-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UjycqOIa4mrqO2QMLmagKM0K7F0RmH/p6F4tcJjSG7nBD9/Am/gPOfAtJEz0heJ0 inQ/lg8MvI1CDLAh82qFxQ== 0001050502-01-500323.txt : 20010815 0001050502-01-500323.hdr.sgml : 20010815 ACCESSION NUMBER: 0001050502-01-500323 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDSTATE CORP CENTRAL INDEX KEY: 0001050248 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 880354425 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26705 FILM NUMBER: 1710222 BUSINESS ADDRESS: STREET 1: 3305 SPRING MOUNTAIN RD STREET 2: STE 60 CITY: LAS VEGAS STATE: NV ZIP: 89012 BUSINESS PHONE: 8882285526 MAIL ADDRESS: STREET 1: 3305 SPRING MOUNTAIN RD STREET 2: STE 60 CITY: LAS VEGAS STATE: NV ZIP: 89012 10QSB 1 goldstate601.txt 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 [ ] 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 0-26705 GOLDSTATE CORPORATION --------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) NEVADA 88-0354425 ------------------------------ --------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 3305 Spring Mountain Road, Suite 60 Las Vegas, Nevada 89102 -------------------------------------- (Address of Principal Executive Offices) (888) 228-5526 ------------------------- (Issuer's telephone number) N/A -------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: Class Outstanding as of August 11, 2001 ----- --------------------------------- Common Stock, $.0003 par value 10,847,261* *Reflects the 10 for 1 reverse stock split effected on February 13, 2001 resulting in a decrease in issued and outstanding shares of Common Stock from 38,119,530 to 3,811,953. Transitional Small Business Disclosure Format (check one) Yes No X ----- ----- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BALANCE SHEETS 2 INTERIM STATEMENTS OF OPERATIONS 3 INTERIM STATEMENTS OF CASH FLOWS 4 NOTES TO INTERIM FINANCIAL STATEMENTS 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 7 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 12 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 14 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16 ITEM 5. OTHER INFORMATION 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16 SIGNATURES 16
GOLDSTATE CORPORATION (An Exploration Stage Company) BALANCE SHEETS December 31, June 30, 2001 2000 ------------- ----------- (Unaudited) ASSETS CURRENT ASSETS Cash $ -- $ -- ----------- ----------- TOTAL ASSETS $ -- $ -- =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 61,459 $ 47,178 Advances payable 29,537 92,482 Accrued interest payable 52,828 44,274 Notes payable (Note 3) 600,000 600,000 ----------- ----------- 743,824 783,934 ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIT) Capital Stock (Note 4) Preferred stock, $.001 par value; 25,000,000 shares authorized; Nil shares issued and outstanding -- -- Common stock, $.0003 par value, 75,000,000 shares authorized 10,847,261 (2000 - 38,119,500) shares issued and outstanding 13,850 11,740 Additional paid-in capital 2,705,685 2,567,089 Deficit accumulated during the exploration stage (3,463,359) (3,362,763) ----------- ----------- (743,824) (783,934) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -- $ -- =========== =========== The accompanying notes are an integral part of these interim financial statements 2 GOLDSTATE CORPORATION (An Exploration Stage Company) INTERIM STATEMENTS OF OPERATIONS (Unaudited) February Three Three 28, 1996 months months Six months Six months (inception) ended June ended June ended June ended June to June 30, 30, 2001 30, 2000 30, 2001 30, 2000 2001 ----------- ----------- ----------- ----------- ----------- PROPERTY EXPLORATION EXPENSES Technology sub-license costs $ -- $ -- $ -- $ -- $ 666,852 Claims maintenance fees, exploration and staking costs -- -- -- -- 187,805 Impairment loss related to profit sharing interest -- (2,702) -- (2,702) 170,000 ----------- ----------- ----------- ----------- ----------- -- (2,702) -- (2,702) 1,024,657 GENERAL AND ADMINISTRATIVE EXPENSES 45,185 20,395 86,310 37,763 2,256,204 INTEREST EXPENSE 6,020 1,406 14,286 19,758 182,498 ----------- ----------- ----------- ----------- ----------- NET LOSS FOR THE PERIOD $ 51,205 $ 19,099 $ 100,596 $ 54,819 $ 3,463,359 =========== =========== =========== =========== =========== BASIC NET LOSS PER SHARE $ (0.01) $ (0.01) $ (0.02) $ (0.02) =========== =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,136,326 3,775,034 5,483,322 2,720,301 =========== =========== =========== =========== The accompanying notes are an integral part of these interim financial statements 3 GOLDSTATE CORPORATION (An Exploration Stage Company) INTERIM STATEMENTS OF CASH FLOWS (Unaudited) Six months Six months February 28, 1996 ended June ended June (inception) to 30, 2001 30, 2000 June 30, 2001 ----------- ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period $ (100,596) $ (54,819) $(3,463,359) Adjustments to reconcile net loss to net cash from operating activities: - Impairment loss on profit sharing interest -- -- 170,000 - Non-cash technology sub-license costs -- -- 690,000 - Net discount recognized on technology notes payable -- 3,495 -- - Changes in assets and liabilities Accounts payable 29,281 24,687 84,969 Advances payable 57,053 57,053 Directors fees payable -- 1,500 -- Accrued interest payable 14,262 16,262 159,327 ----------- ----------- ----------- CASH FLOWS USED IN OPERATING ACTIVITIES -- (8,875) (2,302,010) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of common stock -- -- 1,700,207 Advances received -- 8,300 1,973,003 Advances repaid -- -- (1,546,200) Proceeds from notes payable -- -- 175,000 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES -- 8,300 2,302,010 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH -- (575) -- CASH, BEGINNING OF PERIOD -- 248 -- ----------- ----------- ----------- CASH, END OF PERIOD $ -- $ (327) $ -- =========== =========== =========== OTHER NON-CASH TRANSACTIONS: During the period the Company issued 7,035,308 common shares at a price of $.02 per share in settlement of debt of $140,706. The accompanying notes are an integral part of these interim financial statements 4
