U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission File No. 000-32429
GOLDSPRING, INC.
(Exact name of small business issuer as specified in its charter)
Florida 65-0955118
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8585 E. Hartford Drive, Suite 400, Scottsdale, Arizona 85255
(Address of Principal Executive Offices)
480-505-4040
(Issuer's telephone number)
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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of May 14, 2004: 192,859,578 shares of common stock outstanding,
$0.000666 Par value.
ITEM 1. FINANCIAL STATEMENTS
GOLDSPRING, INC.
FORM 10-QSB
FOR THE THREE MONTHS ENDED MARCH 31, 2004
INDEX Page
ITEM 1 Financial Statements
Consolidated Balance Sheet as of March 31, 2004 F-3
Consolidated Statement of Operations F-4
Statement of Changes in Stockholders' Equity F-5
Consolidated Statement of Cash Flows F-6
Notes to Financial Statements F-7-8
ITEM 2 Management's Discussion and
Analysis or Plan of Operations
ITEM 3 Controls and Procedures
PART II Other Information - Items 1-6
Signatures
GOLDSPRING, INC.
CONSOLIDATED BALANCE SHEET
As of March 31, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,011,819
Other current assets $ 78,374
Investment (Gold) $ 504,000
Inventory - $ 869,920
Deferred tax benefit $ 1,420,000
-----------
TOTAL CURRENT ASSETS 10,884,113
-----------
PLANT, EQUIPMENT AND MINERAL PROPERITES, NET
Mineral Properties $ 5,984,837
Plant and equipment $ 1,486,284
-----------
TOTAL PROPERTY AND EQUIPMENT 7,471,121
-----------
OTHER ASSETS:
Reclamation deposit $ 145,000
Equipment purchase deposit $ 100,000
Intercompany - Working Capital $ --
Intercompany - Investment $ --
Goodwill $ 8,930,862
-----------
TOTAL ASSETS $27,531,096
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 346,496
Accrued Expenses $ 352,718
Current portion of long-term debt - related party $ 400,000
-----------
TOTAL CURRENT LIABILITIES 1,099,214
LONG-TERM DEBT - RELATED PARTY, NET OF CURRENT PORTION $ 500,000
-----------
TOTAL LIABILITIES 1,599,214
-----------
STOCKHOLDERS' EQUITY
Convertible redeemable preferred stock, $100 par
value, 150,000 authorized, 46,500 issued and
outstanding $ 4,650,000
Common stock, $.000666 par value, 500,000,000
shares authorized, 194,992,911 shares issued and outstanding $ 129,777
Additional Paid-in Capital $24,811,254
Accumulated deficit - Prior Years $(3,705,019)
Accumulated Earnings deficit - Current Year $ 45,870
TOTAL STOCKHOLDERS' EQUITY 25,931,882
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $27,531,096
===========
The accompanying notes are an integral part of these statements.
F-3
GOLDSPRING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three month period ended
2004 2003
---------------------- -------------------
SALES AND OTHER INCOME
Sales $ - $ -
Interest $ 458 $ -
---------------------- -------------------
$ 458 $ -
COSTS AND EXPENSES
Costs applicable to sales $ - $ -
Depreciation, depletion and amortization $ - $ -
General and administrative $ 353,054 $ -
Consulting $ 81,534 $ -
Other $ - $ -
--------------------- -------------------
$ 434,588 $ -
--------------------- -------------------
LOSS BEFORE INCOME TAX BENEFIT $ (434,130) $ -
INCOME TAX BENEFIT $ 480,000 $ -
--------------------- -------------------
NET INCOME $ 45,870 $ -
===================== ===================
Earnings per common share, basic $ 0 $ 0
===================== ===================
Earnings per common share, diluted $ 0 $ 0
===================== ===================
Weighted Average Shares Outstanding 175,294,000 100,410,000
Fully Diluted Weighted Average Shares Outstanding 177,773,000 100,410,000
The accompanying notes are an integral part of these statements.
F-4
GOLDSPRING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the month period ended March 31,
2004 2003
------------------ --------------
Cash Flows from Operating Activities:
Net Income $ 45,870 $ -
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation - -
Deferred tax benefit -
Consulting services provided in exchange for common stock -
(Increase) Decrease in: 42,000
Other Current Assets (1,830,003) -
Increase (Decrease) in:
Accounts payable 237,548 -
Accrued expenses 253,396
------------------ --------------
(1,297,059) -
------------------ --------------
Net Cash Used in Operating Activities (1,251,188) -
------------------ --------------
Investing activities
Reclamation bond deposit -
Acquisitions of plant, equipment and mineral properties (533,631) -
------------------ --------------
Net cash used in investing activities (533,631) -
------------------ --------------
Financing Activities:
Net Proceeds from the issuance of common stock (After Fees & Related Expenses) 9,532,500 -
Principal payment on note payable (100,000) -
------------------ --------------
Net Cash Flows Provided by Financing Activities 9,432,500 -
------------------ --------------
Net Increase (Decrease) in Cash 7,647,681 -
Cash Beginning of Year 364,138 318
------------------ --------------
Cash End of Period $ 8,011,819 $ 318
================== ==============
The accompanying notes are an integral part of these statements.
