SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4 TO
FORM 10-KSB
------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission File Number 000-32429
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GoldSpring, INC.
(Exact Name of Registrant 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)
14354 North Frank Lloyd Wright Blvd., Scottsdale, AZ 85260
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and
(2)has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ]
State issuer's revenues for the most recent fiscal year: -0-
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates (172,627,149 shares) based on the average bid and asked price
as of December 31, 2003 being $ 0.84 per share: $145,006,805
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: 192,859,611 shares of Common Stock,
$0.000666 Par Value, as of June 18, 2004.
THIS FORM 10-KSB IS BEING AMENDED BASED ON GOLDSPRING'S DECISION TO CHANGE THE
ACCOUNTING TREATMENT OF THE ORIGINAL TRANSACTION BETWEEN GOLDSPRING, INC. AND
ECOVERY'S GOLDSPRING, LLC AND ECOVAT COPPER NEVADA, LLC FROM A BUSINESS
COMBINATION TO A REVERSE MERGER. SEE ITEM 6 FOR A DETAILED EXPLANATION AND ITEM
7 FOR REVISED FINANCIAL STATEMENTS.
TABLE OF CONTENTS
PAGE
GLOSSARY....................................................................
CURRENCY....................................................................
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS...................................
PART I
ITEM 1. BUSINESS...........................................................
ITEM 2. PROPERTIES.........................................................
ITEM 3. LEGAL PROCEEDINGS..................................................
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS..................
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS........................................
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS....................................
ITEM 7. FINANCIAL STATEMENTS...............................................
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................
PART III
ITEM 9. DIRECTORS AND OFFICERS OF REGISTRANT...............................
ITEM 10. COMPENSATION OF DIRECTORS AND OFFICERS.............................
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.....................................................
ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS......................
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K...................................
ITEM 14 CONTROLS AND PROCEDURES............................................
ITEM 15 PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................
2
GLOSSARY
"ASSAY" means to test ores or minerals by chemical or other methods for the
purpose of determining the amount of valuable metals contained.
"BRECCIA" means rock consisting of fragments, more or less angular, in a matrix
of finer-grained material or of cementing material.
"BONANZA" means a compact mass of very high-grade ore. Average Bonanza grades
are 2.3 ounces of gold per ton and 43 ounces of silver per ton.
"CLAIM" means a mining title giving its holder the right to prospect, explore
for and exploit minerals within a defined area.
"COMMON SHARES" means common shares without par value of GoldSpring, Inc.
"COMPANY" means the consolidated group consisting of GoldSpring, Inc. and its
subsidiaries The Plum Mining Company, LLC, GoldSpring, LLC and Ecovat Copper
Nevada, LLC.
"CORPORATE STOCK TRANSFER" means GoldSpring's registrar and transfer agent,
Corporate Stock Transfer of Denver, Colorado.
"CORPORATION" means the consolidated group consisting of GoldSpring, Inc. and
its subsidiaries The Plum Mining Company, LLC, GoldSpring, LLC and Ecovat Copper
Nevada, LLC.
"CUT-OFF GRADE" means the grade below which mineralized material or ore will be
considered waste.
"DEPOSIT" means an informal term for an accumulation of mineral ores.
"DIAMOND DRILL" means a rotary type of rock drill that cuts a core of rock and
is recovered in long cylindrical sections, two centimeters or more in diameter.
"DORE" means unrefined gold and silver bullion consisting of approximately 90%
precious metals, which will be further refined to almost pure metal.
"DUMPS" means depositories of unprocessed material rejected from prior mining
operations.
"ECOVAT COPPER NEVADA" means Ecovat Copper Nevada, LLC, a wholly-owned
subsidiary of GoldSpring, Inc.
"FAULT" means a fracture in rock along which there has been displacement of the
two sides parallel to the fracture.
"GoldSpring" means GoldSpring, Inc.
"HEAP LEACH" means a gold extraction method that percolates a cyanide solution
through ore heaped on an impervious pad or base.
"MINERALIZATION" means the concentration of metals within a body of rock.
"MINERALIZED MATERIAL" is a mineralized body which has been delineated by
appropriately spaced drilling and/or underground sampling to support a
sufficient tonnage and average grade of metal(s). Such a deposit does not
qualify as a reserve, until a comprehensive evaluation based upon unit cost,
grade, recoveries, and other material factors conclude legal and economic
feasibility.
3
"NET SMELTER RETURNS" means the actual financial proceeds received from any
mint, smelter, refinery, or other purchaser, from the sale of bullion, dore,
concentrates or finished products, less the cost of shipping, and all minting,
smelter or refinery costs.
"ORE" means material containing minerals that can be economically extracted.
"OXIDE" means mineralized rock in which some of the original minerals have been
oxidized (I.E., combined with oxygen). Oxidation tends to make the ore more
porous and permits a more complete permeation of cyanide solutions so that
minute particles of gold in the interior of the minerals will be more readily
dissolved.
"PATENT" means Fee simple title (private land) obtained from a State or Federal
government to land containing a valid mineral discovery.
"PLACER MINE" means the Gold Canyon and Spring Valley properties contained
within the legal entity of GoldSpring LLC.
"PLUM MINING" means The Plum Mining Company, LLC, a wholly-owned subsidiary of
GoldSpring, Inc.
"PROBABLE RESERVES" means reserves for which quantity and grade and/or quality
are computed from information similar to that used for proven reserves, but the
sites for inspection, sampling and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower than
that for proven reserves, is high enough to assume continuity between points of
observation.
"PROVEN RESERVES" means reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or
quality are computed from the results of detailed sampling and (b) the sites for
inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth, and mineral content of
reserves are well-established.
"RECOVERY" means that portion of the metal contained in the ore that is
successfully extracted by processing, expressed as a percentage.
"RESERVES" or "ORE RESERVES" mean that part of a mineral deposit, which could be
economically and legally extracted or produced at the time of the reserve
determination.
"SAMPLING" means selecting a fractional, but representative, part of a mineral
deposit for analysis.
"SEDIMENT" means solid material settled from suspension in a liquid.
"STOCKWORK" means a rock mass interpenetrated by small veins of mineralization.
"STRIKE", when used as a noun, means the direction, course or bearing of a vein
or rock formation measured on a level surface and, when used as a verb, means to
take such direction, course or bearing.
"STRIKE LENGTH" means the longest horizontal dimension of an ore body or zone of
mineralization.
"STRIPPING RATIO" means the ratio of waste to ore in an open pit mine.
"SULPHIDE" (or "SULFIDE") means a compound of sulfur and some other element.
"TRENCHING" means prospecting in which subsurface strata are exposed by digging
pits across the strike of a lode.
"VEIN" means a fissure, fault or crack in a rock filled by minerals that have
traveled upwards from some deep source.
4
"VOLCANICLASTIC" means derived by ejection of volcanic material from a volcanic
vent.
"WASTE" means rock lacking sufficient grade and/or other characteristics of ore.
5
CURRENCY
Unless otherwise specified, all dollar amounts in this report are expressed in
United States dollars.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS
This document, including any documents that are incorporated by reference as set
forth on the face page under "Documents incorporated by reference", contains
forwarding-looking statements concerning, among other things, projected annual
gold production, mineralized material, proven or probable reserves and cash
operating costs. Such statements are typically punctuated by words or phrases
such as "anticipates", "estimates", "projects", "foresees", "management
believes", "believes" and words or phrases of similar import. Such statements
are subject to certain risks, uncertainties or assumptions. If one or more of
these risks or uncertainties materialize, or if underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. Important factors that could cause actual results to differ
materially from those in such forward-looking statements are identified in this
document under "Item 1. Business--Risk Factors". GoldSpring, Inc. assumes no
obligation to update these forward-looking statements to reflect actual results,
changes in assumptions, or changes in other factors affecting such statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
GoldSpring, Inc. (the "Company" or "GSPG") is a precious metals mining company
specializing in the economical and efficient production of gold and other
precious metals. The Company, as it exists today, was formed in March 2003 when
a Plan of Agreement and Reorganization by Exchange (the "Plan of
Reorganization") was executed between the Company and Ecovery, Inc., a private
Corporation. The Company, pursuant to this agreement, acquired GoldSpring, LLC
and Ecovat Copper Nevada, LLC from Ecovery representing substantially all of
Ecovery's mining assets. In consideration, the Company issued 90 million
restricted common shares to the Ecovery shareholders when the market value was
$0.10 per share. In addition to the stock, the Company paid Ecovery $100,000 and
issued 46,500 $100 Preferred Convertible/Redeemable shares to Harlesk Nevada
(the prior owner of the Gold Canyon and Spring Valley placer projects) in full
satisfaction of $4,650,000 of production payments due to Harlesk Nevada from the
operation of the Placer projects.
Ecovery's assets included the Gold Canyon and Spring Valley gold placer projects
in Lyon County, Nevada plus the "Big Mike" Copper Project in Nevada. The Gold
Canyon and Spring Valley Placer gold claims, located about 3 miles south of Gold
Hill, Nevada, have reported gold reserves of 1,199,000 ounces. These claims
consist of 21 unpatented placer mining claims covering approximately 850 acres.
The claim groups lie immediately south of the famous Comstock Lode, which is
considered the source of the placer gold values in the immediate area. Ecovery's
assets also included the "Big Mike" Copper Ore Project, located about 2 hours
east of Reno in Winnemucca, Nevada, containing 25,000,000 pounds of copper
already mined and above ground.
6
Prior to March 2003, the Company was focused on software and technology
applications for global e-commerce. Originally founded in Florida in October
1999 as Click and Call Company, the Company changed its name to StartCall.com,
Inc. in June 2000. StatrCall.com's business plan was to serve as an application
service provider (ASP) which offered real-time interaction technology as an out
source service. The Company planned to offer a technology that would enable
visitors to a web site to click on a button and request live help at the point
of a purchase when needed or desired by the customer. In the fourth quarter of
2002, the Company's management decided that it could not compete in the
marketplace and began looking for potential acquisitions or mergers with
companies in the software telecommunications industry. In December 2002,
StartCall.com entered into a Stock Purchase Agreement and Share Exchange
Agreement with a Danish software company, ARN Invest, in which the Company
agreed to acquire Web Intelligence, a European supplier of online competitive
intelligence services, in exchange for the issuance of 79,500,000 shares to ARN
Invest. Pursuant to the Agreement, the Company's name was changed to Visator,
Inc. and Web Intelligence became Visator's wholly-owned subsidiary and operating
company. In February 2003, Web Intelligence, ARN Invest, and the management of
Visator agreed to void the transaction. A Termination Agreement and Mutual
Release was executed on February 28, 2003. The Stock Purchase Agreement and
Share Exchange were deemed null and void, and ARN Invest returned the 79,500,000
common shares of Visator in consideration for the payment of $20,000. These
common shares were subsequently cancelled in March 2003.
Prior to the Plan and Agreement of Reorganization by exchange by GoldSpring,
Inc., the Company had entered into various contractual arrangements whereby the
Company would issue common stock as consideration for investor relations,
business advisory and related consulting services. A total of 26,726,932 common
shares valued at $4,123,278 were issued for consulting services during the
period February 2002 through March 11, 2003 (See Note H for further details).
The entire amount was realized as an expense in 2003.
Following the termination of the Agreement with ARN Invest, Visator executed a
letter of intent and subsequent purchase agreement with Ecovery, Inc. to acquire
substantially all of the assets used by Ecovery in conducting its mining
business in Nevada. Pursuant to the Letter of Intent, the Company changed its
name to GoldSpring, Inc. The "Plan of Agreement and Reorganization by Exchange"
between GoldSpring and Ecovery (the "Plan of Reorganization") was entered into
on March 20, 2003. The final closing documents for GoldSpring's acquisition of
Ecovery's Nevada mining assets were executed on June 12, 2003 with an
effectuation date of March 11, 2003. As outlined in the Plan of Reorganization
and final closing documents, Antonio Treminio resigned from the Board of
Directors of the Company and John Cook and Les Cahan were appointed to the Board
of Directors. In addition, Antonio Treminio resigned as President, Chief
Executive Officer and Chief Financial Officer, and John Cook was named as
President and Chief Executive Officer of the Company. The Company then appointed
Robert Faber to its Board of Directors and named him Chief Financial Officer of
the Company in June 2003.
In June 2003 the Company ordered its first RMS - Ross turnkey gravity placer
gold recovery plant. This plant was delivered in November 2003.
On September 16, 2003 the shareholders of record received a 10% stock dividend.
Pursuant to this dividend, the Company issued an additional 15.6 million common
shares to its shareholders.
