Summary of GOLDSPRING INC - Yahoo! Finance

Item 2. Management's Discussion and Analysis or Plan of Operations

The following discussion provides information that we believe is relevant to an assessment and understanding of the consolidated results of operations and financial condition of our company. It should be read in conjunction with the Consolidated Financial Statements and accompanying Notes also included in this 10-Q.

The following discussion addresses matters we consider important for an understanding of our financial condition and results of operations for the three months ended March 31, 2009, as well as our future results.

Overview

GoldSpring, Inc. (Company) is a North American precious metals mining company, focused in Nevada, with an extensive land position of 334 claims that controls 4,300 acres comprised of 590 acres of patented claims (private lands) and 3,710 acres unpatented claims subject to various underlying royalties, in the historic Silver City and Comstock mining districts, Storey County and Lyon County, Nevada, USA. The Company was formed in mid-2003, and during that year acquired two properties in the Comstock Lode District. The Company deployed several million dollars securing permits, building an infrastructure and bringing the exploration project into test mining production within a year of its acquisition.

The Company, in 2005, began consolidating the Comstock Lode District by acquiring additional properties. The Company successfully expanded our footprint and creating additional opportunities for exploration and mining. The Company's objectives are to create reserves through exploration, resume mining, optimize its production, and maximize shareholder value.

From September 2004 through 2006 the Company operated its Plum Mine open pit gold and silver operation located on the patented Billie the Kid claims in the Comstock District. During this period, the Plum Mine operation produced 11,550 ounces of gold and 45,376 ounces of silver. The average recoverable grade for gold was 0.034 ounces per ton and for silver was 0.13 ounces per ton. In early 2007 the Company decided to suspend mining operations and to go into voluntary temporary closure in order to focus on our footprint in the Comstock,, study the geology of the District, delineate minerlization and create a drilling strategy and plan. The focus shifted from mine operations to exploration and developmental drilling in order to define mineralization. In addition, a comprehensive metallurgical testing program was initiated to ensure optimum precious metal recovery from future production.

The majority of 2007 was focused on collecting and analyzing geological information from our Comstock project in Nevada, the Hartford / Lucerne Complex provided a unique opportunity to identify significant precious metals mineralization that would lead us to open pit mine production in a short period of time.

The Company's goal is to reopen The Plum Mine during 2010 by commencing open pit mining at the Hartford / Lucerne Complex. To achieve this goal, the Company contracted Techbase to create a computerized mine modeling and mineralization estimate and commissioned an in house scoping study. The scoping study includes a complete comprehensive mine plan and mining schedule. Construction of the new milling facility and new process ponds as well as the expansion of the processing facilities will require a diligent, efficient and fully funded effort to achieve production by early 2010. A mine truck and shovel fleet, and ancillary mine production equipment will need to be acquired and placed in service by the mine production team. The mine production team will supply the ore to the mill and heap leach pad for processing. . Our ability to resume mining is dependent upon securing sufficient funds to procure the mining fleet and related assets..

Results of Operations and Operational Plan

The Hartford / Lucerne complex area was the focus of the 2008 - January 2009 development drilling program. The ultimate economic pit currently being planned trends onto public lands administered by the Bureau of Land Management (BLM), US Dept of the Interior. The existing production facility is located on private land. The Nevada Division of Environmental Protection -Bureau of Mine Regulation and Reclamation (BMRR) is the lead agency in the regulation of the operation of the Plum Mine. The planned starter pit is located on patented lands.

Exploration, developmental and in-fill drilling since our decision to suspend mining operation has resulted in definition of new mineable precious metal mineral reserves (as per SME Guidelines 2007). The Plum Mine has a State issued Mine Reclamation Permit (Permit No. NEV 0196) and an Operating Permit (NEV 2000109). The Mine Reclamation Permit was updated in 2008 pursuant to a required three year review and modification program. Pursuant to the 2008 approved Reclamation Plans, we have posted surety bonds for the Comstock Mine Project in the amount of $1,106,882 of which $766,768 was in the form of a cash deposit and the balance was secured from a surety bond with the Nevada Division of Minerals
- Nevada Bond Pool Program. This reclamation bond allows mining and processing at the currently permitted heap leach facility in the Comstock District of Storey County.