F-6
GOLDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004 and 2003
(Unaudited)
NOTE A - BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The following interim Consolidated Financial Statements of Goldspring, Inc. and
its subsidiaries (collectively, "Goldspring" or the "Company" are unaudited and
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for Form 10-QSB. Such rules and regulations allow the
omission of certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles as long as the statements are not misleading. In the opinion of
management, all adjustments necessary for a fair presentation of these interim
statements have been included. These interim Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements of
Goldspring, Inc. included in its Annual Report on Form 10-KSB for the year ended
December 31, 2003.
The Company's Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of the Company's Consolidated Financial statements requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the related disclosure of contingent assets and
liabilities at the date of the Consolidated Financial Statements and the
reported amounts of revenues and expenses during the reporting period. The more
significant areas requiring the use of managements estimates and assumptions
relate to mineral reserves that are the basis for future cash flow estimates and
units-of -production depreciation, depletion and amortization calculations:
environmental reclamation and closure obligations; estimates of recoverable gold
and other minerals in stockpile and leach pads inventories; asset impairments
(including impairments of goodwill, long-lived assets, and investments);
valuation allowances for deferred tax assets; reserves for contingencies and
litigation; and the fair value and accounting treatment of financial
instruments. The Company bases its estimates on the Company's historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Accordingly, actual results may differ significantly
from these estimates under different assumptions or conditions.
NOTE B - STOCKHOLDERS' EQUITY
In February 2004, the Company raised $332,500 under a Restricted Private
Placement for accredited private investors. The private placement consisted of
44 1/3 Units, each Unit represented 10,000 shares of restricted common stock and
5,000 warrants exercisable at $1.00 per share. The warrants expire on February
23, 2005 (one year from the closing date of the private placement).
In March 2004 the Company raised a total of $10 million in a private placement
to institutional and accredited investors through the issuance of 21,739,130
shares of unregistered common stock. The investors also received Series A
warrants to purchase 50% additional shares of common stock, at an exercise price
of $0.86 per share and Series B warrants, providing investors the opportunity to
invest an additional $5 million at an exercise price of $.46 per share. The
Series A warrants are exercisable for four years, and the Series B warrants are
exercisable for one hundred and eighty (180) business days after the Effective
Date of the S-1 registration statement.
Shares Issued in Consideration of Consulting Services
On January 12, 2004, the Company issued a total of 50,000 shares to Pernendu K.
Rana Medhi, a Board Member, pursuant to a consulting services agreement. The
shares were issued in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933. No commissions were paid for the
issuance of such shares. These issuance of shares of common stock qualified for
exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
such shares by the Company did not involve a public offering. The offering was
not a "public offering" as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of shares offered. The Company did not undertake an offering
in which we sold a high number of shares to a high number of investors. In
addition, Mr. Medhi had the necessary investment intent as required by Section
4(2) since he agreed to and received share certificates bearing legends stating
that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act.
These restrictions ensure that these shares would not be immediately
redistributed into the market and therefore not be part of a "public offering."
Based on an analysis of the above factors, the Company has met the requirements
to qualify for exemption under Section 4(2) of the Securities Act of 1933 for
the above transaction.
Income Tax Benefit
The Income Tax benefit was calculated based on the increase to the net operating
loss carryforward resulting from the loss from operations incurred during the
first quarter and the fees related to the $10 million equity financing.
Subsequent Events
Pursuant to the February private placement, the Company in April 2004
repurchased 100,000 shares of common stock for $75,000, or $0.75 per share,
which was the market price at the time of the transaction. The funds for the
stock repurchase came from the proceeds related to the gain on the April 2004
spot deferred sale of gold contract.
In April 2004, 2,000,000 shares of the Company's restricted common stock issued
to Antonio Treminio were returned to the Company and subsequently cancelled. A
dispute had arisen between the Company and Mr. Treminio relating to alleged
obligations owed by the Company to Treminio and GoldSpring shares owned by
Treminio. An agreement was reached whereby Mr. Treminio returned the shares and
the Company simultaneously paid Treminio $150,000 in full satisfaction of all
amounts owed to Treminio.
Subsequent to March 31, 2004, an additional 1,947,296 restricted common shares
became unrestricted and qualified for sale in a brokered transaction pursuant to
Rule 144 of the Securities Act of 1933. During 2004, a total of 2,499,769
restricted common shares became unrestricted and qualified for sale in a
brokered transaction by unaffiliated and minority shareholders of the Company.
F-7
Forward-Looking Statements
The following discussion contains, in addition to historical information,
forward-looking statements regarding GoldSpring, Inc. (the "Company" or "GSPG"),
that involve risks and uncertainties. The Company's actual results could differ
materially. For this purpose, any statements contained in this Report that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate,"
or "continue" or the negative or other variations thereof or comparable
terminology are intended to identify forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
history of operating losses and accumulated deficit; possible need for
additional financing; competition; dependence on management; risks related to
proprietary rights; government regulation; and other factors discussed in this
report and the Company's other filings with the Securities and Exchange
Commission.
