-----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, FH+Llg8I4vKu2QK4BB7xwWvU60Z7JaZuQcQ2I8suBmR+no9cNAObhaO4GMAbKT7+ PhqKUcjXZgRcckk3d9rnmQ== 0001050502-02-000386.txt : 20020515 0001050502-02-000386.hdr.sgml : 20020515 20020515113424 ACCESSION NUMBER: 0001050502-02-000386 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 02649263 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 goldstate302.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 March 31, 2002 [ ] 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 issuer's classes of common equity, as of the latest practicable date: Class Outstanding as of May 13, 2002 ------ ------------------------------ Common Stock, $.0003 par value 10,747,261 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 11 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15 ITEM 5. OTHER INFORMATION 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15 SIGNATURES 15 1
GOLDSTATE CORPORATION (An Exploration Stage Company) BALANCE SHEETS March 31, December 31, 2002 2001 ----------- ----------- (Unaudited) ASSETS CURRENT ASSETS Cash $ 13 $ -- ----------- ----------- TOTAL ASSETS $ 13 $ -- =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft $ -- $ 319 Accounts payable and accrued liabilities 37,137 33,844 Due to related parties 153,917 129,967 Accrued interest payable 6,806 4,234 ----------- ----------- 197,860 168,364 ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIT) Capital Stock 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 10,747,261 shares issued and outstanding 13,550 13,550 Additional paid-in capital 2,695,985 2,695,985 Deficit accumulated during the exploration stage (2,907,382) (2,877,899) ----------- ----------- (197,847) (168,364) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13 $ -- =========== =========== CONTINGENCIES (Note 1) 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 28, Three months Three months 1996 (inception) ended March ended March to March 31, 31, 2002 31, 2001 2002 ------------ ------------ ------------ 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 -- -- 170,000 ------------ ------------ ------------ -- -- 1,024,657 GENERAL AND ADMINISTRATIVE EXPENSES 26,911 41,125 2,366,227 INTEREST EXPENSE 2,572 8,266 194,830 GAIN ON SETTLEMENT OF LAWSUIT -- -- (678,332) ------------ ------------ ------------ NET LOSS FOR THE PERIOD $ (29,483) $ (49,391) $ (2,907,382) ============ ============ ============ BASIC NET LOSS PER SHARE $ (0.00) $ (0.01) ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,747,261 3,811,953 ============ ============ 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) February 28, Three months Three months 1996 (inception) ended March ended March to March 31, 31, 2002 31, 2001 2002 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period $ (29,483) $ (49,391) $(2,907,382) 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 - Gain on settlement of lawsuit -- -- (668,332) - Changes in assets and liabilities Accounts payable 3,293 13,609 95,230 Advances payable 23,950 27,516 239,332 Accrued interest payable 2,572 8,266 171,637 ----------- ----------- ----------- CASH FLOWS USED IN OPERATING ACTIVITIES 332 -- (2,209,515) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft (319) -- -- Sale of common stock -- -- 1,700,207 Advances received -- -- 1,880,521 Advances repaid -- -- (1,546,200) Proceeds from notes payable -- -- 175,000 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES (319) -- 2,209,528 ----------- ----------- ----------- INCREASE IN CASH 13 -- 13 CASH, BEGINNING OF PERIOD -- -- -- ----------- ----------- ----------- CASH, END OF PERIOD $ 13 $ -- $ 13 =========== =========== =========== The accompanying notes are an integral part of these interim financial statements 4
GOLDSTATE CORPORATION (An Exploration Stage Company) NOTES TO INTERIM FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ (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 March 31, 2002 had no material assets and a working capital deficiency and stockholders' deficiency of $197,847 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 to repay its debts and acquire a new business venture and ultimately to attain profitable operations. 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, 2001 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 three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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 and currently does not own any 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. The Company has also adopted the provisions of the Financial Accounting Standards Board Interpretation No.44, Accounting for Certain Transactions Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN 44"), which provides guidance as to certain applications of APB 25. FIN 44 is generally effective July 1, 2000 with the exception of certain events occurring after December 15, 1998. 