In September 2003 prior to the 10% stock dividend, the Company completed a $2
million equity raise. The financing consisted of two phases. Phase One was a
$250,000 private placement offering of 2 million restricted common shares at
$0.125 to private accredited investors. Phase Two was also an equity financing
which was completed with a London Stock Exchange Listed Investment Trust
generating $1,785,008 in exchange for 36 million restricted common shares of the
Company's stock. This Investment Trust also received an additional 3.6 million
restricted common shares pursuant to the Company's 10% dividend in September
2003. The Company deployed the funds to acquire "The Plum Mining Company, LLC",
to commence gold production at Plum's Billie the Kid open pit mine and for
general corporate purposes.
7
On November 1, 2003, the Company acquired The Plum Mining Company, LLC ("Plum").
The Plum property consists of two projects (The Billie the Kid Project comprised
of the Billie the Kid, Lucerne and the Hartford Pits, and The Como Project)
containing over 2,427,082 tons of economic gold and silver bearing ore. The
"Billie the Kid" open pit (private land) contains 600,000 tons, with a Phase 1
mining plan targeting 500,000 tons of proven 0.058 ounces/ton gold and 0.31
ounces/ton silver. The adjacent "Lucerne" open pit (private land) has resources
in excess of 1,150,000 tons of proven 0.05 ounces/ton gold and 0.71 ounces/ton
silver. The Como District Claims, located in the Hulley-Logan Trend about 30
miles SE of Plum, contains about 700,000 tons of probable 0.09 ounces/ton gold
and 3.9 ounces/ton silver.
In addition to the mining claims, the Plum acquisition included 40 acres of
private land with a 2,700 square foot office building, two laboratory trailers,
an enclosed maintenance facility, earth-moving equipment, dump trucks, and other
processing equipment including a Merrill Crowe solution extraction plant and a
primary ore crusher. Notably, Plum Mining has the only permit for cyanide heap
leach processing facility in the Comstock Lode area of Nevada. Given the
regulatory climate in this area, Plum mining most likely will be the only
company in the Comstock Lode District with a cyanide heap leach permit. The Plum
permits and infrastructure provide a solid platform for further expansion in the
Comstock Lode District.
Approximately two weeks after the closing of the Plum acquisition, the Company
was successful in securing necessary final regulatory approvals to commence
infrastructure development on the Plum property. Ground breaking took place on
November 18th with an aggressive plan to be in production and mineral recovery
before year-end. Several strategic vendor relations were formed including an
agreement with American Asphalt. This vendor provides mine excavation and
transportation of ore to the processing facility. The Company's aggressive plans
for the 4th Quarter 2003 production would have been attainable had the Leach pad
and pond liner material been available on schedule as contracted. The facility
would have been finished by December 11 and able to be overlined and loaded with
ore for Q4 revenue. The weather window necessary for detailed construction of
the leach pad and ponds was lost and rather than send ore off property at an
excessive incremental cost, a decision was made to stockpile the mined material
for processing once the construction was complete. While not received or
reported in Q4, the revenue associated with the stockpiled gold and silver ore
mined in the 4th Quarter 2003 is being generated in 2004. Currently, over 80,000
tons of ore from Billie the Kid pit have been mined and are being loaded on the
completed Heap Leach Processing pad.
On December 12, 2003, the Company initiated the application process to be listed
on the American Stock Exchange (AMEX). Based upon careful review of the AMEX
guidelines and meeting with AMEX personnel, the Company believed that under the
Standard 3 Listing Guidelines, it meet the qualifications for listing on the
AMEX. However, to date no approval has been received for the listing on AMEX.
(Financial Guidelines - a market capitalization in excess of $50 million, a
market value of the public float in excess of $15 million and stockholders
equity in excess of $4 million; Distribution Guidelines - at least 400 public
stockholders, at least 500,000 shares in the public float, and an average daily
trading volume of at least 2,000 shares) The initial "Comment Letter" was
received from the AMEX on January 20, 2004. All items contained in the "Comment
Letter" have been addressed and responded to effective with the filing of this
document.
As demonstrated above, 2003 was a year of formation and staging for the
enterprise. 2004 will focus on expanding mineral production at existing
properties and increasing reserves through strategic acquisitions and
exploration. The Company will continue to seek acquisition opportunities where
the properties have proven reserves, advanced permitting in place and where
exploration opportunities exist. The Company has three (3) Letters of Intent in
place for properties that meet these criteria. Contingent upon successful due
diligence, the Company intends to complete these acquisitions in the near term.
Current in-ground reported reserves total: 1.35 million ounces of Gold; 3.7
million ounces of Silver; and 25,000,000 pounds of Copper The Company intends to
increase In-Ground Reserves to over 3 million ounces of gold in 2004 through
acquisitions and exploration of existing properties. Exploration opportunities
exist on the Company's properties including a Bonanza potential discovery of 1
to 3 million additional ounces of gold. GoldSpring is committed to creating a
high-quality portfolio of gold and other precious metals producing assets to
achieve substantial, long-term growth and cash flow.
8
On March 30, 2004, the Company sold 6,000 ounces of gold in a spot deferred
transaction to be delivered to Johnson Matheny Refinery, Salt Lake City Pool,
based on the current gold price at such time of $418 per ounce. On April 1,
2004, the Company sold an additional 6,000 ounces of Gold in a spot deferred
transaction to be delivered to Johnson Matheny Refinery, Salt Lake City Pool,
based on the current gold price at such time of $425 per ounce. For the total
transaction of 12,000 ounces of gold, the Company arranged a placement of 2,400
ounces (1,200 ounces per transaction) of gold at Johnson Matheny Refinery, Salt
Lake City Pool as margin for these transactions.
These transaction remain open for delivery at any time in any amount for two
years from the date of the transaction at no interest, cost or penalty to the
Company. All other sales of Gold at prices higher than the above will be made in
the open market. The 2,400 ounces of Gold will benefit from the future upside
price as well.
SUBSEQUENT FINANCING EVENTS
On February 10, 2004, the Company announced a Restricted Private Placement for
accredited private investors for a maximum of $500,000 (66 2/3 units). Units of
$7,500 consisting of 10,000 shares of the Company's 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 purchase of the shares at the same price paid by the
investor and the investor 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.
On March 11, 2004 the Company closed a $10 million Institutional equity private
placement brokered by Merriman Curhan Ford & Co. of San Francisco, California.
The Company received gross proceeds from a group of institutional investors of
$10 million from a private placement of 21,739,130 shares of unregistered common
stock at a negotiated price of $0.46 per share. The investors also received
warrants to purchase 10,869,565 shares of common stock at an exercise price of
$0.86 per warrant share. Additionally, investors have the option to invest an
additional $5.0 million in a green shoe option.
Use of Proceeds is as follows: $3 million to accelerate the ramp up of existing
gold, silver and copper reserves into production; $3 million to complete and
bring to production those acquisitions currently under LOI; $2 million for
additional acquisitions, development and exploration and $2 million for working
capital.
EMPLOYEES
As of December 31, 2003, the Company had 4 full-time employees at its executive
office in Scottsdale, Arizona. In addition, the Company contracted two full-time
managers to oversee the Plum Mining project in Nevada (one manager was paid as a
consultant, and the other was employed through an employee leasing agency). The
Company uses consultants with specific skills to assist with various aspects of
its project evaluation, due diligence and acquisition initiatives. Since the
beginning of 2004, the Company has added five mining employees at the Plum
project, all of whom are leased through an employee leasing agency. The Company
also uses sub-contractors in its mining operations which involves approximately
20 people including a mining and screening foreman.
The Company's corporate headquarters are located in Scottsdale, Arizona, where
the Company leases space at 8585 E. Hartford Dr., Suite 400, Scottsdale, AZ
85255. Telephone: 480-505-4040. Fax: 480-505-4044
PRINCIPAL MARKETS
The products produced by the Company are sold on world markets at prices
established by market forces. These prices are not within the control of the
Company.
9
GOVERNMENT REGULATION
Mining operations and exploration activities are subject to various national,
state, and local laws and regulations in the United States, which govern
prospecting, development, mining, production, exports, taxes, labor standards,
occupational health, waste disposal, protection of the environment, mine safety,
hazardous substances and other matters. The Company has obtained or has pending
applications for those licenses, permits or other authorizations currently
required to conduct its exploration and other programs. The Company believes
that it is in compliance in all material respects with applicable mining,
health, safety and environmental statutes and the regulations passed there under
in the United States. There are no current orders or directions with respect to
the foregoing laws and regulations.
RECLAMATION
The Company generally is required to mitigate long-term environmental impacts by
stabilizing, contouring, resloping, and revegetating various portions of a site
after mining and mineral processing operations are completed. These reclamation
efforts are conducted in accordance with detailed plans, which must be reviewed
and approved by the appropriate regulatory agencies.
The Nevada Revised Statutes and regulations promulgated there under by the
Nevada State Environmental Commission and the Nevada Division of Environmental
Protection, Bureau of Mining and Reclamation require surety to be posted for
mining projects to assure the Company will leave the site safe, stable and
capable of providing for a productive post-mining land use. Pursuant to the
approved Reclamation Plan for Billie the Kid, the Company posted a surety in the
amount of $321,000, of which $145,000 came in the form of a cash deposit and the
balance was secured from a surety agent.
COMPETITION
The Company competes with other mining companies in connection with the
acquisition of gold properties. There may be competition for gold acquisition
opportunities, some of which may involve other companies having substantially
greater financial resources than the Company.
The Company believes no single company has sufficient market power to affect the
price or supply of gold in the world market.
RISK FACTORS
An investment in the Company's Common Shares involves risk. The risks described
below are not the only ones facing the Company. Additional risks not presently
known to the Company or which management currently considers immaterial may also
adversely affect the Company's business. Management has attempted to identify
the major factors under the heading "Risk Factors" that could cause differences
between actual and planned or expected results, and has included all material
risk factors. If any of the following risks actually happen, the Company's
business, financial condition and operating results could be materially
adversely affected.
1. The Company has no record of earnings. It is also subject to all of
the risks inherent in a developing business enterprise.
2. The Company's success and possible growth will depend on its ability
to recover precious metals, process them, and successfully sell them
on world markets. It is dependent on the market's acceptance of the
quality of the product presented for sale.
3. Liquidity and the need for additional financing is a concern for the
Company. There is no assurance that the Company will be able to obtain
additional capital as required, or if the capital is available, to
obtain it on terms favorable to the Company. The Company may suffer
from a lack of liquidity in the future that could impair its
production efforts and adversely affect its results of operations.
10
4. Management cannot be certain that the Company's acquisition,
exploration and development activities will be commercially
successful. Substantial expenditures are required to acquire existing
gold properties, to establish ore reserves through drilling and
analysis, to develop metallurgical processes to extract metal from the
ore and, in the case of new properties, to develop the mining and
processing facilities and infrastructure at any site chosen for
mining. There can be no assurance that any gold reserves or
mineralized material acquired or discovered will be in sufficient
quantities to justify commercial operations or that the funds required
for development can be obtained on a timely basis.
5. The price of gold is subject to fluctuations, which could adversely
affect the realizable value of the Company's assets and potential
future results of operations and cash flow.
6. The Company's principal assets are gold, silver and copper reserves.
The Company intends to attempt to acquire additional properties
containing reserves and mineralized material with exploration
potential. The price that the Company pays to acquire these properties
will be, in large part, influenced by the price of gold at the time of
the acquisition. The Company's potential future revenues are expected
to be, in large part, derived from the mining and sale of gold from
these properties or from the outright sale of some of these
properties. The value of these gold reserves and mineralized material,
and the value of any potential mineral production there from, will
vary in direct proportion to variations in those mineral prices. The
price of gold has fluctuated widely, and is affected by numerous
factors beyond the control of the Company, including, but not limited
to, international, economic and political trends, expectations of
inflation, currency exchange fluctuations, central bank activities,
interest rates, global or regional consumption patterns and
speculative activities. The effect of these factors on the price of
gold, and therefore the economic viability of any of the Company's
projects, cannot accurately be predicted. Any drop in the price of
gold would adversely affect the Company's asset values, cash flows,
potential revenues and profits.
7. Mining exploration, development and operating activities are
inherently hazardous. Mineral exploration involves many risks that
even a combination of experience, knowledge and careful evaluation may
not be able to overcome. Operations in which the Company has direct or
indirect interests will be subject to all the hazards and risks
normally incidental to exploration, development and production of gold
and other metals, any of which could result in work stoppages, damage
to property and possible environmental damage. The nature of these
risks is such that liabilities might exceed any liability insurance
policy limits. It is also possible that the liabilities and hazards
might not be insurable, or, the Company could elect not to insure
itself against such liabilities due to high premium costs or other
reasons, in which event, the Company could incur significant costs
that could have a material adverse effect on its financial condition.