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
Introduction
------------
GoldSpring, Inc. (the "Company" or "GSPG") is a mining company focused on
Production and rapid growth. We are acquiring and operating precious metals,
copper and iron properties in the United States, Canada and Mexico. The
Company's business model is to acquire mining projects with proven reserves,
advanced permits and exploration potential that can easily be put into near term
operation and production.
Since its inception in March 2003, the Company has raised $12.3 million in
capital, $10.3 million of which was raised in two transactions in the first
quarter 2004. The Company's current operations are centered in the Comstock
Lode, a historic Bonanza gold and silver mining district located in and around
Virginia City, Nevada, about 30 miles south and east of Reno.
To date, the Company has acquired two projects in the Comstock Lode region. The
Plum Mining LLC's Billie the Kid open pit gold and silver mining project and
GoldSpring, LLC's Gold Canyon and Spring Valley Gold Placer project. As part of
the Plum transaction the Company acquired 40 acres of land which has an office
building, a maintenance building and laboratory facilities. The Company also has
the only fully permitted and operational cyanide heap leach facility and the
accompanying permit in the Comstock Lode region. Located near the Billie the Kid
Project, in American Flats, these facilities support the Company's mineral
processing and mining administration operations in the Comstock Lode.
FIRST QUARTER OPERATING RESULTS:
In the first quarter of 2004, the Company raised $10 million from U.S.
accredited institutions through a PIPE (Public Institution Private Equity)
transaction as well as $332,500 through an equity private placement, offered to
enable existing shareholders to participate in the new round of financing. The
$10.3 million in financing is being deployed to accelerate the ramp up of
production of existing reserves, to acquire and bring into production projects
that have executed Letters of Intent, to pursue additional acquisitions, for
targeted exploration and for working capital. This capital creates a solid
platform for the Company to execute its business strategy and provides the
foundation for accretive growth for shareholders.
Gold and silver were recovered in nominal amounts from the heap leach at Plum
and the initial shipment was made to the refinery. This completed the cycle of
construction, approvals, overlining, agglomerating ore, pad loading,
cyanidization for leaching, having pregnant solution return and recovering the
gold and silver. The Plum Mining Heap Leach Start Up was a success. The heap was
leaching and solution grades were at the forecast levels. There were no gold and
silver sales in Q'1, but, between March 30, 2004 and April 1, 2004, the Company
executed spot deferred sales of 12,000 ounces of gold in two transactions at an
average price of $421.62 per ounce to be delivered to Johnson Matthey Refinery,
Salt Lake City Pool. As margin for these two transactions, the Company purchased
and provided 2,400 ounces of gold. The Company closed these spot deferred gold
sales on April 20,2004 through a spot purchase contract at $393.50 per ounce of
gold. This transaction netted the Company $337,500 profit. The Company still
retains the 2,400 ounces of gold used for margin in this transaction as an
investment.
PLUM MINING START UP Q'1:
Construction was completed on the heap leach pad and ponds and final approvals
were received from the Nevada Department Of Environmental Protection (NDEP) in
February 2004. Although not a requirement in the original permits, a
specification for screened and sized ore to be used as an overliner to protect
the leach pad was recommended by NDEP and accepted by Plum and the pad began
being loaded with about 7,000 tons of this material prior to loading
agglomerated gold and silver ore for cyanide leaching. In early March,
agglomerated ore was being loaded on to the leach pad. It typically requires
about 10,000 tons of agglomerated ore to be on the pad prior to starting to add
cyanide solution. It generally takes an additional 10-12 days for the "heap to
weep" or begin normal leaching. The heap has to be saturated very slowly to
avoid drainage channels and allow for a full leach to take place. In other
words, to rush the heap is a mistake that can adversely affect the overall
performance in the future. A heap requires great respect, and we have the
benefit of having Bob Turner, the builder of the largest gold cyanide heap leach
in the world to manage this operation.
As of March 31, 2004 we had about 54,000 tons from the 80,000 ton ore stockpile
on the pad and about 45,000 tons under leach, which includes the overliner
material that also leaches. According to assays and previous recovery experience
from the Lucerne pit achieving 84.5% for gold and 33% for silver, we had about
2,550 oz of recoverable gold and 6,000 oz recoverable silver. This was valued at
about $1,150,000 on March 31, 2004, but would only bring about $990,000 at
today's metals prices. The heap is leaching exactly as expected and solutions
are grading 0.07oz/ton gold and 0.4 oz/ton silver as forecast.
A nominal amount of gold and silver was recovered and sent to Johnson Matthey
Refinery in Salt Lake City, Utah by March 31, 2004. None of the gold and silver
was sold prior to that date. The start up of the heap leach is a success.
Scheduled deliveries are being made to the refinery. A note of interest is that
we are recovering more silver than expected from earlier forecasts. Further
discussion of Q'2 on Plum is discussed under Plan of Operation below.