GOLDSTATE CORPORATION (An Exploration Stage Company) NOTES TO INTERIM FINANCIAL STATEMENTS JUNE 30, 2001 - -------------------------------------------------------------------------------- (Unaudited) NOTE 1: NATURE OF CONTINUED OPERATIONS The Company is an exploration stage company. To date, the Company has not generated revenues from operations and as of June 30, 2001 had working capital and stockholders' deficits of $743,824 raising substantial doubt as to the Company's ability to continue as a going concern. The Company's continued operations are dependent on its ability to obtain additional financing and ultimately to attain profitable operations. The Company ceased exploration of the joint venture lode mining claims located in the State of Idaho, pending the outcome of ongoing litigation with regard to the transfer of technology pursuant to the Sub-license Agreement between the Company and Geneva Resources, Inc. There is a chance that the technology to be transferred under the Sub-license Agreement may be delayed indefinitely, or cancelled all together, depending on the outcome of the litigation. Refer to Note 6. Unaudited Interim Financial Statements The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB of Regulation S-B. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-KSB. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Mineral property costs Mineral property acquisition, exploration and development costs are expensed as incurred until such time as economic reserves are quantified. To date the Company has not established any proven reserves on its mineral properties. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Financial Instruments The fair value of the Company's financial assets and financial liabilities approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Stock-Based Compensation The Company accounts for stock-based compensation in respect to stock options granted to employees and officers using the intrinsic value based method in accordance with APB 25. Stock options granted to non-employees are accounted for using the fair value method in accordance with SFAS No. 123. In addition, with respect to stock options granted to employees, the Company provides pro-forma information as required by SFAS No. 123 showing the results of applying the fair value method using the Black-Scholes option pricing model. The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18. 5 GOLDSTATE CORPORATION (An Exploration Stage Company) NOTES TO INTERIM FINANCIAL STATEMENTS JUNE 30, 2001 - -------------------------------------------------------------------------------- (Unaudited) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't) Income taxes The Company follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. As at December 31, 2000 the Company had net operating loss carryforwards; however, due to the uncertainty of realization the Company has provided a full valuation allowance for the deferred tax assets resulting from these loss carryforwards. NOTE 3: NOTES PAYABLE Pursuant to the Technology Sub-license agreement with Geneva Resources, Inc., the Company issued promissory notes to both Geneva and AuRIC in the amount of $250,000 to each company. These are 3% interest bearing notes and are payable upon the transfer of the technology. Pursuant to an amendment to the Technology Sub-license agreement, the company has issued a convertible promissory note to Geneva Resources, Inc. ("Geneva") in the amount of $100,000 that is convertible to 500,000 restricted common shares upon demand, and bears interest at the rate of 8% per annum. These promissory notes become due and payable upon the transfer of the technology. Transfer of the technology or any settlement thereto will be contingent on the outcome of the lawsuit described in Note 6. NOTE 4: CAPITAL STOCK The Company completed a ten for one share consolidation on February 13, 2001, resulting in a decrease in issued and outstanding common stock to 3,811,953. The loss per share figure for June 30, 2000 has been restated on a consolidated basis. During the period the Company issued 7,035,308 common shares at a price of $.02 per share in settlement of debt of $140,706. NOTE 5: RELATED PARTY TRANSACTIONS During the six months ended June 30, 2001 $15,000 was incurred to a significant shareholder for administrative expenses. Also in this period $15,000 owing to this shareholder was settled with 750,000 common shares at $.02 per share. At June 30, 2001 $7,500 is owing to this shareholder and is included in accounts payable. During the six months ended June 30, 2001 $30,000 was incurred to a significant shareholder for administrative