8. Reserve calculations are estimates only, subject to uncertainty due to
factors including metal prices and recoverability of metal in the
mining and mineral recovery process. There is a degree of uncertainty
attributable to the calculation of reserves and corresponding grades
dedicated to future production. Until reserves are actually mined and
processed, the quantity of ore and grades must be considered as an
estimate only. In addition, the quantity of reserves and ore may vary
depending on metal prices. Any material change in the quantity of
reserves, mineralization, grade or stripping ratio may affect the
economic viability of the Company's properties. In addition, there can
be no assurance that gold recoveries or other metal recoveries in
small-scale laboratory tests will be duplicated in larger scale tests
under on-site conditions or during production.
11
9. The Company's exploration and development operations are subject to
environmental regulations, which could result in incurrence of
additional costs and operational delays. All phases of the Company's
operations are subject to environmental regulation. Environmental
legislation is evolving in some countries or jurisdictions in a manner
which will require stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree of
responsibility for companies and their officers, directors and
employees. There is no assurance that future changes in environmental
regulation, if any, will not adversely affect the Company's projects.
The Company is currently subject to environmental regulations with
respect to its properties in Nevada.
10. U.S. Federal Laws. The Bureau of Land Management requires that mining
operations on lands subject to its regulation obtain an approved plan
of operations subject to environmental impact evaluation under the
National Environmental Policy Act. Any significant modifications to
the plan of operations may require the completion of an environmental
assessment or Environmental Impact Statement prior to approval. Mining
companies must post a bond or other surety to guarantee the cost of
post-mining reclamation. These requirements could add significant
additional cost and delays to any mining project undertaken by the
Company.
11. Nevada Laws. At the state level, mining operations in Nevada are also
regulated by the Nevada Department of Conservation and Natural
Resources, Division of Environmental Protection. Nevada state law
requires the Plum Mining Company and the GoldSpring Placer Projects to
hold Nevada Water Pollution Control Permits, which dictate operating
controls and closure and post-closure requirements directed at
protecting surface and ground water. In addition, the Company is
required to hold Nevada Reclamation Permits required under NRS
519A.010 through 519A.170. These permits mandate concurrent and
post-mining reclamation of mines and require the posting of
reclamation bonds sufficient to guarantee the cost of mine
reclamation. Other Nevada regulations govern operating and design
standards for the construction and operation of any source of air
contamination, and landfill operations. Any changes to these laws and
regulations could have an adverse impact on the Company's financial
performance and results of operations by, for example, required
changes to operating constraints, technical criteria, fees or surety
requirements.
12. There may be challenges to the Company's Title in the mineral
properties in which the Company holds a material interest. If there
are title defects with respect to any of the Company's properties, the
Company might be required to compensate other persons or perhaps
reduce its interest in the affected property. Also, in any such case,
the investigation and resolution of title issues would divert
management's time from ongoing exploration and development programs.
ITEM 2. DESCRIPTION OF PROPERTY
PLUM MINING PROPERTIES (BILLIE THE KID OPEN PIT MINE, LUCERNE OPEN PIT MINE,
COMO CLAIMS)
In November 2003, GoldSpring purchased 100% of the interest in The Plum Mining
Company, LLC ("Plum"). Plum's property interests include title to 40 acres of
private land, with improvements consisting of a 2,700 square foot
commercial/residential office building and a 1,500 square foot shop; and mineral
exploration and mining leases for the Billie the Kid and Lucerne Open Pit mines
and the Como Claims.
12
Lease and Royalty Payments
--------------------------
The Company has a Mineral Exploration and Mining Lease Agreement with Claire
Obester dated January 1, 1997 (the Obester Lease) covering mineral rights to the
Billie the Kid and Lucerne open pit mines as well as other mining claims. Terms
of the lease call for monthly lease payments of $500 until the mining claims
covered by the lease are put into production. After production commences, the
Company shall pay a royalty to Lessor amounting to the greater of $500/mo. or a
percentage of Net Smelter Returns (the percentage varies based on the price of
gold - 3% is gold is less than $400/oz., 4% if gold is greater than or equal to
$500/oz. But less than $500/oz., and 5% if gold is over $500/oz).
The Company has a second Mineral Exploration and Mining Lease Agreement with the
Donovan Silver Hills, LLC covering 13 unpatented mining claims. Terms of the
lease call for monthly lease payments of $250 until the mining claims covered by
the lease are put into production. After production commences, the Company shall
pay a royalty to Lessor amounting to the greater of $500/mo. or a percentage of
Net Smelter Returns (The percentage varies based on the price of gold - 3% if
gold is less than $400 per ounce, 4% if gold is in the $400's per ounce and 5%
if gold is $500 or greater per ounce.).
Geology, Structure and Mineralization
-------------------------------------
The project geology is dominated by three principal lithologic units. The oldest
is a Mesozoic sub-areal to sub-marine volcanic and sedimentary sequence. This
unit is dominated by metamorphosed andesite, with local sedimentary units
consisting of black graphitic shale and limestone. Intruding and overlying this
are dikes and flows of the Hartford Hill Rhyolite (Santiago Canyon Tuff).
Sequentially above the Hartford Hill is the Alta Andesite. In the project area,
the unit is composed of up to 2000 feet of andesitic flows and interlayered,
water lain tuffs (Sutro Tuff).
The Lucerne and Billie the Kid deposits are situated along faulted, offset
sections of the Silver City Lode, one the structures which intersect and form
the larger Comstock Lode. The structural grain of both deposits is roughly
N50oW, and both dip northeasterly.
With in the Billie the Kid and the Lucerne deposits, intrusive dikes and sills
of the Alta andesite are seen to be spatially associated with gold
mineralization, but only rarely are mineralized. In the Billie the Kid
deposit approximately 80% of the mineralization is contained in the Hartford
Hill rhyolite, and in the paleosol which separates it from the Mesozoic
meta-andesite. In the Lucerne deposit, roughly 70% of the ore grade
mineralization is contained in the Hartford Hill, the remainder being in the
Alta.
Ore mineralogy is unique in the district. Fragments of both Alta andesite and
Hartford Hill rhyolite, cut by open space quartz veinlets and veins are found
throughout a matrix of lacy to sugary quartz, white to black calcite, and
manganiferous clays. Gold is found as discrete very fine grains of free gold
with in the clayey matrix. Typical gold grains have extremely ornate boundaries,
and abnormally large surface areas, somewhat resembling crumpled foil, or broken
egg shells. This large surface area, and the lack of any encapsulation allow
effective treatment in a heap leach environment.
OPEN PIT MINERAL RESERVES
-------------------------
BILLIE THE KID & LUCERNE PIT AREAS:
At present 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 577,082 tons. The mineralization outside of
the existing mine plan (106,082 tons) is considered a Proven Reserve.
13
The Lucerne deposit ores are similar to the Billie the Kid in chemistry, and
response in a heap leach environment. In an original mine plan for the Lucerne
pit circa 1992, Carrington Consultants estimated a mineable reserve of 976,000
tons with an average inplace grade of 0.05 opt Au and .71 opt Silver. The
overall waste to ore ratio for this pit design was 1.7:1.
Allowing for past production, and uncertainties related to that mining, the
remaining Proven Reserve there is estimated at 850,000 tons remaining. Upon
completion of current remodeling and developing a current mine plan, most of
this mineralization will be reclassified as Proven Mineable Reserves.
Additional mineral resources exist underneath State Route 342 which lies on the
east crest of the Lucerne Pit. At this time there are 300,000 tons with and
indicated grade of .05 opt Au and .7 opt AG which are classified as Probable
Reserves.
Mineralization in the Billie the Kid pit is known to extend beyond design
limits, into Lyon County. This county, rather Silver City, has always been
strongly anti-mining, so a conscious decision was made not to open operations up
to administrative issues in Lyon County until the mine was in full operation and
providing taxes and payroll. It is believed that once this is achieved
exploration should be extended into this area, and the requisite permitting
pursued.
Additional exploration potential exists north of the old Hartford Pit where
limited drilling by Houston Oil and Minerals in the late 1970's returned results
up to .1 opt Au., in an area of alteration similar to the Billie the Kid and
where intrusive dikes of Alta Andesite are mapped along the meta-andesite -
rhyolite contact.
Como District
-------------
Past operations by Plums Previous owner, W. Hughes Brockbank, conducted drilling
and other exploration activities in the Hulley - Logan area of the Como
District. Like the Comstock District, this mineralization is hosted in Tertiary
age volcanic flows.
To date, exploration work has identified a reported Probable Mineral Reserve of
700,000 tons with an average grade of .09 opt Au, and 3.9 opt Silver. Historic
heap leaching on the claims is reported to have achieved over 80% recovery of
the gold and silver values from these ores.
At present the Reserve inventory for all classes reported on herein, stands at
2,437,082 tons with an average grade of 0.0627 ounce of gold per ton, and 1.52
ounces of silver per ton.
Current Mining operations have extracted approximately 80,000 tons of the Billie
the Kid reserve and placed it in a Mined ore stockpile at the process facility.
Based on production sampling to date, the average grade of this material is .06
opt Au. An additional 9,000 tons of stockpiled ore with an average grade of
0.068 had been mined by Plum Mining LLC prior to GoldSpring's purchase. This ore
is currently being aglomerated and loaded on the heap leach pad and sprayed with
cyanide. December 2003 reserve balances are accurate and they will be adjusted
after first quarter results are complete. No processing of this ore has taken
place as of this date, therefore this material is still considered to be part of
the reserve and no depletion of the reserve is attributed to this.
14
PLACER PROJECTS AND 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 the Company's 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.
Geology
-------
All placers begin with the weathering and disintegration of lodes or rocks
containing one or more heavy, resistant metals such as gold, platinum,
magnetite, garnet, zircon, etc. It is generally accepted that the placer gravels
composing the alluvial fan at the mouth of Gold Canyon were eroded from the
southern portion of the Comstock Lode, which includes the Gold Hill and Silver
City areas. The precious metals originated in brecciated quartz veins containing
native gold and silver sulphide. The bulk of the placer material consists of
angular and subangular fan gravels, the greatest portion of which was deposited
by surges of runoff water. There is strong evidence that the alluvial fan is
interlaced with multiple stream channels which would represent the greatest
potential for concentrations of higher grade placer gravels. The Spring Valley
placer area was formed largely by alluvial deposition or transitional creep and
represents the product of local erosion of surface materials. Several lode mines
are located in the immediate vicinity at higher elevations.
Spring Valley
-------------
The Spring Valley gold placer property consists of 15 contiguous unpatented
placer claims covering approximately 450 acres in Lyon County in northwestern
Nevada.
The operation will be similar to a sand and gravel operation with a simple
gravity gold recovery circuit attached. The reported gold reserves are 336,000
oz.. In addition, there are approximately 3,000,000 tons of ore dumps and
tailings from previous operations which lie on top of the claims that would be
suitable for recovery through a highly efficient, fully self-contained process.
Gold Canyon
-----------
Immediately east of the Spring Valley property lies the Gold Canyon claim group
consisting of 6 unpatented placer claims covering approximately 400 acres in
Lyon County, Nevada. An integrated exploration program, including magnetic and
seismic surveys, reverse circulation drilling and sampling has
indicated in excess of 29 million cubic yards grading 0.032 ounces of gold per
cubic yard. The reported gold reserves are 863,931 oz..
MINED COPPER
THE "BIG MIKE" COPPER PROJECT
The "Big Mike" Copper Ore Project is located approximately 32 miles south of
Winnemuca in Pershing County Nevada. Access to this site is via Grass Valley
Road, a county maintained paved and gravel road, for 30 miles and then 2 miles
on a BLM gravel road. The property is situated in Sections 22 and 23 of Township
31 North and range 39 East, Mount Diablo Meridian, at an elevation of 5,000 to
5,500 feet. The project consists of 17 unpatented lode mining claims and 1
placer mining claim covering a total of 310 acres. Water rights sufficient for a
vat leaching or heap leaching operation were included with the acquisition of
this property. The project has 25,000,000 pounds of reported copper, already
mined and above ground.
15
MINERAL RESERVE SUMMARY
Current in-ground reported reserves total: 1.35 million ounces of Gold, 3.7
million ounces of Silver and 25 million pounds of copper already mined and above
ground. The Company intends to increase In-Ground Reserves to over 3 million
ounces of gold in 2004 through acquisitions and exploration of existing
properties. Exploration opportunities exist on the Company's properties
including a Bonanza potential discovery of 1 to 3 million additional ounces of
gold. GoldSpring is committed to creating a high-quality portfolio of gold and
other precious metals producing assets to achieve substantial, long-term growth
and cash flow.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending or threatened litigation and, to its
knowledge, no action, suit or proceedings has been threatened against its
officers or its directors.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, by GoldSpring during the year ended
December 31, 2003.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON SHARES
The Common Shares of GoldSpring are listed on the NASD Over-the-Counter Bulletin
Board under the symbol GSPG. The Company has applied to have its common stock
listed on the American Stock Exchange. The following table summarizes trading in
the Company's common stock, as provided by quotations published by the OTC
Bulletin Board for the periods as indicated. The quotations reflect inter-dealer
prices without retail mark-up, markdown or commission, and may not represent
actual transactions.