PLAN OF OPERATION:
The Company has contracted N.A. Degerstrom of Spokane, Washington to undertake
the ongoing mining, ore crushing, screening, agglomerating and loading to the
leach pad for Plum Mining. Degerstrom has provided contract mining services for
over 100 years and has earned an impeccable reputation. Their operations
expertise will provide substantial savings in the execution of the full Plum
Mining projects. Degerstrom also brings a complete mining engineering staff with
facility and metallurgical expertise with laboratories. Degerstrom's clients are
extensive and include such companies as Placer Dome, Newmont Mining and BHP
Billiton. Degerstrom has agreed to assist us in evaluating and operating all our
future acquisitions, large or small. When we approach these industry giants and
offer to acquire one of their operations, we will be taken seriously. The fact
that we are well financed and have the support of our financial partners and
underwriters for the long haul enables us to undertake appropriate projects and
insures success.
The Billie The Kid Project:
The Plum Mining Company, LLC, which the Company acquired in November 2003
contains, according to The Carrington Reserve Report: "Total reserve inventory
for all classes reported of 2,437,082 tons with an average grade of 0.0627
ounces of gold per ton and 1.52 ounces of silver per ton. The Billie The Kid
Project contains approximately 1.3 million tons of economic gold and silver ore.
In Carrington's reserve report, it notes that historical mining of 125,000 tons
in 1993 from Lucerne pit showed the actual grade of mined material placed on the
heap leach for treatment to average 0.064 opt gold, 20% higher than the drill
indicated grade of 0.05 opt gold. Actual achieved recovery was 84.6% of the
higher 0.064 opt gold head. He also states that GoldSpring is already seeing
similar results for the Billie the Kid project.
The Company has deployed over $2,300,000 of cash since November 2003 at the Plum
Mining facility in infrastructure development and mining activities. The
breakdown of the investment is as follows: $150,000 for additional reclamation
bond requirements; $1,250,000 in construction and development of the operations
infrastructure, (This includes a fully constructed, inspected and lined heap
leach pad and pond facility and a recovery system for the gold and silver; and
$900,000 for mining, hauling. screening, agglomeration, and recovery costs
associated with over 80,000 tons of ore.
Approximately 70,000 tons of ore is on the pad and under leach as of May 14,
2004. An additional 50,000 tons is stockpiled and ready for agglomeration and
leaching. The metal contained in the 70,000 tons of ore under leach, according
to assays, should be 4,410 ounces of gold and 28,000 ounces of silver. At the
previously experienced recovery rate of 84.5% for gold and 33% for silver at the
Lucerne pit, gold and silver production would approximate 3,726 ounces and 9,940
ounces respectively. Most of the revenue related to the 70,000 tons of ore will
be recognized in the second and third quarters 2004. While the leach process
typically can take several months for full recovery, the first 60-90 days
produces the largest recovery percentage. Once gold and silver are released into
the cyanide solution from the leach process and collected in the pregnant
solution pond, the metals will be recovered. Q'1 start up recovery was
accomplished using EMEW direct electrowinning and a transition to a Merrill
Crowe system is being made during Q'2. The EMEW plant will be moved to the
Company's Big Mike Copper Project in nearby Winnemucca, Nevada for Q'3 copper
recovery.
Construction of the million ton heap leach pad, which is located near the
existing pad at the Plum Facility, has commenced. This pad will accommodate
larger scale daily production than the existing pad. In fact, when this pad is
ready, the Billie the Kid and Lucerne pits can be mined simultaneously and the
operation will be able to handle additional outside ore for leaching. There are
several hundred thousand tons of readily available ore that await completion of
the new pad.
Previously classified waste material (grading .008) is now being converted to
overliner on the pad changing the strip ratio from 1.7 : 1 to 1:1. This
operating change will enhance the overall project economics. About 35,000 tons
of overliner will be required for the million ton pad.
The Plum Mining Heap Leach was started in 1st Quarter 2004 and has been steadily
loaded with agglomerated gold and silver ore. Cyanide is applied daily to
existing ore on the heap and to the additional ore added once it has been
leveled and prepared for leaching. There was about 54,000 tons on the pad and
about 45,000 tons under leach at March 31, 2004. The solution began leaching
approximately 10 days after initial application and has been producing clean
pregnant cyanide solution grading 0.07 oz gold/ton and 0.4 oz silver/ton.
GOLDSPRING PLACER MINING OPERATIONS:
The Company's first acquisition was the GoldSpring Placer Claims located on the
south end of the Comstock near the intersections of Highway 351 and Highway 50,
about 7.8 miles east of Carson City, Nevada and 3 miles south of Plum. The 850
acres, according to the Bourne and Pelke independent engineering reports,
contain 1,199,000 ounces of gold contained in 41,000,000 cubic yards of gravel
averaging 35 feet deep from the surface to bedrock. Average grade is from .027
-.033 ounces of gold per cubic yard. These properties contain virgin sand and
gravels (not tailings) that have been explored for gold but have not been mined.
