining
    
    Weighted
    
    
    
    
    
    Remaining
    
    WeightedRange of
    
    Number
    
    Contractual
    
    Average
    
    Number
    
    Contractual
    
    AverageExercise Prices
    
    of Shares
    
    Life (in years)
    
    Exercise Price
    
    of Shares
    
    Life (in years)
    
    Exercise Price$0.20-0.25
    
    
    5,275,000
    
    
    
    4.68
    
    
    $
    0.232
    
    
    
    2,850,000
    
    
    
    4.602
    
    
    $
    0.228
 Warrants  Warrants granting holders the right to purchase 2,175,325
shares were issued during the nine months ended September 30, 2005. The Company estimated
the total fair market value of these warrants to be immaterial at the date of grant, using
the assumptions employed above in valuing the stock options. No warrants were exercised
during the nine months ended September 30, 2005. During the nine months ended September
30, 2006, the Company issued warrants granting holders the right to purchase 6,653,666
shares of common stock. These warrants were issued with the common stock sold during
that time. Other warrants were issued as independent equity instruments in lieu of
cash payment for commission fees for the stock placement. The Company estimates the
total fair market value of these warrants to be $151,043 at the date of grant,
using the same methods and assumptions employed above in valuing the stock options.
This differs from the amount reflected in the consolidated balance sheet and statement
of stockholders deficit of $119,781 due to the allocation of the sales proceeds for the
warrants sold with common stock. These proceeds were allocated based on the fair value
of the stock and warrants:
 Fair value of warrants issued as a unit with shares of common stock
    
    $
    95,817Fair value of warrants issued independent of other equity instruments
    
    
    55,226Fair value as stated above
    
    $
    151,043Fair value of stock sold in units
    
    $
    1,955,033Fair value of warrants sold in units
    
    
    95,817Total fair value of units sold
    
    $
    2,050,850Total proceeds received for units sold
    
    $
    1,396,500Amount allocated to stock based on proportional method
    
    
    1,331,945Amount allocated to warrants based on proportional method
    
    $
    64,555Fair value of warrants issued independent of equity instruments
    
    $
    55,226Amount allocated to warrants sold in units
    
    
    64,555Total value of stock warrants as stated on balance sheet
    
    $
    119,781
 During the nine months ended September 30, 2006, holders exercised warrants
totaling 357,143 shares at an exercise price of $0.095 per share. Outstanding total
warrants at September 30, 2006 were 9,394,813. The exercise prices on all warrants
range from $.08 to $.26 per share. The warrants are exercisable immediately upon
issuance and the expiration dates range between one year and two years after issuance.
 Common Stock  The holders of the Companys common stock are entitled
to one vote for each share held of record on all matters submitted to a vote of
shareholders. Holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of funds legally available.
 The Company did not declare or pay any cash dividends during the past two years. The Company has no present plan for the payment of any dividends.
 9.
    
    Long Lived Assets  Long lived assets are
comprised of the following at September 30, 2006 and
December 31, 2005:
 2006
    
    
    2005Websites
    
    $
    190,738
    
    
    $
    190,738Computer equipment
    
    
    1,290
    
    
    
    Accumulated depreciation
    
    
    (190,036
    )
    
    
    (189,071
    )Long lived assets, net
    
    $
    1,992
    
    
    $
    1,667
 14




---



##### Table of Contents



10.
    
    Disclosure About Fair Value of Financial Instruments by a Nonfinancial EntityAccounts payable and accrued expenses - The carrying value of accounts payable and
accrued expenses approximates fair value due to the short-term nature of the obligations.Due to directors - The carrying value of amounts due to directors approximates fair
value due to the short term nature of the obligations.Convertible notes - The carrying amounts approximate fair value based on current
market rates for notes with similar maturities and terms.The estimated fair values of the Companys financial instruments are as follows as of
September 30, 2006 and December 31, 2005:
 2006
    
    2005Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueCash and cash equivalents
    
    $
    123,209
    
    
    $
    123,209
    
    
    $
    400
    
    
    $
    400Accounts payable and bank
overdraft
    
    $
    19,001
    
    
    $
    19,001
    
    
    $
    10,528
    
    
    $
    10,528Accrued expenses
    
    $
    51,504
    
    
    $
    51,504
    
    
    $
    43,839
    
    
    $
    43,839Accrued expenses  due
to officers
    
    $
    107,164
    
    
    $
    107,164
    
    
    $
    264,234
    
    
    $
    264,234Other liabilities
    
    $
    
    
    
    $
    
    
    
    $
    9,809
    
    
    $
    9,809Due to directors
    
    $
    
    
    
    $
    
    
    
    $
    123,940
    
    
    $
    123,940Convertible notes
    
    $
    
    
    
    $
    
    
    
    $
    27,000
    
    
    $
    27,000
 The Company determined the estimated fair value amounts by using available market
information and commonly accepted valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts that the
Company or holders of the instruments could realize in a current market exchange. The use of
different assumptions and estimation methodologies may have a material effect on the
estimated fair values.11.
    