Quarter Ended High Bid Low Bid
------------- -------- -------
March 31, 2002 1.30 0.03
June 30, 2002 0.65 0.20
September 30, 2002 0.17 0.01
December 31, 2002 0.05 0.02
March 31, 2003 0.06 0.05
June 30, 2003 0.16 0.01
September 30, 2003 0.49 0.05
December 31, 2003 0.84 0.27
As of December 31, 2003, there were over 2,000 holders of record of the
Company's common stock, That does not include the number of beneficial holders
whose stock is held in the name of broker-dealers or banks.
DIVIDENDS
The Company has never paid dividends. While any future dividends will be
determined by the directors of the Company after consideration of the earnings,
financial condition and other relevant factors, it is currently expected that
available cash resources will be utilized in connection with the ongoing
acquisition, exploration and development programs of the Company.
Item 6: MANAGEMENT DISCUSSION AND PLAN OF OPERATIONS
Overview
GoldSpring is a production-focused mining company whose goal is to become the
fastest growing and most profitable mining company operating in the US. Our
initial operations are centered in the Comstock Lode in northern Nevada, located
about 30 miles south and east of Reno. Expansion is planned in other mining
districts in Nevada, the California Mother Lode and Mexico.
16
The Comstock Lode contains 33 discovered Bonanza Grade deposits. Average Bonanza
grades are in excess of 2.3 ounces of gold per ton and 43 ounces of silver per
ton. Documented bullion production, as of 1882, was 10,785,000 ounces of gold
and 204,728,000 ounces of silver according to the USGS. Mills on the Comstock
operating at 65 - 70% recovery, processed 14.4 million ounces of gold and 273
million ounces of silver. There are still significant unexplored and unexploited
mineral deposits in the Comstock.
GoldSpring's business model targets mining projects that have proven in-ground
reserves, advanced permitting, and solid exploration potential. Rather than
competing with major mining companies, we seek to acquire smaller, proven
projects from these large companies where available.
GoldSpring's current in ground Reserves are:
1.35 million ounces of gold
3.7 million ounces of silver
25 million pounds of copper already mined and above ground.
Accounting Treatment Change:
After careful review and consideration, and pursuant to the Company's recent S-1
filing, the Company has elected to treat the original transaction between
GoldSpring, Inc. and Ecovery, Inc. as a reverse merger and not as a business
combination from an accounting standpoint. The purpose for this filing is to
restate the financial statements to reflect the accounting treatment change for
recording this transaction.
At the time of the transaction, the Company adopted the business combination
accounting treatment to record this transaction, whereby the market value of the
common stock exchanged for the assets plus the book value of the assets acquired
were used to determine the valuation of the transaction. Employing this
accounting treatment, the Company recorded approximately $8.9 million of
goodwill, an intangible asset. After considering such factors as: (1) the change
in control of the Company based on the number of GoldSpring shares issued to the
Ecovery shareholders in the transaction; (2) effective the date of the
transaction, the sole officer and director of the Company resigned; and (3) the
Company, GoldSpring, Inc., had no operations prior to the Transaction, the
Company concluded that the reverse merger accounting treatment more
appropriately reflects the nature of this transaction. Under the reverse merger
accounting treatment, historical asset values (book value of the assets) are
utilized to determine the valuation of the transaction. Accordingly, no goodwill
is generated with this transaction.
Pursuant to the Company's decision to change the accounting treatment, the
financial statements have been restated and are presented within this filing, to
reflect the new treatment. This change in accounting treatment has no impact on
the results of operations of the Company and the Company continues to meet the
published listing requirements established by the American Stock Exchange
(AMEX).
Founded in March of 2003, GoldSpring successfully raised in excess of $2 million
in Equity, has completed two acquisitions, and has commenced gold and silver
production within its first year. Operations are forecast to be profitable in Q1
2004 from Plum Mining LLC's Billie the Kid open pit gold and silver project. The
Company also has three additional acquisition targets under Letter of Intent.
Production scheduled for 2004, absent any additional capital, is forecast to be
in the 40 to 60 thousand ounces of gold and 250,000 ounces of silver range for
operating revenue of around $20 million. Metals production will increase
substantially with the planned $10 million capital infusion to over 200,000
ounces of gold, 650,000 ounces of silver and 6 million pounds of copper for
operating revenue in excess of $70 million on an annualized basis.
In 2004 the Company successfully raised $500,000 through an equity private
placement, offered to enable existing shareholders. In addition, the Company
closed a $10 million institutional equity private placement. The following sets
for the use of proceeds from this private placement.
$3 million to accelerate the ramp up of production of existing reserves
including the Big Mike Copper Project.
$3 million to acquire and bring into production projects currently under
Letter of Intent.
$2 million for additional acquisitions or targeted exploration.
$2.5 million for Working Capital.
17
One major corporate objective for 2004 is to grow the in ground gold reserves to
3 million ounces.
2004 OUTLOOK FOR CURRENT OPERATIONS
The Billie The Kid Project:
At the end of October 2003, the Company purchased The Plum Mining Company, LLC
which, according to the recent Mineral Reserve Statement prepared by registered
engineering geologist Robert Carrington, contains "Total reserve inventory for
all classes reported on [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." He footnotes 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 states in
another part of the report that GoldSpring is already seeing similar results for
the Billie the Kid project.
In addition to the $1,400,000 purchase price, which required $200,000 of cash,
over $850,000 of cash has been invested in 2003 and 2004 summarized as follows:
$145K for additional reclamation bond requirements; $500K in construction and
development of the operations infrastructure, including a fully constructed,
inspected and lined heap leach pad and pond facility and direct electrowinning
recovery system for the gold and silver; $41K/cash and $41K Restricted stock for
water rights; and $175,000 for mining and haulage costs associated with over
80,000 tons of stockpiled ore.
The Company's aggressive plans for Q4 '03 production would have been attainable
had the Leach pad and pond liner material been available on schedule as
contracted. The facility would have been finished by December 11 and able to be
overlined and loaded with ore for Q4 revenue. The weather window necessary for
detailed construction of the leach pad and ponds was lost and rather than
sending ore off the property at an excessive incremental cost, a decision was
made to stockpile the mined material for processing once the construction was
complete. While not received or reported in Q4, the revenue associated with the
stockpiled gold and silver ore mined in Q4 '03 is being generated in 2004.
This stockpiled ore is currently being loaded 24 hours/day onto the prepared
leach pad and mining is producing an average of 2000 tons per day to add to the
stockpile. Approximately 80,000 tons of ore should be on the pad and under leach
by end of Q1 2004. The metal contained in the 80,000 tons of ore, according to
assays, should be 5,040 ounces of gold and 32,000 ounces of silver. At the
previously experienced recovery rate of 84.5% for gold, this would amount to
4,284 ounces of gold and at historical silver recovery rates in the 33% range
for 11,000 ounces
Note: % recovery from pregnant solution by direct electrowinning has tested
higher than historical results from Merrill Crowe recovery and at significantly
lower operating costs.
While the leach process typically can take several months for full recovery, the
first 30-45 days gets the largest percentage. Once gold and silver are released
into the cyanide solution from the leach process and collected in the pregnant
solution pond, the direct electrowinning circuit is fed solution continuously
(24hrs), and gold and silver is recovered by the plating process, removed from
the cells, melted into dore in an on-site kiln and shipped directly to the
refinery. During Q1'04 the electrowinning facility will be able to recover
adequate gold and silver to keep pace with leach rates. The results will be
discussed in detail in the 10-Q filing for Q1. In Q2 '04, additional
electrowinning recovery cells will be added to double daily recovery rates.
The Company is in the process of laying out a "Super-Pad", adjacent to pad #1 at
Plum, which will accommodate larger scale daily production and which should hold
over 1 million tons of ore under leach. When this pad is ready, both Billie The
Kid and Lucerne pits will be mined at the same time. This is referred to as "The
Billie The Kid Project" which contains 1.4 - 1.6 million tons of economic gold
and silver ore.
18
A recent discovery at Billie the Kid pit was that previously classified waste
material (grading .008), which contributed to the 1.7:1 stripping ratio, was
readily converted to valuable overliner material and ore (grade .06). Since
there is an ongoing requirement for the overliner material, especially for the
Super-Pad, the waste material will be screened, making overliner , some waste
rock (3"+) and valuable ore. The stripping ratio will be reduced to closer to
1:1 or lower. This will add substantial additional ounces of gold and silver to
the reserves and recovery numbers and enhance project economics appreciably.
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 Hwy 351 and Hwy 50, about
7.8 miles east of Carson city, NV. 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 are not tailings projects; they are virgin sand and
gravels that have never been mined; only explored for gold content. 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. No crushing or chemicals are
used or required. The Company owns a complete RMS Ross gravity plant, including
powerplant, which will commence operation in second quarter 2004 at the rate of
200 tons per hour. Three additional plants will be deployed between 2004 and
2005, which should result in 100,000 ounces of gold to be recovered annually
from the 4 plants. 2004 gold production from a single plant from the placer
claims should reach around 20,000 ounces. Additional plants will be accelerated
from receipt of future finance proceeds.
Acquisitions:
There are three pending acquisitions under Letter of Intent which will add to
corporate profitability once concluded.
19
ITEM 7. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
GoldSpring, INC.
Table of Contents
Report of Independent Certified Public Accountants ................... F - 2
Consolidated Balance Sheet as of December 31, 2003.................... F - 3
Consolidated Statements of Operations
for the years ended December 31, 2003 and 2002..................... F - 4
Consolidated Statements of Changes in Stockholders' Equity
for the year ended December 31, 2003 and 2002...................... F - 5
Consolidated Statements of Cash Flows
for the year ended December 31, 2003 and 2002...................... F - 6
Notes to Consolidated Financial Statements............................ F-7-28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the shareholders and board of directors
GoldSpring, Inc.:
We have audited the accompanying consolidated balance sheet of GoldSpring, Inc.
f/k/a Visator, Inc. (a Nevada corporation) as of December 31, 2003, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for the years ended December 31, 2003 and 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provided a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GoldSpring, Inc. as of December
31, 2003, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States.
The financial statements referred to above have been restated to account for the
acquisition of the mining interests acquired from Ecovery, Inc. as a reverse
merger pursuant to the Plan of Reorganization further described in Note A to the
financial statements.
JEWETT, SCHWARTZ & ASSOCIATES
HOLLYWOOD, Florida,
March 12, 2004 and
June 14, 2004 with respect to Note A
GOLDSPRING, INC. f/k/a VISATOR, INC.
CONSOLIDATED BALANCE SHEET
As of December 31, 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 364,138
Other current assets 48,291
Inventory - Stockpile 54,000
Deferred tax benefit 940,000
----------------------
TOTAL CURRENT ASSETS 1,406,429
----------------------
PLANT, EQUIPMENT AND MINERAL PROPERITES, NET
Mineral Properties 6,249,556
Plant and equipment 850,453
----------------------
TOTAL PROPERTY AND EQUIPMENT 7,100,009
----------------------
OTHER ASSETS:
Reclamation deposit 145,000
Equipment purchase deposit 100,000
----------------------
TOTAL ASSETS $ 8,751,438
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 108,950
Accrued Expenses 49,322
Current portion of long-term debt - related party 400,000
----------------------
TOTAL CURRENT LIABILITIES 558,272
LONG-TERM DEBT - RELATED PARTY, NET OF CURRENT PORTION 600,000
----------------------
TOTAL LIABILITIES 1,158,272
----------------------
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, 172,627,149 shares issued and
outstanding 114,970
Additional Paid-in Capital 6,533,215
Accumulated deficit (3,705,019)
----------------------
TOTAL STOCKHOLDERS' EQUITY 7,593,166
----------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,751,438
======================
The accompanying notes are an integral part of these statements.
F-3
GOLDSPRING, INC. f/k/a VISATOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
2003 2002
---------------------- -------------------
SALES AND OTHER INCOME
Sales $ - $ 1,157
Interest 1,891 -
---------------------- -------------------
1,891 1,157
COSTS AND EXPENSES
Costs applicable to sales - -
Depreciation, depletion and amortization 1,118 13,264
General and administrative 387,557 57,177
Consulting (See Note M) 4,258,235 -
Research and development - 9,645
---------------------- -------------------
4,646,910 80,086
---------------------- -------------------
LOSS BEFORE INCOME TAX BENEFIT (4,645,019) (78,929)
INCOME TAX BENEFIT 940,000 -
---------------------- -------------------
NET LOSS $ (3,705,019) $ (78,929)
====================== ===================
Net loss per common share, basic and diluted $ (0.027) $ (0.003)
====================== ===================
The accompanying notes are an integral part of these statements.