Although silver content has not been reported as a reserve figure, assays show
about 15% silver content, as is typical in the Comstock Lode. The preferred
method of recovery is by gravity through washing with water. Neither crushing
nor chemicals is used or required. The Company owns a complete RMS Ross gravity
plant, including a 250KW powerplant, which will commence operation in second or
third quarter 2004 at the rate of 200 tons per hour. The Company is in the
process of acquiring additional water rights and sources of water to insure that
operations will be uninterrupted and continuous once begun. The placer claims
and Plum occupy the same basin for Nevada Department of Water Resources
purposes. To this end we have just added an additional 100gpm water well at Plum
and are pursuing the same at Spring Valley. We currently have over 11 million
gallons of water rights.Three additional plants are planned for deployment
between 2004 and 2005, which should result in 100,000 ounces of gold to be
recovered annually from the 4 plants.
MINERAL INTEREST ACQUIRED ALBERTA, CANADA:
On April 16, 2004, GoldSpring filed mineral permit applications on nearly 800
square miles of Alberta, Canada mining property, through it's wholly owned
subsidiary, Clear Hills Iron, Ltd. This property comprises one of the largest
known Iron deposits left in the world, which also is known to contain gold,
silver, coal, oil and gas. Over a billion tons of known iron reserves in all
categories have been previously established. Rail transportation to the West
Coast is within 10 kilometers and ample gas and coal are available to power a
production facility. Excess power can be sold to the grid for cash flow. This
deposit only very recently became available, after having been tied up for many
years by companies only interested in gold, silver, vanadium, diamond, some
coal, oil and gas exploration. This deposit has sat unexploited for iron for
many years due to the relatively low grade and complexity of the iron ore. A
series of tests have been conducted in recent years (1995-6) that demonstrated
that both a 65% FE pellet and Pig Iron (98%FE) could economically be made from
this ore. The pellets, which require about two tons of ore, sell for around
$90/ton and Pig Iron, which requires about three tons of ore, sells at around
$355/ton. Gold and silver would be recoverable byproducts and be value added to
the operation. An initial budget of $50,000 CDN is being used to conduct a
detailed review of existing data and to initiate a pre-feasibility study. Our
initial strategy is to develop potential sales of Iron ore to China, who imports
over 60% of its iron ore for steel manufacture. Chinese investor/developers have
already expressed interest in this project.
PROPERTIES UNDER LETTERS OF INTENT:
The Company has executed Letters of Intent to acquire three projects: The
Consolidated Virginia Dumps from the Bonanza days of the 1850's, located in
Virginia City,Nevada, the Timm Mother Lode Mine, located in the famous Mother
Lode district in El Dorado County, California and the Minera Del Mar Mine , a
high grade gold and silver mine in Zecatecas, Mexico. Pending satisfactory
completion of due diligence, the Company plans to close these acquisitions by
the end of second quarter 2004. The Company is also pursuing acquisition targets
in other mining districts of Nevada, Arizona, Mexico and Canada.
PROPERTIES UNDER CONFIDENTIALITY AGREEMENTS:
The Company has executed confidentiality agreements to evaluate approximately
850,000 ounces of proven gold reserves contained in existing feasibility
studies. These properties are located in Arizona and Nevada. Should these
reviews provide economic results, the next step would be to enter into Letter of
Intent relationships and pursue acquisition. This would involve extensive due
diligence and considerable expense prior to making a final purchase decision.
ADDITIONAL COPPER PROJECTS UNDER REVIEW:
The Company is currently evaluating a large fully permitted copper project that
requires smelter availability. It has been brought to our attention that very
attractive smelting arrangements can also be made in China, who imports over 80%
of its copper in either scrap or concentrate. Smelter efficiency is dependent
upon adequate capacity and China is aggressively seeking more raw material to
import.
INCREASING GOLD RESERVES:
The Company intends to increase In-Ground gold reserves to over 3 million ounces
in 2004 through acquisitions and exploration of existing properties. Exploration
opportunities exist on our properties including a potential Bonanza discovery of
1 to 3 million additional ounces of gold at both the Plum Mine and the Timm
Mother Lode Mine to be acquired.
Open Pit Mineral Reserves
-------------------------
Billie the Kid & Lucerne Pit Areas:
According to the Carrington Reserve Report, the Billie the Kid deposit contains
Proven Mineable Reserves of 471,000 tons with an average grade of .058 opt Au,
and .31 opt Silver. The waste to ore ratio for the present pit design is 1.7:1.
Projected recoveries in a heap are 80% for gold, and 30% for silver. The ore,
due to its high carbonate content, is actually neutralizing. This suggests
potential to treat other nearby, low grade ores from the district which are
historically acid generating. In 1999, Sierra Mining & Engineering LLC, modeled
the Billie the Kid deposit and estimated a Cumulative Reserve of 577082 tons.
The mineralization outside of the existing mine plan (106,082 tons) is
considered a Proven Reserve.