and management fees, $27,052 was paid by this shareholder for expenses of the Company and $4,831 of interest was accrued to this shareholder. Also in this period $125,706 owing to this shareholder was settled with 6,285,308 common shares at $.02 per share. At June 30, 2001 $29,537 is owing to this shareholder for fees and expenses paid on behalf of the Company, and is included in advances payable, and $246 of accrued interest is owing, included in accrued interest payable. NOTE 6: CONTINGENCIES On May 8, 2000, the Company executed an assignment agreement to Geneva that transferred and conveyed the potential claims and causes of action that the Company may have in connection with the Sub-license Agreement with Geneva. If amounts are recovered by the lawsuit initiated by International Gold Corporation, a subsidiary of Intergold Corporation, a public corporation, and Geneva during 1999, the Company will receive the equivalent pro rata share of the Claims in relation to all other claims and causes of action for which any damages of settlement amounts are recovered. On October 8, 2000, the Company's joint venture partners, Intergold Corporation, International Gold Corporation, and Geneva initiated a legal complaint against AuRIC Metallurgical Laboratories, LLC ("AuRIC"), Dames & Moore, Ahmet Altinay, General Manager of AuRIC, and Richard Daniele, Chief Metallurgist for Dames & Moore. The damages sought by IGCO/IGC/Geneva are to be determined in court. The damages incurred stem from reliance on assays and representations made by AuRIC and upon actions and engineering reports produced by Dames & Moore related to the Blackhawk claims. The plaintiffs also allege that there were breaches of contract by AuRIC and Dames and Moore, as well as other causes of action. The outcome of this lawsuit is presently not determinable. 6 Statements made in this Form 10-QSB that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. The Company intends that such forward-looking statements be subject to the safe harbors for such statements. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond the control of the Company that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION GENERAL Goldstate Corporation, a Nevada corporation (the "Company") was primarily engaged in the business of exploration of gold and precious metals in the United States. During fiscal year ended December 31, 2000, management subsequently changed and the primary business focus of the Company has been redirected towards undertaking research relating to prospective new business endeavors and acquisitions. This research by current management may result in the Company entering into business operations that are not in the minerals exploration field. Blackhawk II Property The Company previously held possessory title to 439 contiguous unpatented lode mining claims located in Lincoln and Gooding Counties, in south-central Idaho (the "Blackhawk II Property"). Pursuant to a joint venture agreement with Intergold Corporation, a Nevada corporation ("IGCO") and its wholly-owned subsidiary International Gold Corporation, a Nevada corporation ("INGC") dated March 17, 1999 (the "Joint Venture Agreement"), the Company owned a fifty-one percent (51%) of a future profit sharing interest in profits to be realized from the exploration of the 439 unpatented lode mining claims on the Blackhawk II Property. As of the date of this Quarterly Report, neither the Company nor INGC hold title to such mining claims. The Joint Venture Agreement was entered into primarily to utilize, maximize and enhance the complementary exploratory technologies of the Company and IGCO. Under the terms of the Joint Venture Agreement, the Company paid $100,000 for reimbursement of previously incurred expenses and issued 1,000,000 shares of its restricted Common Stock to IGCO in exchange for the purchase of the future profit sharing interest in profits. Pursuant to the terms of the Joint Venture Agreement, the Company was to conduct work programs involving exploration of the mining claims on the Blackhawk II Property in the minimum annual amount of $250,000 for each calendar year, which commenced January 1, 1998 and continued through the year 2000. The Company was also to be the operating partner, contribute all future capital requirements, and be responsible solely for all project funding. In consideration, the Company was to receive eighty percent (80%) of all net profits realized from the joint venture until its invested capital was repaid, and IGCO and INGC were to receive twenty percent (20%) of the net profits realized from the joint venture. After the invested capital of the Company had been repatriated, the Company was then to receive fifty-one percent (51%) of the net profits realized from the joint venture, and IGCO and INGC were to retain forty-nine percent (49%) of the net profits realized from the joint venture. 