    Commitments  The Company entered into various property agreements during the nine
months ended September 30, 2006 and the year ended 2005. These include:Antelope Ridge Project  On April 26, 2005, the Company entered into a ten year
mining lease with an option to purchase this property. The Company must pay annual lease and
option payments as follows:
 By April 26, 2007: $15,000 plus $15,000 worth of Common StockOn each subsequent anniversary date: $20,000 and $20,000 worth of Common Stock.
 In addition, the Company is required to spend the following amounts on exploration and
maintenance of the property as follows:
 By April 26, 2007:
    
    $
    100,000By April 26, 2008:
    
    $
    100,000
 15




---



##### Table of Contents



11.
    
    Commitments  continuedThe Company may purchase this property for $1,000,000, subject to a 3% net smelter returns
royalty on production from the property. The purchase option must be exercised prior to the
commencement of production from the property. The Company has the right to terminate this
agreement on 60 days notice to the lessor.Bullion Mountain Project  Effective November 11, 2005, the Company entered into a
ten year mining lease with option to purchase. Payments required on each anniversary date
are as follows:
 2006:
    
    $
    5,0002007:
    
    $
    10,0002008 and thereafter:
    
    $
    15,000
 In addition, the Company is required to spend the following amounts on exploration and
maintenance of the property:
 By November 11, 2006:
    
    $
    20,000By November 11, 2007:
    
    $
    50,000
 The Company has the option to purchase this property at any time for $500,000, which must be
exercised before production can commence. All lease, work requirement and property
maintenance payments made up to this point would be deducted from this price. Also, upon
exercise of the purchase option, the Company would be required to pay a 3% net smelter
returns royalty on production from the property. The Company has the right to terminate this
agreement at any time by giving 60 days prior written notice.Dome-Hi-Ho Project  On April 26, 2005, the Company entered into a five year
exploration agreement with an option to enter into a joint venture agreement. The agreement
was amended on April 3, 2006. The Company must elect by April 26, 2011 to exercise the
underlying option on 20 of the claims by paying $200,000. Subsequent annual exploration and
development requirements will be:
 By March 1, 2007:
    
    $
    180,000By March 1, 2008:
    
    $
    400,000By March 1, 2009:
    
    $
    500,000By March 1, 2010:
    
    $
    540,000
 The Company is required to make the following additional payments, which are creditable
against the option exercise price of $200,000:
 By April 13, 2007:
    
    $
    10,000By April 13, 2008:
    
    $
    20,000
 16




---



##### Table of Contents



11.
    
    Commitments  continuedUpon performance of the above requirements, the Company will be granted a 51% interest in
the property. In addition, the Company is obligated to pay the underlying claims maintenance
and property holding costs as well as annual rental payments under a pre-existing lease
agreement with a third party. The term of this lease is twenty years, beginning July 21,
2003. The Company will therefore be required to pay the following lease amounts:
 2007
    
    $
    8,333
 After the 2007 anniversary date, the annual rental amount will be increased based on the
Consumer Price Index. Also, the Company would be required to pay royalties based on a
graduated scale, ranging from 3.0% to 4.0% should production occur on the property.Trinity Silver Project - The Company entered into this agreement in September 2005.
In order to earn an initial 25% interest in the property, the Company must spend a total of
$1,000,000 on or for the benefit of the property prior to September 2008. Not less than
$125,000 of this must be spent during the second year. In order to earn an additional 26%
interest in the property, the Company must spend an additional $1,000,000 prior to September
2010. This would bring the Companys total interest to 51%. In order to earn an additional
9% interest in the property (for a total of 60%), the Company must spend an additional
$2,000,000 prior to September 2013. The Company may terminate this agreement at any time
upon 30 days written notice, whereupon the Company would have no further obligations or
liabilities under this agreement except for certain fees. Drilling began on this project in
April 2006.Pasco Canyon Project  On February 14, 2006, the Company entered into a five year
exploration agreement with an option to enter into a joint venture agreement with the
property owner. The agreement requires the Company to complete $1,000,000 in exploration and
development costs over a five year period as follows:
 Year 1
    
    $
    50,000Year 2
    
    $
    100,000Year 3
    
    $
    200,000Year 4
    
    $
    200,000Year 5
    
    $
    450,000
 Upon completion of the required expenditures the Company will have acquired a 60% undivided
interest in the property. Furthermore, a formal joint venture agreement will be entered into
by the Company and the owner of the property recognizes the Company as the operator of the
joint venture. The Company has the right to terminate this agreement at any time, subsequent
to the first years expenditure requirement of $50,000, by giving 30 days prior written
notice.Dutch Flat Gold Project The Company entered into an exploration agreement with an
option to form a joint venture on July 2, 2006, on 114 unpatented claims in Humboldt County,
Nevada. Upon signing, the agreement required a one-time payment of $35,000. The agreement
requires the Company to fund $2,000,000 in exploration costs over a five year period as
follows:
 Year 1
    
    $
    200,000Year 2
    
    $
    300,000Year 3
    
    $
    500,000
 17




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##### Table of Contents



11.
    