The Lucerne deposit ores are similar to the Billie the Kid in chemistry and
response in a heap leach environment. The remaining resources at Lucerne are
estimated at 1,150,000 tons, 850,000 of proven reserves and 300,000 of probable
reserves. Upon completion of current remodeling and developing a current mine
plan, most of this mineralization will be reclassified as Proven Mineable
Reserves.
The probable reserves lie underneath State Route 342 which is located on the
east crest of the Lucerne Pit. These probable reserves contain an indicated
grade of .05 opt Au (gold) and .7 opt AG (silver).
Mineralization in the Billie the Kid pit is known to extend beyond design
limits, into Lyon County. Extending exploration into this county would require
obtaining new permits, so a decision has been made not to open operations in
Lyon County until the mine is in full operation. It is believed that once the
mine is generating revenue, exploration should be extended into this area, and
the necessary permitting pursued.
PLACER PROJECTS REPORTED RESERVES
-------------------------------------
The Gold Canyon and Spring Valley Gold Placer Properties contain 1,199,000
reported ounces of gold in 41,000,000 cubic yards of alluvial sand and gravel.
The properties consist of 21 unpatented placer mining claims covering
approximately 850 acres located 30 miles south east of Reno and 7 miles east of
Carson City, Nevada. The claim groups lie immediately south of the famous
Comstock Lode, which is considered the source of the placer values in the
immediate area. Several lode mines are located at higher elevations in close
proximity to the Spring Valley properties and practically all of the eroded
material from these veins would be deposited on our claim group. Exploration
work completed on these claim groups has been carried out under the supervision
of experienced and knowledgeable mining consultants thoroughly familiar with the
gold mineralization of the Carson City area. Notices have been filed with the
BLM to begin initial processing on these projects.
TOTAL RESERVES
Current in-ground reserves:
1.35 Million ounces of Gold
3.7 Million ounces of Silver
25 Million pounds of Copper
RECENT FINANCING EVENTS
In February 2004, the Company completed a private placement for accredited
private investors for $332,500 (44 1/3 units). Units of $7,500 consisting of
10,000 shares of restricted common stock, par value $.000666 and 5,000 warrants
exercisable at $1.00 for a one-year period. The Company has the right to redeem
the restricted shares from the investors within 120 days of the close of this
private placement at the same price paid by the investor. The investor, however,
will retain the warrants. The warrants/converted shares shall have registration
rights commencing 180 days after the date of issuance. The restricted shares
shall remain restricted for one year if not redeemed. This offering was closed
on February 23, 2004.
In March 2004, the Company closed a $10 million PIPE transaction brokered by
Merriman Curhan Ford & Co. of San Francisco, California. The Company received
gross proceeds from a group of approximately fifteen institutional investors
totaling $10 million from the private placement of 21,739,129 shares of
unregistered restricted common stock at a negotiated price of $0.46 per share.
The Company filed a Form S-1 registration statement with the SEC in April 2004
to register these shares (See below for details). The Company expects the
registration of these shares to take effect prior to the end of June 2004. In
addition, for each two (2) shares of common stock issued in this private
placement, the investors received one (1) "A" Warrant. The exercise price for
the "A" Warrants is $0.86 per warrant share. The "A" Warrants have a term of
four years. Also, the investors have the option to invest an additional $5.0
million in a green shoe option. The investors received one (1) Green Shoe
Warrant for each two (2) common shares issued in the private placement. The
exercise price for the Green Shoe Warrants is $0.46 per warrant share, and the
warrants are exercisable for one hundred and eighty (180) business days after
the Effective Date of the S-1 registration statement.
Use of Proceeds from the $10 million private equity placement is as follows:
$3,000,000 to accelerate the ramp up of existing gold, silver and copper
reserves into production;
$3,000,000 to complete and bring to production those acquisitions currently
under executed Letters of Intent;
$2,000,000 for additional acquisitions, development and exploration;
$2,000,000 for working capital.
S-1 REGISTRATION STATEMENT FILED
Pursuant to the first quarter 2004 equity raise, the Company filed a Form S-1
Registration Statement under the Securities Act of 1933 on April 21, 2004, to
register the qualifying common shares and issuable warrant shares issued in the
February and March 2004 private placements. The Form S-1 covered the
registration of the following securities: 21,739,129 shares of common stock
issued to the institutional investors in the March 2004 transaction; 10,869,575
shares of common stock issuable to the institutional investors in connection
with conversion of the "A" Warrants; 10,869,575 shares of common stock issuable
to the institutional investors in connection with conversion of the Green Shoe
Warrants; and 211,666 common stock warrants issued to the investors of the
February 2004 private placement. The Company expects the registration of the
securities covered by the S-1 to be completed prior to the end of June 2004.
APPLICATION FOR AMEX LISTING
In December 2003, the Company initiated the application process to be listed on
the American Stock Exchange (AMEX). The Company believes it has complied with
all requests for information from the AMEX. As of the filing date we have not
received approval or rejection from AMEX.
CAPITAL RESOURCES
At this time, Management believes the Company is adequately financed to execute
its business plan. As additional acquisition opportunities are identified, the
Company may decide to raise more equity to fund these projects.