5 GOLDSTATE CORPORATION (An Exploration Stage Company) NOTES TO INTERIM FINANCIAL STATEMENTS MARCH 31, 2002 ================================================================================ (Unaudited) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't) Net Loss per Common Share Basic loss per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive earnings per share reflects the potential dilution of securities that could share in the earnings of the Company. Because the Company does not have ay potentially dilutive securities, the accompanying presentation is only of basic loss per share. 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. NOTE 3: RELATED PARTY TRANSACTIONS During the three months ended March 31, 2002 $15,000 (2001 - $7,500) was incurred to a significant shareholder for administrative expenses. At March 31, 2002 $110,884 is owing to this shareholder as well as accrued interest of $6,806. During the three months ended March 31, 2002 $7,500 in consulting fees was accrued to a significant shareholder. At March 31, 2002 $42,083 is owing to this shareholder. During the three months ended March 31, 2002 advances of $950 were received from a shareholder and a relative of a significant shareholder. These amounts are unsecured, bear no interest and have no specified terms of repayment. 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. As of the date of this Quarterly Report, there has been no income realized from the business operations of the Company and the Company has ceased any and all gold exploration activities. The research by current management of prospective new business endeavors may result in the Company entering into business operations that are not in the minerals exploration field. Blackhawk II Property and Settlement of Litigation 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. 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. 7 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 and metallurgical recovery 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, as well as metallurgical recovery techniques. 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. 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 had not been successful in transferring the proprietary fire assay technology to Geneva or to any independent third party assay laboratory. 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 (the "Lawsuit"). The Company thus suspended further exploration of the Blackhawk II Property indefinitely due to (i) the independent assessment information which did 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; and (iii) the pending Lawsuit. Moreover, the Company deemed the probability of commercial grade gold or silver located in the Blackhawk II claims to be nil. On approximately September 25, 2001, Geneva, IGCO, INGC, and others entered into settlement agreements and releases with Dames & Moore, et. al., and AuRIC in which the parties agreed to settle in order to diminish the continuous burden, cost and expense of protracted ongoing litigation. See "Part II. Other Information. Item 1. Legal Proceedings" for further disclosure. New Business Endeavors During fiscal year ended December 31, 2001, 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. 8 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. Three-Month Period Ended March 31, 2002 Compared to Three-Month Period Ended March 31, 2001 The Company's net loss for the three-month period ended March 31, 2002 was approximately $29,483 compared to a net loss of approximately $49,391 for the three-month period ended March 31, 2001. During both three-month periods ended March 31, 2002 and 2001, respectively, the Company recorded no revenue. During the three-month period ended March 31, 2002, the Company incurred operating expenses of $29,483 compared to operating expenses of $49,391 incurred during the three-month period ended March 31, 2001 (a decrease of $19,908). During the three-month periods ended March 31, 2002 and 2001, respectively, the Company did not incur any claims maintenance fees, exploration or staking costs resulting primarily from suspension of any further exploration of the Blackhawk II Property during 2000. During the three-month period ended March 31, 2002, the Company incurred general and administrative expenses of $26,911 compared to general and administrative expenses of $41,125 incurred during the three-month period ended March 31, 2001. The decrease in general and administrative expenses during the three-month period ended March 31, 2002 was due primarily to a decrease in expenses related to the Company's 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 $26,911 incurred as general and administrative expenses during the three-month period ended March 31, 2002, $15,000 and $7,500 was incurred payable to Tarmac Management Ltd. ("Tarmac") and No. 50 Corporate Ventures Ltd. ("No. 50"), respectively, for amounts due and owing for managerial, administrative and financial services rendered. As of March 31, 