F-4
GoldSpring, INC. f/k/a VISATOR, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
Convertible Redeemable
Preferred Stock Common Stock
150,000 shares authorized 500,000 shares authorized
-------------------------- -------------------------------------------- Common
Per Value Par Value Stock
Shares $100 Shares $.000666 Stock Subscriptions
Issued per share Issued per share Subscribed Receivable
---------- ------------ ------------ ------------ ------------ -----------
BALANCE - DECEMBER 31, 2001 $ -- $ -- 2,207,450 $ 1,472 $ -- $ --
Eleven for one forward stock split 22,074,500 14,702
Shares issued in exchange for
consulting services 726,932 484
Twenty-five to one reverse stock split (24,008,527) (15,990)
Shares issued in exchange for
consulting services 18,500,000 12,321
Shares issued and reacquired as
treasury stock 79,500,000 52,947 52,947 (52,947)
Shares surrendered to treasury and
retired (16,500,000) (10,989)
Shares issuable for cancellation of
Stockholder debt 1,198,726 798
Net loss for the period January 1, 2002
Through December 31, 2002
---------- ------------ ------------ ------------ ------------ -----------
BALANCE - DECEMBER 31, 2002 $ -- $ -- 83,699,081 $ 55,745 $ 52,947 $ (52,947)
Quasi-reorganization
Retirement of common stock (79,500,000) (52,947) (52,947) 52,947
Common stock issued for acquisitions of
plant, equipment and mining interests 91,523,149 60,954
Common stock issued for consulting
services 24,289,000 16,176
Common stock retired (11,735) (8)
Convertible Redeemable Preferred stock
issued for mining claim 46,500 4,650,000
Issuance of common stock 37,000,000 24,642
Forward stock split 15,627,654 10,408
Consulting fees incurred
Net Loss
---------- ------------ ------------ ------------ ------------ -----------
BALANCE - DECEMBER 31, 2003 $ 46,500 $ 4,650,000 172,627,149 $ 114,970 $ -- $ --
========== ============ ============ ============ ============ ===========
Treasury
Stock Additional Treasury Deferred
Subscriptions Paid-In Stock Accumulated Consulting
Payable Capital (at cost) Deficit Fees Total
------------ ------------ --------- ------------ ------------ ------------
BALANCE - DECEMBER 31, 2001 $ -- $ 317,428 $ -- $ (491,844) $ -- $ (172,944)
Eleven for one forward stock split (14,702) --
Shares issued in exchange for
consulting services 22,794 (23,278) --
Twenty-five to one reverse stock split 15,990 --
Shares issued in exchange for
consulting services 18,672,679 (18,685,000) --
Shares issued and reacquired as
treasury stock 20,000 (52,947) (20,000) --
Shares surrendered to treasury and
retired (16,654,011) 16,665,000 --
Shares issuable for cancellation of
Stockholder debt 203,196 203,994
Net loss for the period January 1, 2002
Through December 31, 2002 (78,929) (78,929)
------------ ------------ --------- ------------ ------------ ------------
BALANCE - DECEMBER 31, 2002 $ 20,000 $ 2,510,427 $ (20,000) $ (570,773) $ (2,043,278) $ (47,879)
Quasi-reorganization (570,773) 570,773 --
Retirement of common stock (20,000) 52,947 20,000 --
Common stock issued for acquisitions of
plant, equipment and mining interests 561,702 622,656
Common stock issued for consulting
services 2,103,954 2,120,130
Common stock retired (08)
Convertible Redeemable Preferred stock
issued for mining claim 4,650,000
Issuance of common stock 1,885,366 1,910,008
Forward stock split (10,408) --
Consulting fees incurred 2,043,278 2,043,278
Net Loss (3,705,019) (3,705,019)
------------ ------------ --------- ------------ ------------ ------------
BALANCE - DECEMBER 31, 2003 $ -- $ 6,533,215 $ -- $ (3,705,019) -- $ 7,593,166
============ ============ ========= ============ ============ ============
The accompanying notes are an integral part of these statements.
F-5
GOLDSPRING, INC. f/k/a VISATOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ending December 31,
2003 2002
------------------- ---------------
Cash Flows from Operating Activities:
Net (Loss) $ (3,705,019) $ (78,929)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation 1,118 13,264
Deferred tax benefit (940,000)
Consulting services provided in exchange for common stock 4,138,408
(Increase) Decrease in:
Other Current Assets (148,291) 25,000
Increase (Decrease) in:
Accounts payable 108,951 11,924
Accrued expenses 50,000
------------------- ---------------
3,210,186 50,188
------------------- ---------------
Net Cash Used in Operating Activities (494,833) (28,741)
------------------- ---------------
Investing activities
Reclamation bond deposit (145,000)
Acquisitions of plant, equipment and mineral properties (1,906,355) -
------------------- ---------------
Net cash used in investing activities (2,051,355) -
------------------- ---------------
Financing Activities:
Proceeds from the issuance of common stock 1,910,008 -
Proceeds from the issuance of note payable to a related party 1,000,000 -
Proceeds from the issuance of notes payable to related parties - 31,629
Security Deposits Forfeited - 4,355
------------------- ---------------
Net Cash Flows Provided by Financing Activities 2,910,008 35,984
------------------- ---------------
Net Increase (Decrease) in Cash 363,820 7,243
Cash Beginning of Year 318 (6,925)
------------------- ---------------
Cash End of Period $ 364,138 $ 318
=================== ===============
Supplemental disclosures of non-cash investing and financing activities:
-----------------------------------------------------------------------
Issuance of common stock for the acquisitions of Goldspring, LLC and Ecovat, LLC $ 9,000,000 $ -
=================== ===============
Issuance of preferred stock for the acquisition of the Goldspring mining claims $ 4,650,000 $ -
=================== ===============
Issuance of common stock for the acquisition of water rights $ 41,000 $ -
=================== ===============
Issuance of common stock for the acquisition of Plum Mining, LLC $ 200,000 $ -
=================== ===============
Issuance of common stock for an equipment deposit $ 100,000 $ -
=================== ===============
The accompanying notes are an integral part of these statements.
F-6
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summarized below are the significant accounting policies of GoldSpring, Inc.
(f/k/a STARTCALL.COM, INC.)
The Company: The Company, incorporated in the State of Florida effective October
-----------
19, 1999 (Date of Inception) under the name of Click and Call, Inc. and,
established its corporate offices in Miami, Florida.
On June 7, 2000, the Company filed an amendment to the Articles of Incorporation
effecting a name change to STARTCALL.COM, INC., and also changed its capital
structure as disclosed in Note G to these financial statements.
The Company, prior to and for part of the current year, met the criteria of a
Development Stage Enterprise and presented its financial statements in
accordance with Statements of Financial Accounting Standards ("SFAS") Number 7,
Accounting and Reporting by Development Stage Enterprises. However, during the
current year and pursuing the termination of the agreement with Web Intelligence
Technology APS and ARN Invest APS., as more fully described below, management of
the Company, in the best interest of the shareholders determined that the
Company should pursue other opportunities and no longer engage in development
activities. At December 31, 2002 the Company was no longer in the development
stage.
Nature of the Business: The Company formerly planned on operating as an
----------------------
Application Service Provider, or ASP, and offering real-time interaction
technology as an outsource service. In December 2002 management entered into a
Stock Purchase Agreement and Share Exchange with Web Intelligence Technology ApS
and ARN Invest ApS (both Denmark Corporations) in consideration for the issuance
of 79,500,000 shares of Startcall to ARN. The Company subsequently filed a
Certificate of Amendment in the State of Florida changing its name to Visator,
Inc. Pursuant to the agreement, Antonio Treminio and Sylvio Martini resigned as
officers and directors and Anders Nielsen and Jesper Toft were appointed new
officers and directors of the Company. However, in February 2003 the parties to
this agreement entered into a termination agreement and mutual release in which
the parties agreed to terminate and deem null and void the Stock Purchase
Agreement and Share Exchange. Pursuant to this agreement, ARN Invest returned
the 79,500,000 shares of stock in consideration for the payment of $20,000 by
the Company to Web Intelligence. The Company's Management, upon termination of
this agreement, determined that it was in the best interest of the shareholders
to seek other business opportunities for the Company. This topic is discussed in
more detail below. The financial statements are being presented as though the
termination took place in 2002.
F-7
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Concurrent with the aforementioned termination agreement, management entered
into a purchase agreement with Ecovery, Inc. ("Seller") to acquire GoldSpring
LLC and Ecovat Copper Nevada LLC. These two enterprises made up substantially
all of the assets used by Ecovery in conducting its mining business in Nevada.
The assets included, but were not limited to, the Seller's accounts receivable,
corporate name, trade name, trademarks and logos, mining tenements and any and
all mining claims.
On March 20, 2003, pursuant to the Plan of Reorganization by Exchange the
Company changed its name to GoldSpring, Inc.
On June 12, 2003, as outlined in the Plan and Agreement of Reorganization by
exchange by GoldSpring, Inc., the Company purchased GoldSpring, LLC and Ecovat
Copper Nevada, LLC from Ecovery, Inc. for a total of 90,000,000 restricted
common shares of the Company, 46,500 newly authorized $100.00 Preferred
Convertible, Redeemable shares in full satisfaction of $4,650,000 of production
payments due from the operation of the mining claims and $100,000. These two
LLC's represented substantially all of the mining assets of Ecovery, Inc. The
Plan and Agreement of Reorganization by Exchange agreement was entered into on
March 20, 2003, with an effectuation date of March 11, 2003 and all of the
requirements and conditions of the closing were satisfied as of June 12, 2003.
In accordance with the agreement, the Company in March 2003 cancelled the
previously issued 79,500,000 restricted common shares and reissued 90,000,000
restricted common shares to the Ecovery shareholders.
On November 4, 2003, the Company acquired Plum Mining LLC for $1.4 million. The
purchase price consisted of a $200,000 cash payment, 594,177 restricted common
shares valued at $200,000 and $1,000,000 non interest bearing promissory note
due in equal quarterly installments commencing January 2004 through June 2006
(See Note G).
Restatement of Financial Statements
The Company, pursuant to its recent S-1 filing and after careful consideration
and review, has elected to change the accounting treatment of the transaction
between the Company and Ecovery, Inc. (the "Transaction") and accordingly
restate the financial statements. Originally, the Transaction was accounted for
as a business combination that resulted in recording goodwill, an intangible
asset, of approximately $8.9 million. After further investigation and
consideration, the Company has concluded that the accounting treatment of this
Transaction as a reverse merger more accurately reflects the nature of this
Transaction. The primary factors influencing the accounting treatment change for
this Transaction are: (1) the change in control of the Company based on the
number of GoldSpring shares issued to the Ecovery shareholders in the
transaction; (2) effective the date of the transaction, the sole officer and
director of the Company resigned; and (3) the Company, GoldSpring, Inc. had no
operations prior to the Transaction. The accounting impact of treating this
Transaction as a reverse merger instead of a business combination is an
elimination of $8.9 million of goodwill and a reduction of Additional Paid - in
Capital by the same amount. This change in accounting treatment had no effect on
the Company's results of operations.
F-8
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Principals of Consolidation:
----------------------------
The consolidated financial statements include the accounts of the Corporation
and its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt securities purchased with original
or remaining maturities of three months or less to be cash equivalents. The
carrying value of cash equivalents approximates fair value.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate fair market value because of the short
maturity of those instruments. Furthermore, Notes Payable amounts approximate
the fair value.
Credit Risk
-----------
It is the Company's practice to place its cash equivalents in high quality money
market securities with one major banking institution. Certain amounts of such
funds are not insured by the Federal Deposit Insurance Corporation. However, the
Company considers its credit risk associated with cash and cash equivalents to
be minimal.
Inventories
-----------
In general, costs that are incurred in or benefit the productive process are
inventoried. Inventories are carried at the lower of cost or net realizable
value. The current portion of inventories is determined based on the expected
amounts to be processed within the next twelve months. Inventories not expected
to be processed within the next twelve months are classified as long-term.
The major classifications of inventory are as follows:
F-9
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Stockpiles:
Stockpiles represent coarse ore that has been extracted from the mine and is
available for further processing. Stockpiles are measured by estimating the
number of tons (via truck counts and/or in-pit surveys of the ore before
stockpiling) added and removed from the stockpile, the number of contained
ounces (based on assay data) and the recovery percentage (based on the process
for which the ore is destined). Stockpile tonnages are verified by periodic
surveys. Stockpiles are valued based on mining costs incurred up to the point of
stockpiling the ore, including applicable depreciation depletion, and
amortization relating to mining operations. Value is added to a stockpile based
on the current mining cost per ton and removed at the average cost per
recoverable ounce of gold in the stockpile.