COMMON SHARES OUTSTANDING
UNRESTRICTED RESTRICTED TOTAL
------------ ---------- -----
Common Shares Outstanding
at March 31, 2004 30,239,982 164,752,929 194,992,911*
* This amount was reduced by 2,133,300 shares which represents the cancellation
of shares issued in the February 2004 private placement that were not subscribed
for and 2,000,000 shares returned to the Company and subsequently cancelled (See
note below "Changes in Securities" for further disclosure.).
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer (collectively the
"Certifying Officers") maintain a system of disclosure controls and procedures
that is designed to provide reasonable assurance that information, which is
required to be disclosed, is accumulated and communicated to management timely.
Under the supervision and with the participation of management, the Certifying
Officers evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(C))]
under the Exchange Act) within 90 days prior to the filing date of this report.
Based upon that evaluation, the Certifying Officers concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relative to our company required to be disclosed in our
periodic filings with the SEC.
(b) Changes in internal controls.
Our Certifying Officers have indicated that there were no significant changes in
our internal controls or other factors that could significantly affect such
controls subsequent to the date of their evaluation, and there were no such
control actions with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities.
(c) Sales of unregistered securities- Quarter ended March 31, 2004.
Private Equity Placement to Institutional Investors - March 2004
On March 22, 2004, the Company issued a total of 21,739,129 shares of restricted
common stock to the following investors in a PIPE transaction of $10 million
from a group of approximately fifteen institutional investors. The private
placement was brokered by Merriman Curhan Ford & Co. of San Francisco,
California, who received a transactional fee of $700,000. The 21,739,129 shares
of unregistered common stock were sold at a negotiated price of $0.46 per share.
Gamma Opportunity Capital Partners, LP 1,630,435
Longview Fund LP 1,630,435
Longview Equity Fund, LP (5) 2,445,652
Longview International Equity Fund, LP (5) 815,217
Alpha Capital Aktiengesellschaft (4) 1,086,957
Capital Ventures International (6) 2,173,913
Portside Growth and Opportunity Fund (7) 543,478
Enable Growth Partners L.P. (8) 434,783
Whalehaven Funds Limited (9) 326,087
Stonestreet Limited Partnership (10) 760,870
Smithfield Fiduciary LLC (11) 543,478
TCMP3 Partners LLP (12) 217,391
Bristol Investment Fund, Ltd. (13) 652,174
Vertical Ventures, LLC (14) 543,478
Merriman Curhan Ford Corporation (15) 272,826
A. Tod Hindin 108,696
Kenneth R. Werner Revocable Trust 108,696
Thomas P. O'Shea, Jr 65,217
D. Jonathan Merriman 65,217
Brock Ganeles 54,348
Elise Stern 54,348
Craig E. Sultan 54,348
Carl Frankson 54,348
Jon M. Plexico 43,478
Pete Marcil 43,478
David Bain 43,478
Steven R. Sarracino 42,391
Gregory S. Curhan 21,739
John Hiestand 21,739
Robert E. Ford 21,739
Eric Wold 21,739
Christopher Aguilar 21,739
Peter A. Blackwood 21,739
Genesis Microcap Inc. (16) 217,391
John V. Winfield 1,630,435
John V. Winfield IRA-1 1,086,957
John V. Winfield IRA-2 543,478
Santa Fe Financial Corp. (17) 543,478
Portsmouth Square, Inc. (17) 543,478
Intergroup Corp. (17) 2,173,913
Erik Franklin 54,348
The shares were issued in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act of 1933. No commissions were paid for the
issuance of such shares. The issuance of shares of common stock qualified for
exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
such shares by the Company did not involve a public offering. These investors
represented that they were accredited investors and had access to information
normally provided in a prospectus regarding the Company. The offering was not a
"public offering" as defined in Section 4(2) due to the insubstantial number of
persons involved in the deal, size of the offering, manner of the offering and
number of shares offered. The Company did not undertake an offering in which it
sold a high number of shares to a high number of investors. In addition, these
investors had the necessary investment intent as required by Section 4(2) since
they agreed to and received share certificates bearing legends stating that such
shares are restricted pursuant to Rule 144 of the 1933 Securities Act. These
restrictions ensure that these shares would not be immediately redistributed
into the market and therefore not be part of a "public offering." Based on an
analysis of the above factors, the Company has met the requirements to qualify
for exemption under Section 4(2) of the Securities Act of 1933 for the above
transaction.
For each two (2) shares of common stock issued in this private placement, the
investors also received one (1) A Warrant. The exercise price for the A Warrants
is $0.86 per warrant share. The A Warrants have a term of four years. In
addition, the investors have the option to invest an additional $5.0 million in
a green shoe option. The investors received one (1) Green Shoe Warrant for each
two (2) common shares issued in the private placement. The exercise price for
the Green Shoe Warrants is $0.46 per warrant share, and the warrants are
exercisable for one hundred and eighty (180) business days after the S-1
registration statement covering the underlying shares and the issuable warrant
shares becomes effective.