2002, an aggregate of $110,884 in principal and $6,806 in accrued interest is due and owing Tarmac. As of March 31, 2002, an aggregate of $42,083 in principal is due and owing No. 50. During the three-month period ended March 31, 2002, the Company paid $ -0- to Tarmac and No. 50 towards the aggregate amounts due and owing. Such services rendered by Tarmac and No. 50 include, but are not limited to, financial, administrative and investor relations management. Both Tarmac and No. 50 are shareholders of the Company holding an approximate 7.31% and 6.98% equity interest, respectively. As discussed above, the decrease in net loss incurred during the three-month period ended March 31, 2002 as compared to the net loss incurred during the three-month period ended March 31, 2001 is attributable primarily to the decrease in general and administrative expenses. The Company's net loss during the three-month period ended March 31, 2002 was approximately (29,483) or $0.00 per share compared to a net loss of approximately ($49,391) or ($0.01) per share during the three-month period ended March 31, 2001. The weighted average number of shares outstanding was 10,747,261 for the three-month period ended March 31, 2002 compared to 3,811,953 for the three-month period ended March 31, 2001, after giving retroactive effect to the ten for one share consolidation completed on February 13, 2001. 9 LIQUIDITY AND CAPITAL RESOURCES The Company must raise additional capital. Further, the Company has not generated sufficient cash flow to fund operations and activities. Historically, the Company has relied upon internally generated funds, funds from the sale of shares of stock and loans from its shareholders and private investors to finance its operations and growth. The Company's future success and viability are entirely dependent upon the Company's current management to successfully research and identify new business endeavors, and to raise additional capital through further private offerings of its stock or loans from private investors. There can be no assurance, however, that the Company will be able to successfully research, identify and acquire new business endeavors and to raise additional capital. The Company's failure to successfully identify and acquire new business endeavors and to raise additional capital will have a material and adverse affect upon the Company and its shareholders. 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 March 31, 2002, the Company's current assets were $13 and its current liabilities were $197,860, which resulted in a working capital deficit of $197,847. As of the three-month period ended March 31, 2002, the Company's total assets were $13 compared to total assets of $-0- for fiscal year ended December 31, 2001. This increase in total assets from fiscal year ended 2001 was due primarily to cash. As of the three-month period ended March 31, 2002, the Company's total liabilities were $197,860 compared to total liabilities of $168,364 for fiscal year ended December 31, 2001. This slight increase in liabilities from fiscal year ended 2001 was due primarily to an increase in amounts due to related parties and advances payable and accrued liabilities due and owing by the Company to significant shareholders and debt holders which totaled $153,917 and $37,137, respectively. Stockholders' Deficit increased from ($168,364) for fiscal year ended December 31, 2001 to ($197,847) for the three-month period ended March 31, 2002. The Company has not generated positive cash flows from operating activities. For the three-month period ended March 31, 2002, net cash flows used in operating activities was $332 compared to $-0- of net cash flows used in operating activities for the three-month period ended March 31, 2001. The net operating loss of $29,483 decreased during the three-month period ended March 31, 2002 from a net operating loss of $49,391 during the three-month period ended March 31, 2001. Changes in working capital assets and liabilities decreased to an aggregate of $29,815 for the three-month period ended March 31, 2002 from an aggregate of $49,391 for the three-month period ended March 31, 2001. Cash flows from financing activities were ($319) for the three-month period ended March 31, 2002 relating to bank overdraft compared to $-0- for the three-month period ended March 31, 2001. 