Leach Pads
The recovery of gold from certain oxide ores is best achieved through the heap
leaching process. Under this method, ore is placed on leach pads where it is
permeated with a chemical solution, which dissolves the gold contained in the
ore. The resulting "pregnant" solution is further processed in a leach plant
where the gold in-solution is recovered. For accounting purposes, value is added
to leach pads based on current mining costs, including applicable depreciation
depletion and amortization relating to mining operations. Value is removed from
the leach pad as ounces are recovered in circuit at the leach plant based on the
average cost per recoverable ounce of gold on the leach pad.
The engineering estimates of recoverable gold on the leach pads are calculated
from the quantities of ore placed on the pads (measured tons added to the leach
pads), the grade of ore placed on the leach pads (based on assay data) and a
recovery percentage (based on the leach process and ore type). In general, the
leach pad production cycles project recoveries of approximately 60% to 90% of
the placed recoverable ounces in the first six months of leaching, declining
each 6 month period thereafter until the leaching process is complete.
Although the quantities of recoverable gold placed on the leach pads are
reconciled by comparing the grades of ore placed on pads to the quantities of
gold actually recovered (metallurgical balancing), the nature of the leaching
process inherently limits the ability to precisely monitor inventory levels. As
a result, the metallurgical balancing process is constantly monitored and the
engineering estimates are refined based on actual results over time. The
ultimate recovery of gold from a pad will not be known until the leaching
process is terminated.
The current portion of leach pad inventories is determined based on engineering
estimates of the quantities of gold at the balance sheet date, which are
expected to be recovered during the next twelve months.
F-10
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
In-process
In-process inventories represent materials that are currently in the process of
being converted to a saleable product. Conversion processes vary depending on
the nature of the ore and the specific mining operation, but include mill in-
circuit, leach in-circuit, floatation and column cells, and carbon in-pulp
inventories. In-process material is measured based on assays of the material fed
to process and the projected recoveries of the respective plants. In-process
inventories are valued at the average cost of the material fed to process
attributable to the source material coming from the mine, stockpile or leach pad
plus the in-process conversion costs, including applicable depreciation relating
to the process facility, incurred to that point in the process.
Finished goods
Finished goods inventories represent saleable gold dore or gold bullion and are
valued at the average cost of the respective in-process inventories incurred
prior to the refining process, plus refining costs.
At December 31, 2003, the Company had a stockpile of 10,000 tons valued at
$54,000.
Impairment of Long Lived Assets and Long Lived Assets to be Disposed Of
-----------------------------------------------------------------------
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supersedes both SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and the accounting and reporting provisions of Accounting
Practice Bulletin ("APB") Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of
a segment of a business (as previously defined in that opinion).
F-11
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
This statement establishes the accounting model for long-lived assets to be
disposed of by sale and applies to all long-lived assets, including discontinued
operations. This statement requires those long-lived assets be measured at the
lower of carrying amount or fair value less cost to sell, whether reported in
continuing operations or discontinued operations. Therefore, discontinued
operations will no longer be measured at net realizable value or include amounts
for operating losses that have not yet occurred. The Company adopted SFAS No.
144 in the fiscal year ending October 31, 2002.
SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for recognizing
and measuring impairment losses on long-lived assets held for use and long-lived
assets to be disposed of by sale, while also resolving significant
implementation issues associated with SFAS No. 121. The Company adopted SFAS No.
144 in its evaluation of the fair value of certain assets as described in Notes
2 and 3.
Intangible Assets -- The Company accounts for intangible assets in accordance
-----------------
with SFAS 142. Generally, intangible assets with indefinite lives, and goodwill,
are no longer amortized; they are carried at lower of cost or market and subject
to annual impairment evaluation, or interim impairment evaluation if an interim
triggering event occurs, using a new fair market value method. Intangible assets
with finite lives are amortized over those lives, with no stipulated maximum,
and an impairment test is performed only when a triggering event occurs. Such
assets are amortized on a straight-line basis over the estimated useful life of
the asset. Intangible assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the fair value is less than the carrying amount of the asset, an
impairment loss is then recognized.
Revenue Recognition
-------------------
Revenue is recognized in accordance with the U.S. Securities and Exchange
Commission Staff Accounting Bulletin No. 101, such that revenue is recognized
when the price is determinable and upon delivery and transfer of title of
third-party refined gold or other metal to the customer.
F-12
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Deferred Stripping Costs
------------------------
In general, mining costs are charged to Costs applicable to sales as incurred.
However, at open-pit mines, which have diverse grades and waste-to-ore ratios
over the mine life, the Company defers and amortizes certain mining costs on a
units-of-production basis over the life of the mine. These mining costs, which
are commonly referred to as "deferred stripping" costs, are incurred in mining
activities that are normally associated with the removal of waste rock. The
deferred stripping accounting method is generally accepted in the mining
industry where mining operations have diverse grades and waste-to-ore ratios;
however industry practice does vary. Deferred stripping matches the costs of
production with the sale of such production at the Company's operations where it
is employed, by assigning each ounce of gold with an equivalent amount of waste
removal cost. If the company were to expense stripping costs as incurred, there
may be greater volatility in the Company's period-to-period operations.
At the Company's gold mining operations, deferred stripping costs are charged to
Costs applicable to sales as gold is produced and sold using the
units-of-production method based on estimated recoverable ounces of proven and
probable gold reserves, using a stripping ration calculated as the ratio of
total tons to be moved to total proven and probable ore reserves, and result in
the recognition of the costs of waste removal activities over the life of the
mine as gold is produced and sold. The application of the accounting and
deferred stripping costs and resulting differences in timing between costs
deferred and amortization generally results in an asset on the balance sheet
(deferred stripping costs), although a liability will arise if amortization
exceeds costs deferred.
At December 31, 2003 the Company has not incurred any deferred stripping costs.
Stock Issued For Services -- The value of stock issued for services is based on
-------------------------
market value of the Company's common stock at the date of issue or management's
estimate of the fair value of the services received, whichever is more reliably
measurable.
Research and Development Costs: Generally accepted accounting principles state
------------------------------
that costs that provide no discernible future benefits, or allocating costs on
the basis of association with revenues or among several accounting periods that
serve no useful purpose, should be charged to expense in the period occurred.
SFAS No. 2 "Accounting for Research and Development Costs" requires that certain
costs be charged to current operations including, but not limited to: salaries
and benefits; contract labor; consulting and professional fees; depreciation;
repairs and maintenance on operational assets used in the production of
prototypes; testing and modifying product and service capabilities and design;
and, other similar costs.
F-13
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Property and Equipment: Property and equipment are stated at cost. Depreciation
----------------------
and amortization are provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. When
applicable, leasehold improvements and capital leases are amortized over the
lives of respective leases, or the service lives of the improvements, whichever
is less.
YEARS
-----
Computer equipment, peripherals and software 2-3
Office equipment 3-5
Furniture and fixtures 5-7
Expenditures for renewals and improvements that significantly extend the useful
life of an asset are capitalized. The costs of software used in the business
operations are capitalized and amortized over their expected useful lives.
Expenditures for maintenance and repairs are charged to operations when
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are removed from the accounts and any gain or loss is
recognized at such time. The straight-line method of depreciation is used for
financial reporting purposes.
Mineral Properties
------------------
Acquisition cost and exploration and development expenditures incurred on
non-producing mineral properties identified as having development potential, are
deferred until the viability of the property is determined.
Option payments received are treated as a recovery mineral property costs.
Option payments are at the discretion of the optionee and accordingly are
accounted for on a cash basis or when receipt is reasonably assured.
Holding costs to maintain a property on a care and maintenance basis are expense
as incurred.
F-14
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Management reviews the carrying value of the Corporation's interest in each
property on a quarterly basis. Where information and conditions suggest
impairment, these properties are written down to net recoverable amount, based
on estimated future cash flows. Management's estimates of gold price,
recoverable proven and probable reserves, operating capital and reclamation
costs are subject to risks and uncertainties affecting the recoverability of the
Corporation's investment in property, plant and equipment. Although management
has made its best estimate of these factors based on current conditions, it is
possible that changes could occur in the near term that could adversely affect
management's estimate of net cash flows expected to be generated from its
operating properties and the need for possible asset impairment write-downs.
Where estimates of future net cash flows are not available and where other
conditions suggest impairment, management assesses if carrying value can be
recovered.
Property acquisition and development costs are carried at cost less accumulated
amortization and write-downs. Amortization during production is provided on the
units-of production method based on proven and probable reserves.
Provision for Future Reclamation and Closure Costs
--------------------------------------------------
Minimum standards for mine site reclamation and closure have been established by
various government agencies that affect certain operations of the Corporation.
The Corporation calculates its estimates of reclamation liability based on
current laws and regulations and the expected future costs to be incurred in
reclaiming, restoring and closing its operating mine sites. It is possible that
the Corporation's estimate of its reclamation, site restoration and closure
liability could change in the near term due to possible changes in laws and
regulations and changes in cost estimates.
During mine production, a provision for reclamation and mine closure is charged
to earnings over the mine life on a units-of-production basis.
F-15
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Recent Authoritative Pronouncements
-----------------------------------
The FASB has recently issued several new accounting pronouncements which may
apply to the Company.
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of". Though it retains the basic
requirements of SFAS 121 regarding when and how to measure an impairment loss,
SFAS No. 144 provides additional implementation guidance. SFAS 144 excludes
goodwill and intangibles not being amortized among other exclusions. SFAS No.
144 also supercedes the provisions of APB Opinion No. 30, "Reporting the Results
of Operations," pertaining to discontinued operations. Separate reporting of a
discontinued operation is still required, but SFAS No. 144 expands the
presentation to include a component of an entity, rather than strictly a
business segment as defined in SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 144 also eliminates the current
exemption to consolidation when control over a subsidiary is likely to be
temporary. This statement is effective for all fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 144 did not have a material effect
on the Company's financial position, results of operations or liquidity.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections," updates, clarifies, and
simplifies existing accounting pronouncements. SFAS No. 145 rescinds SFAS 4,
which required all gains and losses from extinguishment of debt to be aggregated
and, if material, classified as an extraordinary item, net of related income tax
effect. As a result, the criteria in APB Opinion 30 will now be used to classify
those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer
necessary because SFAS No. 4 has been rescinded. SFAS No. 44 was issued to
establish accounting requirements for the effects of transition to the
provisions of the motor Carrier Act of 1980.
SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that
have economic effects similar to sale-leaseback transactions is accounted for in
the same manner as sale-leaseback transactions. This amendment is consistent
with FASB's goal requiring similar accounting treatment for transaction that
have similar economic effects. This statement is effective for fiscal years
beginning after May 15, 2002. The adoption of SFAS No. 145 is not expected to
have a material impact on the Company's financial position, results of
operations or liquidity.
F-16
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Statement No. 146, "Accounting for Exit or Disposal Activities" addresses the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities that are currently accounted for pursuant to the
guidelines set forth in Emerging Issues Task Force ("EITF") No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to exit an
Activity (including Certain Cost Incurred in a Restructuring)," cost related to
terminating a contract that is not a capital lease and one-time benefit
arrangements received by employees who are involuntarily terminated - nullifying
the guidance under EITF No. 94-3. Under SFAS No. 146, the cost associated with
an exit or disposal activity is recognized in the periods in which it is
incurred rather than at the date the Company committed to the exit plan. This
statement is effective for exit or disposal activities initiated after December
31, 2002 with earlier application encouraged. The adoption of SFAS No. 146 is
not expected to have a material impact on the Company's financial position,
results of operations or liquidity.
SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and
Disclosure", amends SFAS No. 123, "Accounting for Stock-Based Compensation." In
response to a growing number of companies announcing plans to record expenses
for the fair value of stock options, SFAS No. 148 provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The Statement also improves the timeliness of those
disclosures by requiring that this information be included in interim as well as
annual financial statements. In the past, companies were required to make pro
forma disclosures only in annual financial statements. The transition guidance
and annual disclosure provisions of Statement 148 are effective for fiscal years
ending after December 15, 2002, with earlier application permitted in certain
circumstances. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002.
The Company adopted the disclosure provisions of SFAS No. 148 for the year ended
December 31, 2002, but will continue to use the method under APB Opinion No. 25
in accounting for stock options. The adoption of the disclosure provisions of
SFAS No. 148 did not have a material impact on the Company's financial position,
results of operations or liquidity.
In May 2003, the FASB issued Statement No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
Statement requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity.