7 During fiscal year 1999, management of the Company intended to begin geological survey of the Blackhawk II Property by an initial mapping of the area for exploration. Management further intended to make preliminary investigations for property exploration on the Blackhawk II Property in the following areas: (i) claims maintenance, (ii) preliminary consulting reports and metallurgical study, (iii) regional exploratory drilling and surface sample assay testing. INGC, on behalf of IGCO, and AuRIC Metallurgical Laboratories, LLC, of Salt Lake City, Utah ("AuRIC") had entered into an Agreement for Services dated March 18, 1999 (the "Agreement for Services") whereby AuRIC agreed to perform certain services, including the development of proprietary technology and know-how relating to fire and chemical assay analysis techniques and metallurgical ore extraction procedures developed specifically for the exploration of properties of IGCO. INGC, on behalf of IGCO had also retained the services of Dames & Moore, an internationally recognized engineering and consulting firm ("Dames & Moore") to provide validation audits of each major step of the assay procedures conducted by AuRIC. In November of 1998, according to independent testing conducted by Dames & Moore, Dames & Moore validated AuRIC's fire assay and parallel chemical leach procedures as a method to verify the existence of mineralization. The positive outcome of the testing program conducted by Dames & Moore formed the subject of a November 30, 1998 and subsequently dated reports regarding IGCO's properties. Dames & Moore verified the fire and chemical assay techniques and procedures developed by AuRIC and their repeatability. AuRIC and Geneva Resources, Inc., a Nevada corporation ("Geneva") entered into a Technology License Agreement dated March 17, 1999 (the "License Agreement") whereby AuRIC agreed to supply the proprietary technology to Geneva and grant to Geneva the right to sub-license the proprietary technology to the Company for use on the Blackhawk II Property. Therefore, the Company and Geneva entered into a Technology Sub-License Agreement dated March 18, 1999 (the "Sub-License Agreement") whereby the Company acquired from Geneva a sub-license to utilize AuRIC's proprietary information and related precious metals recovery processes to carry out assay testing and chemical leach analysis of core samples derived from any subsequent drilling on the Blackhawk II Property. Pursuant to certain contractual terms and provisions, AuRIC and Dames & Moore have not been successful in transferring the proprietary fire assay technology to Geneva or to any independent third party assay laboratory. Therefore, on September 27, 1999, Geneva and INGC, on behalf of IGCO, initiated legal proceedings against AuRIC for multiple breaches of contract stemming from the Agreement for Services and the License Agreement and against Dames & Moore in a declaratory relief cause of action. Subsequent to initiation of legal proceedings against AuRIC and Dames & Moore, during November 1999, IGCO engaged the services of Strathcona Mineral Services Limited ("Strathcona") to review the available data from AuRIC and Dames & Moore and provide independent assay and metallurgical recovery testing relating to IGCO's properties. Strathcona engaged the laboratories of Lakefield Research and Activation Laboratories for testing and analysis. Strathcona reported that both laboratories could not find gold above the minimum detection limits in the samples, and concluded that based on the samples provided, gold and silver were not present in economic quantities on IGCO's properties. 8 During November 1999, IGCO also engaged Mineral Science Limited of London, England ("Mineral Science"), which obtained the services of the internationally recognized facilities of OMAC Laboratories Ltd to provide fire assay and geochemical analysis and CSMA Consultants Ltd. to perform leach testing on the properties of IGCO. The results obtained from Mineral Science confirmed and reiterated the negative findings of Strathcona, that gold values were below the detection limits on the properties of IGCO. As of the date of this Quarterly Report, the Company has suspended further exploration of the Blackhawk II Property indefinitely due to (i) the independent assessment information from Strathcona and Mineral Science which does not support the claims of AuRIC and Dames & Moore; (ii) the existence of multiple breaches of contract by AuRIC and Dames & Moore under the Agreement for Services and the License Agreement; (iii) the litigation against AuRIC and Dames & Moore; (iv) the rock type of the Company's Blackhawk II claims is thought to be similar to that of INGC's and IGCO's Blackhawk claims and without the alleged assay and metallurgical recovery technology allegedly developed by Auric and confirmed by Dames & Moore, the Company deems the probability of commercial grade gold or silver located in the Blackhawk II claims to be nil at the current date; and (v) the transfer of the alleged assay and metallurgical recovery technology allegedly developed by Auric and confirmed by Dames & Moore and to be obtained by the Company under the Sub-License Agreement with Geneva may not ever be transferred. Furthermore, the Company and IGCO agreed to the suspension of the Company's obligations and duties under the Joint Venture Agreement until resolution of the litigation against AuRIC and Dames & Moore. New Business Endeavors During fiscal year ended December 31, 2000, management of the Company entered into two separate letters of intent to (i) acquire 100% of the issued and outstanding shares of common stock of FP Telecom Ltd, a company engaged in the leasing of cellular telephone equipment and services; and (ii) acquire 100% of the issued and outstanding shares of common stock of National Care Card, Inc., a company engaged in offering significantly discounted rates