10 FUNDING Current management of the Company anticipates a possible increase in operating expenses in order to successfully research and identify new business endeavors. The Company may finance these expenses with further issuance of common stock of the Company. The Company believes that any anticipated private placements of equity capital and debt financing, if successful, may be adequate to fund the Company's operations over the next six months. Thereafter, the Company expects it will need to raise additional capital to meet long-term operating requirements. The Company may encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result in a requirement for additional cash before that time. If the Company raises additional funds through the issuance of equity or convertible debt securities other than to current shareholders, the percentage ownership of its current shareholders would be reduced, and such securities might have rights, preferences or privileges senior to its common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict the Company's business operations. PART II. OTHER INFORMATION Blackhawk II Property 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, 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 (collectively, the "Lawsuit"). 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 others for breach of contract against Geneva, INGC and others, defamation against IGCO, INGC, Geneva and others, injunctions against IGCO, INGC, Geneva and others, amongst other claims. In their defamation claims against IGCO, the plaintiffs sought 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 sought attorney's fees and costs. 11 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 sought 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 believed that the mining claims contain no commercial quantities of gold or silver. Dames & Moore sought to have the mining claims sold to compensate Dames & Moore for its services, materials and equipment. Dames & Moore also sought its fees and costs incurred in enforcing its claimed lien. IGCO and INGC filed an answer on or about August 8, 2000. 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 formed 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, alleged 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 required 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, obtained an expert opinion as to the absence of validity and 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. The court date was subsequently changed to October 26, 2001 pursuant to mutual consent of the parties in an attempt to mediate the dispute. Such mediation was unsuccessful. Agreements Relating to Litigation 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. 12 On June 22, 2001, IGCO, INGC, Geneva, Brent Pierce, MBM Consultants, Inc. and Michael B. Mehrtens entered into a settlement agreement (the "Mehrtens Settlement Agreement"). Pursuant to the terms of the Mehrtens Settlement Agreement, the parties agreed to treat the contents of the Mehrtens Settlement Agreement as strictly confidential and to not disclose such terms and provisions to anyone. As IGCO has not generated revenues and has no liquid assets to commit to fund the significant estimated future expenses associated with ongoing litigation, on June 28, 2001, Geneva, IGCO, INGC, Tristar Financial Services, Inc. ("Tristar") and Alexander Cox ("Cox") entered into a funds sharing agreement (the "Funds Sharing Agreement"). Pursuant to the terms of the Funds Sharing Agreement, (i) Tristar would fund the direct costs of the litigation on a best efforts basis relating to the Lawsuit for the period from April 1, 2001 to the date that the Lawsuit was settled; (ii) as consideration therefore, Tristar would receive thirty percent (30%) of the gross proceeds received by Geneva, IGCO and INGC from any and all settlements relating to the Lawsuit, plus the repayment of all payments and advances made by Tristar (the "Tristar Payment"); and (iii) the Tristar Payment would be shared with Cox in proportion of (a) the funds advanced and paid by Cox to Tristar for the purpose of funding the costs of the litigation, (b) divided by the total amount of funds advanced by and paid by Tristar, (c) times the amount of the Tristar Payment. Cox is a shareholder of IGCO and as of the date of this Quarterly Report, holds an approximate 17.12% equity interest in IGCO. On September 21, 2001, Geneva, IGCO, INGC and others entered into a settlement agreement with AuRIC and Ahmet Altinay (the "AuRIC Settlement Agreement"). Pursuant to the terms of the AuRIC Settlement Agreement, the parties agreed that: (i) significant additional expense and time would be incurred to proceed with and resolve the Lawsuit and therefore desired to settle the Lawsuit; (ii) AuRIC would pay an undisclosed sum; (iii) AuRIC would return three promissory notes in the principal amounts of $250,000 marked cancelled payable to AuRIC by the Company, IGCO and Vega-Atlantic Corporation, respectively; (iii) AuRIC would return all stock certificates received from the Company, IGCO and Vega-Atlantic Corporation, respectively; (iv) the parties would execute and jointly file a motion to dismiss the parties' respective claims and counterclaims in the Lawsuit; (v) the parties would release one another from any and all claims and liabilities, whether known or unknown, arising from or based upon the Lawsuit; and (vi) the Agreement for Services, the License Agreement and the related Sub-License Agreement would be deemed null, void and without further force or