F-17
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
The NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Company is currently classifying financial instruments within the scope of this
Statement in accordance with this Statement. This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. Management does not believe that this Statement will have a material
impact on the Company's financial statements.
Earnings Per Common Share: In calculating earnings per common share, basic
-------------------------
earnings per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding, excluding the diluted effects of
stock options. Currently, the Company has no stock options outstanding.
Use of Estimates: In preparing financial statements in conformity with generally
----------------
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenditures during the reported periods. Actual
results could differ materially from those estimates. Estimates may include, but
not be limited to, those pertaining to the estimated useful lives of property
and equipment and software, determining the estimated net realizable value of
receivables, and the realization of deferred tax assets.
Stock-Based Compensation: The Company will account for stock-based compensation
------------------------
using the intrinsic vale method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". Compensation costs
for stock options, if any, are measured as the excess of the quoted market price
of the Company's stock at the date of grant over the amount the employee must
pay to acquire the stock. Restricted stock is recorded as compensation costs
over the requisite vesting periods based on the market value on the date of
grant. Compensation costs for shares issued under performance share plans are
recorded based upon the current market value of the Company's stock at the end
of each period.
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", established accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans. The Company is electing to use APB Opinion No. 25 as its
method of accounting and is adopting the disclosure requirements of SFAS No.
123.
The fair value of each option grant is to be estimated on the date of grant
using the Black-Scholes option pricing model and certain weighted-average
assumptions. As of December 31, 2003 no options have been granted.
F-18
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Risks and Uncertainties: Management regularly evaluates risks and uncertainties
-----------------------
and, when probable that a loss or expense will be incurred, a charge to current
period operations is recorded.
Income Taxes: The Company recognizes deferred tax assets and liabilities based
------------
on differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be
recovered. The Company provides a valuation allowance for deferred tax assets
for which it does not consider realization of such assets to be more likely than
not.
NOTE B - OTHER CURRENT ASSETS
At December 31, 2003, other current assets include the following:
Other Current Assets:
Prepaid Consulting 25,000
Acquisition Deposit 10,000
Prepaid Rent 7,000
Other 6,291
----------------
Total $ 48,291
================
F-19
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE C - MINERAL PROPERTIES
Accumulated
Amortization
and
Cost Write-downs Net
--------------------- ------------------- ---------------------
MINERAL PROPERTIES:
Placer Gold Properties $ 4,750,000 $ - $ 4,750,000
Big Mike Copper Mine 119,138 - 119,138
Plum Gold Properties 1,290,418 - 1,290,418
Water rights 90,000 - 90,000
--------------------- ------------------- ---------------------
$ 6,249,556 $ - $ 6,249,556
===================== =================== =====================
December 31, 2003
--------------------------------------------------------------------------------
Acquisition Cost Exploration / Permit Cost Net
----------------------- --------------------------- ---------------------
MINERAL PROPERTIES:
Placer Gold Properties $ 4,750,000 $ - $ 4,750,000
Big Mike Copper Mine 119,138 - 119,138
Plum Gold Properties 1,290,418 - 1,290,418
Water rights 90,000 - 90,000
----------------------- --------------------------- ---------------------
$ 6,249,556 $ - $ 6,249,556
======================= =========================== =====================
F-20
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE C - MINERAL PROPERTIES - continued
Placer Gold Properties and Big Mike Copper Mine
In March 2003 the Company, pursuant to a Plan and Agreement of Reorganization,
acquired GoldSpring LLC (the Placer Gold Properties) and Ecovat Copper Nevada
LLC (the Big Mike Copper Mine). Total consideration paid for the Placer Gold
mineral properties and Big Mike Copper Mine was $4,750,000 consisting of 46,500
shares of $100 preferred convertible/redeemable shares plus $100,000 in cash and
$119,138 respectively.
The Company will pay a 2% net smelter royalty for gold production at the Placer
Gold Properties once the maximum production obligation of $4,650,000 to the
shareholder of the Preferred stock has been satisfied.
Plum Gold Properties
The Plum Gold Properties were acquired as part of the acquisition of Plum Mining
Company, LLC in November of 2003, for a total of $1,400,000 that consisted of a
cash payment of $200,000, 549,177 restricted common shares valued at $200,000
and a promissory note payable for $1,000,000. (See Note G)
Upon commencement of production at the Billie the Kid and Lucerne properties,
the Company shall pay a royalty to the lessor totaling the greater of $500 per
month or a percentage of the Net Smelter Returns (The percentage varies based on
the price of gold - 3% if gold is less than $400 per ounce, 4% if gold is in the
$400's per ounce and 5% if gold is $500 or greater per ounce.).
NOTE D - PLANT AND EQUIPMENT
At December 31, plant and equipment consists of the following:
Accumulated
Depreciation
and
Cost Write-Downs Net
------------------ ------------------ -------------------
Gold Properties $ 845,953 $ - $ 845,953
Corporate 4,500 - 4,500
------------------ ------------------ -------------------
$ 850,453 $ - $ 850,453
================== ================== ===================
F-21
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE E - ACCRUED RECLAMATION AND CLOSURE COSTS
The Nevada Revised Statutes and regulations promulgated there under by the
Nevada State Environmental Commission and Division of Environmental Protection
requires surety to be posted for mining projects to assure the Company will
leave the site safe, stable, and capable of providing for a productive
post-mining land use. Pursuant to the approved Reclamation Plan for Billie the
Kid, the Company posted a surety in the amount of $321,000, of which $145,000
came in the form of a cash deposit and the balance was secured from a surety
agent.
At December 31, 2003 the Company has not accrued any reclamation and closure
costs.
NOTE F - NOTE PAYABLE - RELATED PARTY
Non-interest bearing note payable to a shareholder
of the Company; payable in quarterly payments
of $100,000 through June 2006. $ 1,000,000
Less current portion (400,000)
---------------------
$ 600,000
=====================
F-22
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE G - STOCKHOLDERS' EQUITY
On September 27, 2002, the stockholders approved an amendment to the Company's
Articles of Incorporation pursuant to which the Company will increase the
authorized shares of common stock from 50,000,000 to 150,000,000.
On February 4, 2002, the Board of Directors approved an 11-1 forward split of
the Company's outstanding stock. At the time of the stock split outstanding
common shares totaling 2,207,450 was exchanged for 24,281,950 common shares.
In October 2002, the Company issued and aggregate of 726,932 shares for
consulting services to be rendered. The Company valued these common shares at
the fair market value on the issuance date of $23,278, which will be amortized
over the service period.
On December 6, 2002, the Board of Directors approved a 25-1 reverse split of the
Company's outstanding stock. At the time of the stock split, outstanding common
shares totaling 25,033,882 were exchanged for 1,001,335 common shares.
During December 2002, the Company entered into consulting agreements for
investor relations and business advisory services to be rendered. As
compensation for these services the Company issued an aggregate of 18,500,000
shares of common stock to these consultants. The Company valued these common
shares at the fair market value on the contract date of $18,685,000. Concurrent
with the termination agreement previously described in Note A, 16,500,000 of
these shares were surrendered to treasury and retired which was recorded as of
December 31, 2002 at the issuance cost of $1.01 per share (the fair market value
on the issuance date) aggregating $16,665,000 that also was recorded as a
reduction to deferred consulting fees and additional paid-in capital. The
consulting services were realized during 2003.
In March 2003, the Company amended its articles of incorporation thereby
increasing the authorized number of common shares to 500,000,000.
In March 2003, prior to the Plan and Agreement of Reorganization by exchange by
GoldSpring, Inc., the Company entered into three consulting agreements whereby
the Company issued an aggregate of 24,000,000 shares of stock, with an aggregate
offering price of $2,080,000 (fair market value at the time of the contracts) in
exchange for consulting services. Such consulting services were expensed during
2003.
In August 2003, the Company issued 89,000 shares of its common stock valued at
$.17 per share, with an aggregate price of $15,130 for consulting services.
F-23
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE G - STOCKHOLDERS' EQUITY - continued
In August 2003, the Company issued 2,000,000 shares of its common stock valued
at $.125 per share, with an aggregate price of $250,000. 200,000 shares were
issued for geological services and 800,000 shares were issued for deposit on
equipment to be purchased and 1,000,000 shares were issued for cash proceeds of
$125,000.
In September 2003, the Company issued 36,000,000 shares its common stock at a
price of $0.0496 per share, for an aggregate offering of $1,785,008.
Preferred Stock
---------------
In July 2003 the Company issued 46,500 shares of convertible preferred stock
valued at $100.00 per share, for an aggregate amount of $4,650,000 in exchange
for the Spring Valley and Gold Canyon placer gold claims.
The preferred stock is redeemable at face value ($100) plus a 3% coupon, both to
be paid from 20% of the net operating proceeds from production revenues derived
from gold, silver, copper and sand and gravel sales from the Spring Valley or
Gold Canyon placer gold claims. Redemption shall commence on the earlier of the
6th month anniversary of issuance, provided production has commenced and revenue
is available for distribution, or 3 months after the commencement of production
and shall be payable quarterly in arrears.
The preferred shares are convertible after the first anniversary of issue at a
price determined by average market value for the 30 days prior to conversion,
less 15%. Conversion is further limited to a maximum of 2 quarterly redemption
payments at a time with 30 days prior notice in advance of the next payment
date, unless otherwise mutually agreed in writing. Upon conversion shares shall
be restricted per section 144.
Quasi reorganization
--------------------
As of June 30, 2003, the Company had disposed of all of its operating assets and
was in the process of settling all of its outstanding liabilities and seeking a
merger partner. Accordingly, the Company has changed its business focus. The
Board of Directors elected to restate the balance sheet as a
"quasi-reorganization". In a quasi-reorganization, the deficit in retained
earnings is eliminated by charging paid-in capital. In effect, this gives the
balance sheet a "fresh-start". Beginning July 1, 2003 and continuing forward,
the Company will be crediting net income and charging net losses to retained
earnings.
F-24
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE G - STOCKHOLDERS' EQUITY - continued
Cancellation of Shareholder Debt:
---------------------------------
In March 2003, in consideration for the issuance of 1,198,726 restricted shares
of common stock, certain shareholders of the Company canceled all of the debt
and promissory notes and accrued interest owed to them by the Company. At
December 31, 2002, these shares were recorded in stockholders equity as shares
issued at an aggregate amount of $203,897.
Stock dividend
--------------
In September 2003, the Board of Directors approved a 10 for 11 forward split of
the Company's outstanding common stock. At the time of the stock split
outstanding common shares totaling 156,276,346 was exchanged for 171,904,000
common shares.
NOTE H - STOCK BASED COMPENSATION
The Company will account for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", under which no compensation cost for stock options
is recognized for stock option awards granted at or above fair market value. If
the compensation expense for the Company's three stock-based plans are
determined based upon fair values at the grant dates for awards under these
plans in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net earnings and earnings per share will be reduced
to pro forma amounts to be disclosed in the financial statements for the
applicable periods.
As of December 31, 2003, the Company has not granted any stock options or
rights.
NOTE I- EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Statement of Financial Accounting Standards No 128, "Earnings Per Share,"
requires two presentations of earnings (loss) per share - "basic" and "diluted."
Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted-average number of common shares
(the denominator) for the period. The computation of diluted earnings (loss) per
share is similar to basic earning per share, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued. The
numerator in calculating both basic and diluted earnings (loss) per share for
each period is the reported net income (loss). The denominator is based on the
following weighted-average number of common shares outstanding for each of the
respective periods:
December 31, 2003 December 31, 2002
--------------------------- ------------------------
135,131,484 4,228,181
=========== =========
F-25
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
A difference between basic and diluted weighted-average common shares arises
from the assumption that dilutive stock options outstanding, if any, are
exercised. Stock options and warrants are not included in the diluted earnings
(loss) per share calculation when the exercise price is greater than the average
market price. The Company did not have any stock options or warrants outstanding
as of December 31, 2003.
NOTE J - INCOME TAXES
The Company did not provide any current or deferred US federal or state income
tax provision or benefit through the year ended December 31, 2002 because it has
experienced operating losses since inception. The Company has provided a full
valuation allowance on the deferred tax asset, consisting primarily of a net
operating loss, because of the uncertainty regarding its realizability through
December 31, 2002.
At December 31, 2002 the Company had a net operating loss carryforward of
approximately $570,000; this amount has been reclassified to additional paid-in
capital under the quasi-reorganization previously described. At December 31,
2003 the Company had a net operating loss of approximately $4,700,000.
Utilization of this net operating loss, which begins to expire in year 2023, may
be subject to certain limitations under section 382 of the Internal Revenue Code
of 1986, as amended, and other limitations under state tax laws. Due to the
change in the nature of the Company's operations and the expected likelihood
that the net operating loss carryforward may be utilized, management has elected
to recognize a deferred tax benefit of $1,880,000 offset by a valuation
allowance of $940,000.
