-----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, SGFDBi7HWQNNSIFFV9SbFUTwDOh5necY5IZCaBXx2m1zFPNzT6UbL0g4EigeenTC 7jHvEP9DFzLfOdIMGFI/vA== 0001050502-99-000424.txt : 19990715 0001050502-99-000424.hdr.sgml : 19990715 ACCESSION NUMBER: 0001050502-99-000424 CONFORMED SUBMISSION TYPE: 10SB12G PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19990714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDSTATE CORP CENTRAL INDEX KEY: 0001050248 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 880354425 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G SEC ACT: SEC FILE NUMBER: 000-26705 FILM NUMBER: 99664045 BUSINESS ADDRESS: STREET 1: 2950 E FLAMINGO RD STREET 2: STE G CITY: LAS VEGAS STATE: NV ZIP: 89121 BUSINESS PHONE: 8882285526 MAIL ADDRESS: STREET 1: 2950 E FLAMINGO RD STREET 2: STE G CITY: LAS VEGAS STATE: NV ZIP: 89121 10SB12G 1 FORM 10SB12G SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS Under Section 12(b) or (g) of the Securities Exchange Act of 1934 GOLDSTATE CORPORATION (Name of Small Business Issuer in its charter) State of Nevada (State or other jurisdiction of incorporation or organization) 88-0354425 (I.R.S. Employer Identification No.) 3305 Spring Mountain Road, Suite 60 Las Vegas, Nevada 89102 (Address of Principal Executive Offices) (888) 228-5526 (Issuer's telephone number) Securities to be registered pursuant to Section 12(b) of the Act: NONE Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.0003 PAR VALUE FORM 10-SB Goldstate Corporation TABLE OF CONTENTS PART I Page Glossary Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Management's Discussion and Analysis or Plan of Operation. . . . . 17 Item 3. Description of Property. . . . . . . . . . . . . . . . . . . . . . 19 Item 4. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 5. Directors, Executive Officers, Promoters and Control Persons . . . 20 Item 6. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 22 Item 7. Certain Relationships and Related Transactions . . . . . . . . . . 23 Item 8. Description of Securities. . . . . . . . . . . . . . . . . . . . . 24 PART II Item 1. Market Price and Dividends on the Registrant's Common. Equity and Other Shareholder Matters . . . . . . . . . . . . . . . 29 Item 2. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 30 Item 3. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . 30 Item 4. Recent Sales of Unregistered Securities. . . . . . . . . . . . . . 31 Item 5. Indemnification of Directors and Officers. . . . . . . . . . . . . 33 Item 6. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 35 PART III Item 1. Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . 35 Item 2. Description of Exhibits. . . . . . . . . . . . . . . . . . . . . . 35 FORM 10-SB Goldstate Corporation GLOSSARY Chain of Custody: The complete charge and control of samples from subject exploration site to testing facility by an independent party Claim staking & maintenance: - Claim staking process of locating claims and placing monuments on the claim - Claim maintenance fulfilling the annual requirements to continue to hold claims per the correct regulations Classic veins/lode: Narrow widths of valuable mineral within barren wall rocks Core hole: A hole drilled to provide a sample of rock by means of a diamond impregnated bit which produces a solid cylinder of the rock being cored Discontinuous ring: In the context used means - semi-continuous outcrops that, if connected, would form a circle Drill hole geology: The geology of the sub-surface as determined from drill holes Eruptive Center: Major volcanic center Ferrolatite: A latite with a high iron content Fire assay testing: The process whereby the gold and silver content of a rock is determined by fusion of a measured quantity of crushed rock with a flux and the precious metals collected in molten lead. The lead button is then oxidized in the furnace to remove the lead leaving a tiny bead of gold and silver, which is parted and weighed Leach analysis: Measurement of the concentration of an element within a rock by wet chemical means Lode mining claim: A staked mining location not exceeding 1500 ft X 600 ft where the character of the deposit is veins or lodes of quartz or other rock in place bearing gold, silver, cinnabar, lead, tin, copper, or other valuable deposits FORM 10-SB Goldstate Corporation Page 1 of 37 Molten crustal & mantle derived materials: A hybid melt formed by mixing melted crust with basic magma derived from the mantle of the earth Primary vs secondary deposits: Primary deposits of valuable minerals are those that formed by relatively deep earth processes; whereas secondary deposits are those formed at or near the earth's surface by the action oxidation, weathering and water Proven/engineered ore reserve: - Proven Reserves can be accurately estimated by establishing the size, shape and mineral content of an ore body by inspection and closely spaced samples, Intergold does not yet have reserves - Ore Reserves refer to the tonnage and grade of an economically