Modification to the State permits is underway to add changes to the processing system that will optimize precious metals recovery. The Air Quality permit requires modification reflecting equipment modifications, additions and changes. The Storey County Special Use Permit must be revisited before the commencement of mining. Expected completion of permitting should allow re-opening of the mine in 2010.

A significant part of our success can be attributed to the tier-one team of experienced mining professionals that has been assembled since late 2007. This team created a drill campaign based on the results of the geological model they created from analyzing data for mineralization in the Comstock Mining District. We launched this developmental surface drill program at the Hartford / Lucerne Complex in December 2007 to delineate the zones of mineralization. The drill hole depth of this reverse circulation drill program typically ranged from 600 to 1000 feet.

Our fifteen month drill program, which ended in February 2009, consisted of 182 Reverse Circulation (RC) drill holes. The majority of the 182 drill holes were planned and methodically located to drill Hartford / Lucerne Complex on adequate spacing to define continuity and grade . A small fraction of the allocated budget was used to drill holes on lease properties that required annual work commitments. Several of these exploration drill holes intersected favorable mineralized zones and will be followed by additional offset drilling.

During this program the Company contracted two drilling companies: Orbit Garant Drilling and George Delong Construction and Drilling. The drill rigs were reverse circulation track rigs and one truck mounted drill rig that performed the exploration and developmental drilling at the Comstock project. Several experienced mining professionals and consultants with proven success were added in 2008 to further strengthen and augment all facets of mining, including metallurgy. In order to fund these exploration efforts, the Company raised $5,120,000 in 2008 and $950,000 in the first fiscal quarter 2009 to finance this developmental and exploratory drill campaign.

Third-party consultant Mike Norred, Principle Engineer of Techbase International, modeled the results of this Hartford / Lucerne Complex drill program combined with the historic drill results to estimate gold and silver mineralization. This statistical model confirmed that the drill spacing selection was correct. The model independently confirmed many geologic attributes which control this mineralized material deposit.

Our procedures to ensure accurate reporting include: 1.) Surface collars of the individual drill holes were surveyed and drill holes completed after October 7, 2008 were surveyed down the hole. 2.) Samples of drilling were collected every five feet and duplicate samples every 100 feet. 3.) Drill samples were kept in secured containers until pickup by American Assay Labs in Sparks, Nevada. 4.) American Assay Labs was the principle certified commercial laboratory used by the Company for assay analysis. 5. Check assay analysis was conducted by ALS-Chemex Laboratories in Reno, Nevada 6.) Specific selected samples were assayed by the Company's in-house analytical lab.

In 2008, the Company began to execute a mineral exploration and mine development business model with all activities focused on resumption of mine production in 2010. The most relevant steps taken are as follows:

[ ] Expanding our footprint in the Comstock Region and other acquisition opportunities through the entry into of two letters of intent to purchase rights, which upon consummation, may allow the Company to amass one of the largest land positions in the Comstock District.

[ ] Further exploration in the Comstock Region to accomplish the above, including a decision to review the geology of the Hartford / Lucerne complex in a more detailed manner

[ ] Complete reserve report for the Hartford / Lucerne complex through a focus on infill drilling

[ ] Expanded the permitted drilling area

[ ] Updated the mine reclamation bond

[ ] Secured $3.0 million in financing from a major shareholder to fund our on-going drilling program in 2008

[ ] Secured $1,520,000 in 2008 and $950,000 in the first fiscal quarter 2009 through various private placements to accredited investors to advance our drilling, permitting and mine design programs

In addition to our drilling activities ,, we expanded our mineral claim portfolio in the Comstock District through acquisition and the staking of mineral claims . We now control over 4,300 acres of patented and unpatented mining claims in the Comstock District of Nevada. Approximately 2,000 acres of these holdings had been added through the staking new mineral claims. We continue remains focused on expanding its portfolio of land and mineral holdings in the Comstock District.

Our exploration staff is currently planning additional surface geochemical sampling, detailed geologic mapping and rock chip sampling on previously identified favorable targets and expanding onto additional targets areas. We have consolidated historic exploration and production records using Techbase software to generate a computer model of the Comstock Mining District with the objective of delineating additional geologic targets that were previously untested.

2009 Developments

In the first quarter of 2009, a modification application to the Water Pollution Control Permit was submitted to the Nevada Division of Environmental Protection. The permit modifications highlight the Company's newly designed processing facilities that will optimize recovery of the recently discovered mill-grade gold and silver ore at the Hartford Complex.