The components of the income tax benefit for the year ended December 31, 2003
were as follows:
Current $ -
Deferred:
Federal 940,000
State -
-----------------
$ 940,000
=================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets at December 31, 2003 are approximately as
follows:
F-26
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
2003
-----------------
Net operating loss carryforward $ 1,880,000
Valuation allowance for deferred tax assets. (940,000)
-----------------
Net deferred tax assets $ 940,000
=================
NOTE K - SUBSEQUENT EVENTS
On February 10, 2004, the Company announced a Restricted Private Placement for
accredited private investors for a maximum of $500,000 (66 2/3 units). Units of
$7,500 consisting of 10,000 shares of the Company's 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 purchase of the shares at the same price paid by the
investor and the investor 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 remained open for 10 business days on a first come basis
and closed on February 23, 2004.
On March 12, 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 will also receive
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.
F-27
GOLDSPRING, INC. f/k/a VISATOR, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2003 and 2002
NOTE L - CONSULTING FEES
Consulting Fees provided in Exchange for Common Stock $ 4,138,408
Other 119,827
----------------------
Total Consulting Expenses $ 4,258,235
======================
Prior to the Plan and Agreement of Reorganization by exchange by GoldSpring,
Inc., the Company had entered into various contractual arrangements whereby the
Company would issue common stock as consideration for investor relations,
business advisory and related consulting services. A total of 26,726,932 common
shares valued at $4,123,278 were issued for consulting services during the
period February 2002 through March 11, 2003 (See Note G for further details).
The entire amount was recorded as an expense in 2003.
F-28
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Our accountant is Jewett Schwartz & Associates of Florida. We do not presently
intend to change accountants. At no time has there been any disagreements with
such accountant regarding any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Our principal executive officer and principal financial officer evaluated our
disclosure controls and procedures (as defined in rule 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended) as of a date within 90
days before the filing of this annual report (the Evaluation Date). Based on
that evaluation, our principal executive officer and principal financial officer
concluded that, as of the Evaluation Date, the disclosure controls and
procedures in place were adequate to ensure that information required to be
disclosed by us, including our consolidated subsidiaries, in reports that we
file or submit under the Exchange Act, is recorded, processed, summarized and
reported on a timely basis in accordance with applicable rules and regulations.
Although our principal executive officer and principal financial officer
believes our existing disclosure controls and procedures are adequate to enable
us to comply with our disclosure obligations, we intend to formalize and
document the procedures already in place and establish a disclosure committee.
Changes in internal controls
We have not made any significant changes to our internal controls subsequent to
the Evaluation Date. We have not identified any significant deficiencies or
material weaknesses or other factors that could significantly affect these
controls, and therefore, no corrective action was taken.
ITEM 9 - DIRECTORS, EXECUTIVES
OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT
(a) Directors and Executive Officers
1st Year
Name Age Position With Company
---- --- -------- ------------
John Francis Cook 64 President, 2003
Robert Thomas Faber, CPA 44 Secretary, CFO 2003
Leslie Lawrence Cahan 78 Director 2003
Tony E. Applebaum, EA 38 Director, Audit 2004
Committee Chairman
Purnendu K. Rana Medhi 67 Director, Audit 2004
Committee Member
Stephen Bruce Parent 59 Chief Executive Officer 2004
20
Business Experience
JOHN F. COOK, P. ENG. - PRESIDENT AND DIRECTOR: John is a mining engineer, with
42 years of experience that has covered all aspects of the mining industry at
all levels in many parts of the world. For the past twenty years this experience
has been at a very senior level, including General Management and Corporate
Affairs. For the past eight years John has been involved with Junior exploration
and development companies after many years of working for much larger companies.
Currently, he is Chairman of Anaconda Gold Corporation and of Castlerock
Resources. These are both TSX Venture exchange companies with mining development
interests in Canada USA and Mexico. He is a director of GLR Resources, Inc. and
Wolfden Resources, Inc. both TSX companies with exploration and development
interests in Canada. John runs Tormin Resources Limited (his own private
company) and has recently been involved in the development of a gravity gold
extraction plant in eastern Canada. Prior to getting involved with junior
mining/exploration companies, John has worked in senior positions with Navan
Resources, Goldcorp and Lac Minerals. This followed early mining experience in
southern Africa and a stint as a consultant in UK and Canada.
ROBERT T. FABER, CPA, - CHIEF FINANCIAL OFFICER AND DIRECTOR: Rob is a Financial
Executive with 20 years of diverse senior financial management, business and
acquisition experience, including substantial international experience. Rob
previously served as Vice President of United Site Services, Inc. (Sun
Services), a $60 million privately held service company that was formed in 2000.
There, he strengthened organizational structure, improved cash management, and
directed the acquisition and integration process. Additionally, Rob served as
the Assistant Regional Controller with Allied Waste Industries, where his team
was responsible for management of a $1.2 billion multi-state business operation.
Prior to Allied, Rob spent 17 years with Waste Management, Inc., a $12 billion
publicly traded environmental services company, during which time he served in
senior positions such as Director of Finance in London, England, leading a $1.2
billion international operating group. Rob has personally been involved in over
100 separate acquisitions ranging from $500,000 to $250 million and was
responsible for directing all due diligence, financial valuations and
integrations. He has extensive experience in SEC reporting, investor relations,
capital acquisitions, and system development.
LES CAHAN - DIRECTOR: Les has been directly involved, for over thirty years, in
all aspects of exploration and production of mining, and oil & gas assets. Les
acquired the Gold Canyon and Spring Valley mining claims, as well as carrying
out the first geophysical, drilling and trenching exploration activities before
it was acquired by Ecovery, Inc., and subsequently, GoldSpring, Inc. Les owned
and operated Western Land and Minerals Ltd., which specialized in gas and oil
production. He was also a founding partner of Nanisivic, on Baffin Island, one
of the world's largest zinc mines.
TONY APPLEBAUM, EA: Tony Applebaum is Federally licensed in IRS tax accounting
and tax client representation and has had a private practice since 1997. Prior
to this, Mr. Applebaum worked in the accounting and financial services industry
as controller and VP Finance for several start-up and major ongoing successful
corporations. He is familiar with public company reporting requirements,
policies and procedures. In addition, he has extensive experience in advanced
financial analysis including cash flows,
21
projections and forecasts. Tony brings another layer of solid financial
expertise and credibility to GoldSpring as a member of its Audit Committee.
P.K. RANA MEDHI, MINING ENGINEER: P.K. Rana Medhi is a registered engineering
and mining geologist with 40 years of international mining experience. Medhi is
also a Principal of Mineral Evaluation Network- a worldwide cooperative of
economic geologists and mining professionals that provides mineral resources
expertise and investment assistance to its clients. Medhi spent 28 years with
Cyprus Amax Minerals Company. While at Cyprus, Medhi was the senior operations
manager for 15 years. He is established in business development and alliance,
exploration and mine development, mine evaluation, as well as mine operations
and permitting. Medhi's extensive international mining experience has enabled
him to successfully lead projects from the exploration phase to start-up,
commercial production and post closure mining activities.
STEVE PARENT - FOUNDER AND MANAGER: Steve has worked in the mining industry for
over twenty years. He has managed the exploration and development operations of
several Junior Public mining companies in the United States and Canada. Steve
has been responsible for leading mining projects from the conceptual stage
through feasibility. Before founding GoldSpring, Inc., Steve served as CEO of
Ecovery, Inc., a private company with two significant mining projects: The Big
Mike Copper Project and the GoldSpring Placer Project both now included in
GoldSpring, Inc. Nevada.
(b) Significant Employees: None
Compliance with Section 16 (a) of the Securities and Exchange Act of 1934:
We did not file Form 5's for our fiscal year ending December 31, 2003.
ITEM 10 - EXECUTIVE COMPENSATION
(a) During the year ended December 31, 2003, John Francis Cook, President
and CEO did not receive any compensation from Company.
The Company had no executive officers whose total salary and bonus
exceeded $100,000 for the year ended December 31, 2003.
(b) Summary Compensation Table for named executive officers for each of
the last three fiscal years:
For the year ended December 31, 2001 - No salaries paid and no grants
of options or SAR grants given
For the year ended December 31, 2002 - No salaries paid and no grants
of options or SAR grants given
For the year ended December 31, 2003:
Name and Position Salary Bonus Deferred Salary
----------------- ------ ---- ---------------
John Francis Cook,
President 0 0 0
Robert T. Faber, CFO $35,000 0 0
Stephen Bruce Parent,
Manager-
Plum Mining, LLC;
GoldSpring, LLC;
Ecovat, LLC $35,000 0 0
22
(c) Option/SAR Grants in the Last Fiscal Year (Individual Grants): None
(d) Aggregated Option/SAR Exercises in the Last Fiscal Year: None
(e) Long-Term Incentive Plans - Awards in Last Fiscal Year: None
(f) Compensation of Directors:
1. Standard Arrangements: The members of the Company's Board of
Directors are reimbursed for actual expenses incurred in
attending Board meetings. They do not receive compensation for
their services as Directors of the Company.
2. Purnendu K. Rana Medhi, Director and Audit Committee Member, has
a Consulting Services Agreement with the Company. Mr. Medhi
receives a monthly retainer of $3,000 for 40 hours of
professional mining consulting services. Additional services to
the Company are compensated at $75 per hour. The Services
Agreement also provides Mr. Medhi a quarterly grant of 12,500
shares of restricted common stock in the Company for professional
services he provides for the Company.
(g) Employment Contracts and Termination of Employment and
Change-in-Control Agreements:
With the exception of the Consulting Services Agreement for Purnendu
K. Rana Medhi described in Item 10(f) above, the Company's Officers
and Directors do not have employment agreements or agreements relating
to termination of employment or change-in-control.
(h) No stock options or SARs have been awarded by the Company
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the 172,627,149 shares of Common Stock of the Company as of the
date of December 31, 2003 by (i) each person who is known by the Company to be
the beneficial owner of more than five percent (5%) of the issued and
outstanding shares of common stock, (ii) each of the Company's directors and
executive officers, and (iii) all directors and officers as a group.
------------ -------------------------------------- ------------------- -------------- ---------
Title of Name and Address(1) of Beneficial Position Number of Percent
Class Owner Shares of Class
------------ -------------------------------------- ------------------- -------------- ---------
Common Steve Parent Founder 45,952,750 26.6%
------------ -------------------------------------- ------------------- -------------- ---------
Common Jubilee Investment Trust N/A 39,600,000 22.9%
------------ -------------------------------------- ------------------- -------------- ---------
Common Les Cahan Director 9,000,000 5.2%
------------ -------------------------------------- ------------------- -------------- ---------
Common Ron Haswell Consultant 8,689,500 5.0%
------------ -------------------------------------- ------------------- -------------- ---------
Common John Cook Director, President 6,750,000 3.9%
------------ -------------------------------------- ------------------- -------------- ---------
Common Robert T. Faber Director, CFO 1,980,000 1.1%
------------ -------------------------------------- ------------------- -------------- ---------
------------ -------------------------------------- ------------------- -------------- ---------
Common All directors and officers as a group 72,366,750 41.8%
------------ -------------------------------------- ------------------- -------------- ---------
(1) The address of the executive officers and directors is that of the Company:
8585 E. Hartford Dr., Suite 400, Scottsdale, AZ 85255
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ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
None
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits:
None
(b) Reports of Form 8-K filed in fourth quarter of the fiscal year:
None
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
For the Company's fiscal year ended December 31, 2003, we were billed
approximately $ 15,000 for professional services rendered for the audit of our
financial statements. We also were billed approximately $9,000 for the review of
financial statements included in our periodic and other reports filed with the
Securities and Exchange Commission for our year ended December 31, 2003.
Tax Fees
For the Company's fiscal year ended December 31, 2003, we were not billed for
professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
The Company did not incur any other fees related to services rendered by our
principal accountant for the fiscal year ended December 31, 2003.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 23rd day of June,
2004.
GoldSpring, Inc.
By: /s/ Robert Faber
------------------------
Robert Faber
Chief Financial Officer
and Secretary
Name Title Date
---- ----- ----
/s/ Steve Parent Chief Executive Officer June 23, 2004
------------------------
Steve Parent
/s/ John Cook President and Director June 23, 2004
------------------------
John Cook
/s/ Robert Faber Chief Financial Officer June 23, 2004
------------------------ and Secretary
Robert Faber
/s/ Leslie Cahan Director June 23, 2004
------------------------
Leslie Cahan
/s/ Pernendu K. Rana Medhi Director June 23, 2004
------------------------
Pernendu K. Rana Medhi
/s/ Tony Applebaum Director June 23, 2004
------------------------
Tony Applebaum
24