on health services. However, based on the results of the Company's due diligence, management did not consider the acquisition of either FP Telecom Ltd nor National Care Card, Inc. probable events and terminated negotiations. As of the date of this Quarterly Report, management of the Company is undertaking research relating to prospective new business endeavors and possible new acquisitions. This research may result in the Company entering into business operations that are not in the minerals exploration field. RESULTS OF OPERATION As of the date of this Quarterly Report, there has been no income realized from the business operations of the Company. During the prior fiscal years, the Company's primary source of financing was from advances made to the Company. Six-Month Period Ended June 30, 2001 Compared to Six-Month Period Ended June 30, 2000 The Company's net losses for the six-month period ended June 30, 2001 were approximately $100,596 compared to a net loss of approximately $54,819 for the six-month period ended June 30, 2000. 9 During the six-month period ended June 30, 2001, the Company recorded operating expenses of $86,310 compared to $37,763 of operating expenses recorded in the same period for 2000. During the six-month periods ended June 30, 2001 and 2000, respectively, the Company did not incur any property exploration expenses resulting primarily from suspension of any further exploration of the Blackhawk II Property during 2000. General and administrative expenses increased by approximately $48,547 during the six-month period ended June 30, 2001, from $37,763 incurred during the six-month period ended June 30, 2000 compared to $86,310 incurred during the six-month period ended June 30, 2001. This increase in general and administrative expenses was due primarily to an increase in expenses related to research of possible new business endeavors and the identification of possible new acquisitions. General and administrative expenses generally include corporate overhead, administrative salaries, consulting costs and professional fees. Of the $86,310 incurred as general and administrative expenses during the six-month period ended June 30, 2001, approximately $30,000 was incurred payable to Tarmac Management Ltd. ("Tarmac") for payment by Tarmac of $27,052 in expenses on behalf of the Company. During the six-month period ended June 30, 2001, the Company settled a debt due and owing to Tarmac in the amount of $125,706 by issuance of 6,285,308 shares of Common Stock. See "Item 2. Changes in Securities and Use of Proceeds". Such services rendered by Tarmac include, but are not limited to, financial, administrative and investor relations management. Interest expenses decreased by approximately $5,472 during the six-month period ended June 30, 2001, from $$19,758 incurred during the six-month period ended June 30, 2000 compared to $14,286 incurred during the six-month period ended June 30, 2001. This decrease in interest expenses was due primarily to a decrease in the amount of accrued interest relating to the settlement of advances payable. See " - Liquidity and Capital Resources". The increase in net loss during the six-month period ended June 30, 2001 as compared to the six-month period ended June 30, 2000 is attributable primarily to the increase in general and administrative expenses. The Company's net earnings (losses) during the six-month period ended June 30, 2001 were approximately ($100,596) or ($0.02) per share compared to a net loss of approximately ($54,819) or ($0.02) per share during the six-month period ended June 30, 2000. The weighted average number of shares outstanding was 5,483,322 for the six-month period ended June 30, 2001 compared to 2,720,301 for the six-month period ended June 30, 2000, after giving retroactive effect to the ten for one share consolidation completed on February 13, 2001. Three-Month Period Ended June 30, 2001 Compared to Three-Month Period Ended June 30, 2000 The Company's net losses for the three-month period ended June 30, 2001 were approximately $51,205 compared to a net loss of approximately $19,099 for the three-month period ended June 30, 2000. During the three-month period ended June 30, 2001, the Company recorded operating expenses of $45,185 compared to $20,395 of operating expenses recorded in the same period for 2000. During the three-month periods ended June 30, 2001 and 2000, respectively, the Company did not incur any property exploration expenses resulting primarily from suspension of any further exploration of the Blackhawk II Property during 2000. 10 General and administrative expenses increased by approximately $24,790 during the three-month period ended June 30, 2001, from $20,395 incurred during the three-month period ended June 30, 2000 compared to $45,185 incurred during the three-month period ended June 30, 2001. Interest expenses increased by approximately $4,614 during the six-month period ended June 30, 2001, from $1,406 incurred during the six-month period ended June 30, 2000 compared to $6,020 incurred during the six-month period ended June 30, 2001. The increase in net loss during the three-month period ended June 30, 2001 as compared to the three-month period ended June 30, 2000 is attributable primarily to the increase in general and administrative expenses. The Company's net earnings (losses) during the three-month period ended June 30, 2001 were