The Company filed an S-1 Registration Statement under the Securities Act of 1933
on April 21, 2004 to register the above-listed shares and issuable warrant
shares. The Form S-1 covered the registration of the following securities:
21,739,129 shares of common stock issued to the institutional investors in the
March 2004 transaction; 10,869,575 shares of common stock issuable to the
institutional investors in connection with conversion of the A Warrants;
10,869,575 shares of common stock issuable to the institutional investors in
connection with conversion of the Green Shoe Warrants. The Company expects the
registration of the securities covered by the S-1 to be completed prior to the
end of June 2004.
Private Equity Placement to Individual Accredited Investors - February 2004
In February 2004, the Company issued a total of 443,333 shares of common stock
to current individual shareholders, Management and other third parties in a
private equity placement of $332,500. A total of 44 1/3 units were issued at a
price of $7,500 per unit. Each unit consisted of 10,000 shares of restricted
common stock, par value $.000666 and 5,000 warrants exercisable at $1.00 for a
one-year period. The Company has the right to redeem the restricted shares from
the investors within 120 days of the close of this private placement. The
redemption price is $0.75 per share. In the event the Company redeems the
shares, the investors will retain the warrants. The warrants/converted shares
shall have registration rights commencing 180 days after the date of issuance.
The Company filed an S-1 Registration Statement under the Securities Act of 1933
on April 21, 2004 to register the 211,666 common stock warrants issued to the
investors of the February 2004 private placement. The restricted shares shall
remain restricted for a period of one year if not redeemed by the Company. This
offering was closed on February 23, 2004. Proceeds from this private placement
will be used for working capital.
The shares were issued in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act of 1933. No commissions were paid for the
issuance of such shares. All of the above issuances of shares of common stock
qualified for exemption under Section 4(2) of the Securities Act of 1933 since
the issuance of such shares by the Company did not involve a public offering.
These investors represented that they were accredited investors and had access
to information normally provided in a prospectus regarding the Company. The
offering was not a "public offering" as defined in Section 4(2) due to the
insubstantial number of persons involved in the deal, size of the offering,
manner of the offering and number of shares offered. The Company did not
undertake an offering in which it sold a high number of shares to a high number
of investors. In addition, these investors had the necessary investment intent
as required by Section 4(2) since they agreed to and received share certificates
bearing legends stating that such shares are restricted pursuant to Rule 144 of
the 1933 Securities Act. These restrictions ensure that these shares would not
be immediately redistributed into the market and therefore not be part of a
"public offering." Based on an analysis of the above factors, the Company has
met the requirements to qualify for exemption under Section 4(2) of the
Securities Act of 1933 for the above transaction.
Shares Issued in Consideration of Consulting Services
On January 12, 2004, the Company issued a total of 50,000 shares to Pernendu K.
Rana Medhi, a Board Member, pursuant to a consulting services agreement. The
shares were issued in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933. No commissions were paid for the
issuance of such shares. These issuance of shares of common stock qualified for
exemption under Section 4(2) of the Securities Act of 1933 since the issuance of
such shares by the Company did not involve a public offering. The offering was
not a "public offering" as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of shares offered. The Company did not undertake an offering
in which we sold a high number of shares to a high number of investors. In
addition, Mr. Medhi had the necessary investment intent as required by Section
4(2) since he agreed to and received share certificates bearing legends stating
that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act.
These restrictions ensure that these shares would not be immediately
redistributed into the market and therefore not be part of a "public offering."
Based on an analysis of the above factors, the Company has met the requirements
to qualify for exemption under Section 4(2) of the Securities Act of 1933 for
the above transaction.
Changes in Securities
Pursuant to the February private placement, the Company in April 2004
repurchased 100,000 shares of common stock for $75,000, or $0.75 per share,
which was the market price at the time of the transaction. The funds for the
stock repurchase came from the proceeds related to the gain on the April 2004
spot deferred sale of gold contract.
In April 2004, 2,000,000 shares of the Company's restricted common stock issued
to Antonio Treminio were returned to the Company and subsequently cancelled. A
dispute had arisen between the Company and Mr. Treminio relating to alleged
obligations owed by the Company to Treminio and GoldSpring shares owned by
Treminio. An agreement was reached whereby Mr. Treminio returned the shares and
the Company simultaneously paid Treminio $150,000 in full satisfaction of all
amounts owed to Treminio.
Subsequent to March 31, 2004, an additional 1,947,296 restricted common shares
became unrestricted and qualified for sale in a brokered transaction pursuant to
Rule 144 of the Securities Act of 1933. During 2004, a total of 2,499,769
restricted common shares became unrestricted and qualified for sale in a
brokered transaction by unaffiliated and minority shareholders of the Company.
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a
Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports of Form 8-K. None
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 in its
behalf by the undersigned, thereunto duly authorized, on May 14, 2004.
GOLDSPRING, INC.
Date: May 17, 2004 By: /s/ Robert T. Faber
--------------------------------
Robert T. Faber
Chief Financial Officer
and Secretary