    Commitments  continued
 Year 4
    
    $
    500,000Year 5
    
    $
    500,000
 Upon completion of the first years work requirement, the Company may terminate this
agreement at any time on 30 days notice. Upon completion of the $2,000,000 in exploration
expenditures over the 5-year period, the Company shall have earned a 51% interest in the
property and can then elect to either 1) form a joint venture at that point whereby the
Company owns 51%, or 2) earn an additional 19% interest in property by funding a positive
feasibility study and then form a joint venture. The Company would be the operator of the
joint venture. Six of these claims are subject to a 1.5% net smelter returns royalty.
Another company, in which one of the Companys Directors has an interest, holds a 1% net
smelter returns royalty on another sixteen of these claims.
 18




---



##### Table of Contents



Item 2. Managements Discussion And Analysis Or Plan Of Operation
 Forward-Looking Statements and Associated Risks.
 Overview of Business
  Going Concern
  19




---



##### Table of Contents



Critical Accounting Policies
   Results of Operations
 Discussion of Revenues
  
    
    locate one or more economic mineral deposits which could then be put into
production, from which we would then be able to extract gold or silver at a profit;
or
    
    enter into a joint venture arrangement on one or more of our leased properties; or
    
    consummate a merger or acquisition with another company.
  Expenses for the Three and Nine Months Periods ending September 30, 2006 vs September 30, 2005
  20




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##### Table of Contents



For the three months ended
    
    For the nine months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005REVENUE
    
    Nil
    
    
    Nil
    
    

Nil
    
    
    NilOPERATING EXPENSESGeneral and administrative
    
    
    7.5
    %
    
    
    7.8
    %
    
    
    7.6
    %
    
    
    15.5
    %Compensation, professional,
legal and accounting
    
    
    35.6
    %
    
    
    18.2
    %
    
    
    28.3
    %
    
    
    27.3
    %Depreciation expense
    
    
    0.2
    %
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    0.3
    %Research and development
    
    
    0.8
    %
    
    
    2.5
    %
    
    
    1.3
    %
    
    
    7.0
    %Exploration, geological
and geophysical costs
    
    
    56.4
    %
    
    
    66.6
    %
    
    
    63.0
    %
    
    
    44.6
    %TOTAL OPERATING EXPENSES
    
    
    100.5
    %
    
    
    95.3
    %
    
    
    100.3
    %
    
    
    94.7
    %INCOME (LOSS) FROM OPERATIONS
    
    
    100.5
    %
    
    
    95.3
    %
    
    
    100.3
    %
    
    
    94.7
    %Other income (expense)
    
    
    -0.5
    %
    
    
    4.7
    %
    
    
    -0.3
    %
    
    
    5.3
    %INCOME (LOSS) BEFORE INCOME
TAXES
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Income tax benefit (expense)
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %NET INCOME (LOSS)
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
         21




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##### Table of Contents



Liquidity and Financial Condition
 Cash and Working Capital
   Internal and External Sources of Liquidity
  Contractual Obligations
    Bullion Mountain Project:
 
    
    Required work expenditure by 12/31/06: $20,000, of which $18,871 has already
been completed;
    
    Claims maintenance: $2,273;
    
    Annual payment: $5,000;
 22




---



##### Table of Contents



Antelope Ridge:
 
    
    Required work expenditure by 12/31/06: $120,000, of which $105,446 has already
been completed;
    
    Claims maintenance: $6,679;
    
    Annual payments: $10,000 cash and $10,000 in Common Stock;
 Dome HiHo Project:
 
    
    Required work expenditure by 12/31/06: $180,000, of which $94,244 has already
been completed;
    
    Claims maintenance: $5,878;
    
    Annual payments: $25,500,
 Trinity Silver Project
 
    
    Required work expenditure: $75,000, of which $331,048 has already been
completed, which more than completes our work requirement for the first two years;
    
    Claims maintenance: $5,478;
    
    Annual payments: $0.
  Off-Balance Sheet Arrangements
 we
 
 Item 3. Controls And Procedures


23



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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission Of Matters To A Vote Of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description
    
    Location31.1
    
    Certification Pursuant to Section 302
    
    Provided herewith31.2
    
    Certification Pursuant to Section 302
    
    Provided herewith32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350
    
    Provided herewith32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350
    
    Provided herewith
 24




---



##### Table of Contents



SIGNATURES
  PIEDMONT MINING COMPANY, INC.,a North Carolina CorporationDated:
October 31, 2006/s/ Robert M. Shields, Jr.By: Robert M. Shields, Jr.Its: Chief Executive Officer (PrincipalExecutive Officer) and Chief Financial Officer(Principal Financial Officer and Principal
Accounting Officer)
 25




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description
    
    Location31.1
    
    Certification Pursuant to Section 302
    
    Provided herewith31.2
    
    Certification Pursuant to Section 302
    
    Provided herewith32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350
    
    Provided herewith32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350
    
    Provided herewith