approximately ($51,205) or ($0.01) per share compared to a net loss of approximately ($19,099) or ($0.01) per share during the three-month period ended June 30, 2000. The weighted average number of shares outstanding was 7,136,326 for the three-month period ended June 30, 2001 compared to 3,775,034 for the three-month period ended June 30, 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's financial statements have been prepared assuming that it will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation. As of June 30, 2001, the Company's total assets were $-0-. As of June 30, 2001, the Company's total liabilities were $743,824 compared to total liabilities of $783,934 as of the fiscal year ended December 31, 2000. This decrease in liabilities from December 31, 2000 was due primarily to a decrease in advances due and owing by the Company in the amount of $62,945, from $92,482 in advances due and owing as of December 31, 2000 to $29,537 in advances due and owing as of June 31, 2001. Stockholders' Deficit decreased from ($783,934) for the fiscal year ended December 31, 2000 to ($743,824) for the six-month period ended June 30, 2001. 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On September 27, 1999, Geneva and INGC, on behalf of IGCO, initiated legal proceedings against AuRIC and Dames & Moore by filing a complaint in the District Court of the Third Judicial District for Salt Lake City, State of Utah. INGC and AuRIC had entered into the Agreement for Services whereby AuRIC agreed to perform certain services, including the development of proprietary technology and know-how relating to fire and chemical assay analysis techniques and metallurgical ore extraction procedures developed specifically for properties of IGCO. Dames & Moore subsequently verified the fire and chemical assay techniques and procedures developed by AuRIC, their repeatability, and confirmed preliminary metallurgical recovery testing. Geneva and AuRIC thus entered into the License Agreement whereby AuRIC agreed to supply the proprietary technology to Geneva and grant to Geneva the right to sub-license the proprietary technology to the Company for use on the Blackhawk II Property. The Company and Geneva simultaneously entered into the Sub-License Agreement whereby the Company acquired from Geneva a sub-license to utilize such proprietary information and related precious metals recovery processes on the Blackhawk II Property. On September 27, 1999, Geneva and INGC, on behalf of IGCO, initiated legal proceedings against AuRIC for: (i) multiple breaches of contract relating to the Agreement for Services and the License Agreement, respectively, including, but not limited to, establishment and facilitation of the proprietary technology and fire assay procedures developed by AuRIC at an independent assay lab and failure to deliver the proprietary technology and procedures to IGCO, Geneva and Dames & Moore; (ii) breach of the implied covenant of good faith and fair dealing; (iii) negligent misrepresentation; (iv) specific performance, (v) non-disclosure injunction; (vi) failure by AuRIC to repay advances, and (vii) quantum meruit/unjust enrichment. INGC, on behalf of IGCO, also named Dames & Moore in the legal proceeding in a declaratory relief cause of action. On October 8, 1999, Geneva and INGC, on behalf of IGCO, amended the complaint by naming as defendants AuRIC, Dames & Moore, Ahmet Altinay General Manager of AuRIC, and Richard Daniele, Chief Metallurgist for Dames & Moore and specifying damages in excess of $10,000,000. The damages sought by Geneva and INGC, on behalf of IGCO, are based on the general claims and causes of action set forth in the amended complaint relating to reliance on the assays and representations made by AuRIC, the actions and engineering reports produced by Dames & Moore and, specifically, the negligent misrepresentations and inaccuracies contained within some or all of those Dames & Moore reports and breaches of contract by AuRIC and Dames & Moore. On or about November 17, 1999, AuRIC, Dames & Moore, Richard Daniele and Ahmet Altinay filed separate answers to the amended complaint, along with counterclaims and a third party complaint against Geneva, INCG, IGCO and Brent Pierce for breach of contract against Geneva, breach of contract against INGC, breach of contract against Pierce, defamation against IGCO, INGC, Geneva and Pierce, injunctions against IGCO, INGC, Geneva and Pierce, amongst other claims. In their defamation claims against IGCO, the plaintiffs seek damages and punitive damages in an amount to be determined at trial, as well as attorney's fees and costs. In connection with the cause of action for preliminary and permanent injunctions against IGCO, AuRIC and Ahmet Altinay seek attorney's fees and costs. 