The major improvements to the processing facilities include the:

· Construction and operation of two new crushed ore storage areas;

· Implementation of a high-grade ore milling circuit in a contained area;

· Expansion of the leach solution pumping systems;

· Formation of a new pregnant solution pond; and

· Expansion of the Merrill Crowe processing plant.

The Nevada Division of Environmental Protection, Bureau of Mining Regulations and Reclamation, has begun its review of the application. Major modification applications typically take nearly 180 days to complete. Under the modified permit, the Company initially plans to mine and process at a rate of 720,000 tons of gold and silver ore per year. The majority of the ore that will be processed in the milling circuit will have a high percentage of the contained precious metals recovered because of efficiencies afforded by the milling process.

Several other operating permits are also being updated to allow operations to begin in 2010. Dennis Anderson, Professional Mine Engineer, leads the mine permitting efforts and is supported by the engineering consultants at Telesto Nevada, LLC of Reno, Nevada.

In anticipation of mining resumption, the Company has procured a 300 ton per day ball mill and related equipment. The ball mill is being added to process the high grade gold and silver mineralization, optimizing gold and silver recovery. Precious metal recovery using the ball mill and grinding to 100 Mesh should be around 95% versus 75% for heap leaching.

Assuming sufficient funds are raised in a timely manner, the Company's goal would be to reopen the Mine during in 2010. In order to resume production, the Company must complete complete a comprehensive mine plan; and complete a mining schedule, all of which are dependent upon ability to secure sufficient funds to procure the mining fleet and related assets. In addition, we will need to construct the milling facility, process ponds and expand the existing processing facilities. A haul truck and shovel fleet, and ancillary mine production equipment will need to be acquired and placed in service by the mine production team.

There are also risks involved in the fact that one individual and his affiliates, as of March 31, 2009, beneficially own in excess of 24% of our voting stock. Pursuant to financing agreements, this convertible debt holder and his affiliates with a 61 day notice can waive the 4.9% ownership restriction, allowing him to convert 100% of his convertible debt and related interest, which totals $11,639,508 at March 31, 200, into our common shares. This group, if they waive the ownership restriction and convert all convertible debt and related interest into our voting common stock, may take actions that could conflict with your interests. This includes the election of Company directors, approval of actions generally requiring the approval of the holders of our voting stock, including adopting amendments to our articles of incorporation and bylaws and approving mergers, certain acquisitions or sales of all or substantially all of our assets, which could delay or prevent someone from acquiring or merging with us or limit the ability of our other stockholders to approve transactions that they may deem to be in their best interests.

DWC Resources Letter of Intent

On August 13, 2008, Goldspring, Inc. (the "Company") entered into a binding letter of intent to purchase certain property owned by DWC Resources, Inc. in Storey County, Nevada. The purchase price is $7,500,000, but is subject to adjustment pursuant to the results of a fairness opinion and/or appraisal to be obtained by the Company. The purchase price will be paid through issuance of a $7,500,000 promissory note which shall bear interest at the rate of 9% per year with quarterly interest payments due throughout the term of the note which is 5 years. The purchased assets include patented and unpatented lode mining claims owned by DWC Resources, Inc. in the Comstock Lode district. The letter of intent also provides for the payment of royalties ranging from 2% - 6% of "net smelter returns" based upon the price of gold per ounce and a 1% royalty to be paid to the party which sold the subject property to DWC Resources in 2007. There is also a commitment to expend a minimum of $250,000 per year on exploration by the Company for five years.

Sutro Tunnel Sublease

The Company simultaneously entered into a binding letter of intent to sublease the Sutro Tunnel Lease dated January 1, 2008 between Sutro Tunnel Co. and John Winfield or his nominee. The purchase price for the sublease is $2,000,000 (which is subject to adjustment upon receipt of a third party fairness opinion/appraisal) payable pursuant to the issuance of a $2,000,000 promissory note which shall bear interest at the rate of 9%per year with quarterly interest payments due throughout the term of the note which is 5 years. The letter of intent also provides for the payment of royalties ranging from 6% - 8% of "net smelter returns" based upon the price of gold per ounce and a 1% royalty to be paid to Winfield if Winfield provides an acceptable buyout of the Sutro property. The Company is also required to fulfill lessee's obligations under the Sutro Tunnel Lease with regard to payment of royalties and exploration expenditures.