effect. On September 25, 2001, Geneva, IGCO, INGC, and others entered into a settlement agreement and release with Dames & Moore, et. al. (the "Dames & Moore Settlement Agreement"). Pursuant to the terms of the Dames & Moore Settlement Agreement, the parties agreed that: (i) solely to save the burden, cost and expense of continued litigation, the Lawsuit and the Idaho Lawsuit would be settled without any admission of liability by any party; (ii) the parties would execute and jointly file a motion to dismiss the parties' respective claims and counterclaims in the Lawsuit and the Idaho Lawsuit with prejudice; (iii) the parties would release one another from any and all claims and liabilities, whether known or unknown, arising from or based upon the Lawsuit and the Idaho Lawsuit, including those arising from or related to the Blackhawk projects, mining claims and property; (iv) each party would bear its own respective attorneys' fees and costs incurred in connection with the Lawsuit, the Idaho Lawsuit and the Dames & Moore Settlement Agreement; and (v) Dames & Moore would pay $798,000. 13 Results of Settlement Pursuant to the Assignment Agreement, the Company transferred and conveyed to Geneva the potential claims and causes of action that the Company may had under the Sub-License Agreement with Geneva. The amount of damages to be recovered by Geneva and INGC pursuant to the Dames & Moore Settlement Agreement and the AuRIC Settlement Agreement were primarily used for payment of attorneys fees, expert witness fees, and associated costs of litigation. The Company, therefore, was not in a position to retain any portion of the cash settlement damages. IGCO and INGC had paid an aggregate of $938,805 in cash to AuRIC and Dames & Moore for services before the litigation commenced. IGCO and INGC also owed $219,469 to Dames & Moore for disputed but unpaid services. Prior to the litigation, (i) AuRIC received 100,000 shares of Common Stock from the Company and a promissory note in the principal amount of $250,000, and (ii) Geneva received a promissory note in the principal amount of $250,000 and a promissory note in the principal amount of $100,000. As of the date of this Quarterly Report, the Company has received: (i) the share certificate issued to AuRIC representing 100,000 shares of Common Stock, which has been cancelled and the shares returned to treasury; (ii) the promissory note in the principal amount of $250,000 payable by the Company to AuRIC, which has been cancelled; (iii) the promissory note in the principal amount of $250,000 payable by the Company to Geneva, which has been cancelled; (iv) the promissory note in the principal amount of $100,000 payable by the Company to Geneva, which has been cancelled; and (v) $10,000. Geneva, IGCO, INGC and other parties also received an aggregate of $808,000 in settlement proceeds. An aggregate in excess of approximately $2,000,000 was incurred as legal fees and associated direct costs relating to the litigation. Of the $808,000 in settlement proceeds, $345,000 was paid for outstanding amounts due and owing to legal counsel relating to the litigation, $10,000 was paid to the Company, and the remaining $453,000 was paid to Tristar to provide a partial recovery of approximately $800,000 paid by Tristar pursuant to the provisions of the Funds Sharing Agreement. At the time the respective settlement agreements were entered into, after incurring in excess of $2,000,000 in legal fees and associated direct costs relating to the litigation, management of IGCO estimated that future litigation costs to continue through the trial stage could have reached an additional $1,000,000, with no guarantee of either outcome or award. Management of IGCO further believed that if the litigation proceeded to trial, any positive future monetary award in favor of IGCO and INGC could have been subjected to a lengthy appeals process and further legal costs. While Dames & Moore, currently a subsidiary of URS Corporation, has approximately $2 billion in annual revenues representing a formidable resource for future legal expenses, IGCO has not generated revenues and has no liquid assets to commit to such significant estimated future expenses associated with ongoing litigation. Management of IGCO believes, therefore, that settlement of the litigation and execution of the respective settlement agreements was in the best interests of IGCO, the Company and respective shareholders. 14 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS No report required. ITEM 3. DEFAULTS UPON SENIOR SECURITIES No report required. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No report required. ITEM 5. OTHER INFORMATION No report required. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No report required. 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: May 13, 2002 By: /s/ LAARA SHAFFER ------------------------------- Laara Shaffer President 15 -----END PRIVACY-ENHANCED MESSAGE-----