12 On June 21, 2000, Geneva and INGC, on behalf of IGCO, filed a second amended complaint in the District Court of the Third Judicial District for Salt Lake City, State of Utah. The second amended complaint increased detail regarding the alleged breaches of contract and increased causes of action against other parties involved by adding two new defendants, MBM Consulting, Inc. and Dr. Michael B. Merhtens, who provided consulting services to INGC. The amendment also added certain claims of other entities involved through Geneva against the defendants. The proprietary technology forms the basis of claims made by Geneva and INGC, on behalf of IGCO, in the complaints as filed with the District Court. Geneva and INGC, on behalf of IGCO, allege that the proprietary technology does not exist and that Geneva and INGC were fraudulently, recklessly and/or negligently deceived by AuRIC, Dames & Moore, and other parties to the lawsuit. Geneva and INGC subsequently obtained an order from the District Court granting its Motion to Compel. The Order requires that AuRIC and Dames & Moore produce the proprietary technology for Geneva's and INGC's restricted use by its legal counsel and industry experts. Geneva and INGC, on behalf of IGCO, have obtained an expert opinion as to the validity or ineffectiveness of the proprietary technology. On November 10, 2000, Geneva and INGC filed motions for partial summary judgment against Dames & Moore and AuRIC. Subsequently, on March 19, 2001, the motions for partial summary judgment were denied. The court, however, provided a ninety-day period during which both parties were required to prepare for trial, and after such period the court would set a date for trial. At a scheduling conference held on July 31, 2001, the court set trial for a period of fifteen days commencing October 16, 2001. All dispositive motions will be head by September 14, 2001 and discovery must be completed by October 5, 2001. The court has denied Geneva's and INGC's motion for leave to amend the Complaint to assert an action against Dames & Moore for fraud. Geneva and INGC are considering the possibility of an appeal. As of the date of this Quarterly Report, trial preparation and discovery are continuing. On June 22, 2001, IGCO, INGC, Geneva, Brent Pierce, MBM Consultants, Inc. and Michael B. Mehrtens entered into a settlement agreement (the "Settlement Agreement"). Pursuant to the terms of the Settlement Agreement, the parties agreed to treat the contents of the Settlement Agreement as strictly confidential and to not disclose such terms and provisions to anyone. On approximately June 14, 2000, Dames & Moore filed an action against IGCO, INGC and others in the District Court of the Fifth Judicial District of the State of Idaho, in and for the County of Lincoln (the "Idaho Lawsuit"). In the Idaho Lawsuit, Dames & Moore seeks foreclosure of a lien against IGCO and/or INGC which purportedly arose in favor of Dames & Moore. INGC has dropped the bulk of its mining claims, except for a small group related to this litigation as IGCO and INGC believe that the mining claims contain no commercial quantities of gold or silver. Dames & Moore seeks to have the mining claims sold to compensate Dames & Moore for its services, materials and equipment. Dames & Moore also seeks its fees and costs incurred in enforcing its claimed lien. IGCO and INGC filed an answer on or about August 8, 2000. IGCO intends to vigorously contest the claims and allegations of Dames & Moore. Due to the Company's knowledge that the Blackhawk II Property's unpatented lode mining claims do not contain commercial quantities of gold or silver, the Company has ceased to maintain and pay annual fees relating to most of the Blackhawk II Property claimed areas. Moreover, management deems the proprietary technology crucial with respect to successful exploration of the Blackhawk II Property. Management has suspended exploration of the Blackhawk II Property indefinitely until resolution of the legal proceedings. Management believes that the legal proceedings will prove that the alleged proprietary technology is invalid. 13 If the proprietary technology is proven to be invalid and not transferable, and INGC/Geneva are not successful in the outcome of the litigation and damages are not awarded, the Company may not be able to recover its potential losses and expenses incurred due to the breach of the Sub-License Agreement by Geneva. However, if the proprietary technology is proven to be invalid and not transferable, and INGC/Geneva are successful in the outcome of the litigation, INGC/Geneva may then receive damages from AuRIC and Dames & Moore. Geneva's damages result primarily from its inability to transfer the proprietary technology to IGCO in accordance with the provisions of the Sub-License Agreement. Management believes that the Company will, under these circumstances, be entitled to receive a pro-rata portion of the awarded damages for potential losses incurred due to the breach of the Sub-License Agreement by Geneva. The Company and Geneva entered into an assignment agreement dated May 9, 2000 (the "Assignment Agreement") that transferred and conveyed to Geneva the potential claims and causes of action that the Company may have under the Sub-License Agreement with Geneva. If damages are recovered in the lawsuit initiated by Geneva and INGC, on behalf of IGCO, the Company will receive a pro rata share of such damages relating to its claims and causes of action in relation to all other claims and causes of action for which damages are recovered. Thus, Geneva will receive any such pro rata share of the damages recovered pursuant to the terms and provisions of the Assignment Agreement. Management believes that the Company will, under these circumstances, be entitled to receive a pro-rata portion of the awarded damages for potential losses incurred due to the breach of the Sub-License Agreement by Geneva. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On February 13, 2001, the Company effected a reverse stock split of ten for one share of common stock, which resulted in a decrease in the issued and outstanding shares of common stock to 3,811,953. During the six-month period ended June 30, 2001, to provide capital, the Company has sold stock in private placement offerings or issued stock in exchange for debts of the Company or pursuant to contractual agreements as follows: o The Company had incurred debt inclusive of accrued interest in the aggregate amount of $125,706.17 and $15,000.00, respectively, with certain creditors of the Company (the "Creditor(s)"). Such debt due and owing by the Company relates to either past financial, administrative and managerial services performed by the respective Creditor pursuant to consulting service agreements entered into with the Company and/or prior advances made by the respective Creditor to the Company. Therefore, the Company entered into separate settlement agreements dated May 18, 2001, respectively, with each Creditor (the "Settlement Agreement(s)"), whereby each Creditor agreed to settle the debt owed to it by the Company and accept the issuance of restricted common shares of the Company at the rate of $0.02 per share as settlement for all interest and principle due and outstanding to such Creditor as of the date of the Settlement Agreement as follows: 14 - -------------------------------------------------------------------------------- Name of Creditor Dollar Amount Rate per Share Number of Shares of Of Debt Common Stock Issued - -------------------------------------------------------------------------------- Tarmac Management Ltd. $125,706.17 $0.02 6,285,308 No. 50 Corporate $ 15,000.00 $0.02 750,000 Ventures Ltd. - -------------------------------------------------------------------------------- Subsequently, Tarmac Management Ltd. ("Tarmac") entered into several separate assignment agreements dated May 18, 2001 (the "Assignment Agreement(s)"), whereby Tarmac agreed to assign certain of its rights, title and interest in the Settlement Agreement, including the issuance of the restricted common shares of the Company, in exchange for the settlement and release of contractual debts owed by Tarmac to certain creditors. On May 18, 2001, the Company issued an aggregate of 7,035,308 of its restricted common stock to the Creditors and the respective assignees of Tarmac based upon the assignee's proportionate right to the issuance of such shares of restricted common stock. As a result of the issuance of 7,035,308 shares of its restricted common stock on May 18, 2001, which represents approximately 64.9% of the current issued and outstanding shares of common stock, there was a change in control of the Company. The following table sets forth the name and address, as of the date of this Quarterly Report, and the approximate number of shares of common stock owned of record or beneficially by each person who owned of record, or was known by the Company to own beneficially, more than five percent (5%) of the Company's common stock, and the name and shareholdings of each officer and director and all officers and directors as a group. - -------------------------------------------------------------------------------- Title of Class Name and Address of Amount and Nature Percent of Beneficial Owner of Class Class - -------------------------------------------------------------------------------- Common Stock No. 50 Corporate 1,991,200 18.4% Ventures Ltd. 1255 W. Pender St. Vancouver, B.C. Canada V6E 2V1 Common Stock Cybergarden 695,000 6.4% Development, Inc. 1177 W. Hastings St. Suite 1710 Vancouver, B.C. Canada V6E 2L3 Common Stock Tarmac Management Ltd. 785,308 7.2% 1250 W. Hastings St. Vancouver, B.C. Canada V6E 2M4 Common Stock All officers and 100,000 .09% directors as a group (2 persons) - -------------------------------------------------------------------------------- 15 ITEM 3. DEFAULTS UPON SENIOR SECURITIES No report required. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Pursuant to a Definitive Proxy Statement dated December 19, 2000, the shareholders of the Company held a special meeting on January 30, 2001 in which the shareholders of the Company voted and approved the following: (i) the authorization for the board of directors to effect a reverse stock split of one-for-ten (the "Reverse Stock Split") of the outstanding Common Stock; (ii) the adoption of an amendment to the Company's Articles of Incorporation, as amended, which would effect the Reverse Stock Split, without having any effect upon the authorized and unissued shares of Common Stock; (iii) the election of the following two persons to serve as directors of the Company until their successor shall have been elected and qualified: Ron F. Horvat and James Bunyan; and (iv) the ratification of the selection of LaBonte & Co. as the independent public accountants of the Company for the fiscal year ending December 31, 2000. ITEM 5. OTHER INFORMATION No report required. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No exhibits required. (b) The following reports were filed: (i) Form 8-K on June 1, 2001. (ii) Schedule 13D on June 1, 2001. (iii) Schedule 13D on June 1, 2001. (iv) Schedule 13D on June 1, 2001. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOLDSTATE CORPORATION Dated: August 13, 2001 By: /s/ CARSON WALKER ------------------------------- Carson Walker President 16 -----END PRIVACY-ENHANCED MESSAGE-----