and legally extractable ore body. Intergold does not yet have ore reserves Quartzite: A sedimentary rock consisting mostly of silica sand grains that have been welded together by heat and compaction Rhyolite lava flows: A volcanic rock containing greater than/= 65% silica Tenor: Grade or concentration of a valuable mineral in rock, particularly in reference to gold and silver Unequilibrated mineral assemblage: The occurrence of incompatible minerals in the same igneous rock Vent area: Location of eruptive activity Volcanic depression/ caldera: Depression in the earth's surface caused by volcanic explosive activity and subsequent collapse FORM 10-SB Goldstate Corporation Page 2 of 37 PART I As used in this Registration Statement, the term "Company" refers to Goldstate Corporation. The term "IGCO" refers to Intergold Corporation, a Nevada corporation. The term "INGC" refers to International Gold Corporation, the wholly owned subsidiary of Intergold Corporation. Item 1. Description of Business. Overview Goldstate Corporation was incorporated on February 28, 1996 under the laws of the State of Nevada, as "Image Perfect, Incorporated". On December 12, 1996, an amendment to the Articles of Incorporation was filed effecting a change in the corporate name to "Dynacom Telecommunications Corporation". On November 7, 1997, an amendment to the Articles of Incorporation was filed effecting a change in the corporate name from Dynacom Telecommunications Corporation to its present name, "Goldstate Corporation". The Company's principal executive offices are located at 3305 Spring Mountain Road, Suite 60, Las Vegas, NV 89102. Its telephone number is (888) 228-5526, its facsimile number is (800) 721-2406, its e-mail address is investor@goldstatecorp.com, and its website is www.goldstatecorp.com. The Company is engaged in the exploration and development of gold and precious metals in the United States. The Company holds a fifty-one percent (51%) joint venture interest in profits with Intergold Corporation, a Nevada corporation ("IGCO") and its wholly-owned private subsidiary, International Gold Corporation, a Nevada corporation ("INGC"), pertaining to 439 unpatented lode mining claims located in Lincoln and Gooding Counties, in south-central Idaho (the "Blackhawk II Property"). The Company is currently conducting work programs involving exploration and development 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 will continue through the year 2000. The Company will also contribute all future capital required in the further exploration and development of the Blackhawk II Property. An unpatented mining claim is a parcel of federal land with respect to which there has been asserted a right of possession under the General Mining Law of 1872 for purposes of developing and extracting the minerals discovered on such property. Although title under a valid unpatented mining claim is not "legal title" in the usual sense of that term, the possessory title has been recognized by the Supreme Court of the United States as a valid property right. Only when a mining claim is patented is there an affirmative government grant pursuant to which legal title vests according to usual concepts of real property ownership. See "Item 1. Description of Business - Government Regulation". FORM 10-SB Goldstate Corporation Page 3 of 37 As of the date of this Registration Statement, the Company is in the developmental stage and has not generated revenues from operations. Business Strategy The Blackhawk II Property is comprised of 439 contiguous unpatented lode mining claims in Lincoln and Gooding Counties, Idaho, comprising approximately 14 square miles. The Blackhawk II Property is accessible from Highway 75 by a gravel side road (Thorn Creek Reservoir Road), then turning left at the Y in the road, and travelling approximately 7 miles. All roads to the Blackhawk II Property are ungated. This site is approximately 9 miles west of Highway 75 and roughly 38 miles north of Twin Falls, a small city of approximately 28,000 people. The Blackhawk II Property is in the same proximity to certain unpatented lode mining claims staked by IGCO's subsidiary, International Gold Corporation ("INGC") (the "Blackhawk Property") that have been the subject of extensive assay and drilling programs conducted by INGC. IGCO's wholly-owned subsidiary, INGC, held possessory title to the unpatented lode mining claims on the Blackhawk II Property, which is public land under the jurisdiction of the Shoshone District Office of the Bureau of Land Management ("BLM"). INGC transferred the 439 unpatented lode mining claims located on the Blackhawk II Property to the Company via a quit claim on June 16, 1999. All such mining claims are subject to regulation under the Federal Land Policy and Management Act of 1976 (the "Act"), and surface management is vested with the BLM for such mining claims. In general, the effect of the Act provides that such mining claims would be conclusively deemed void and forfeited in the event IGCO, INGC or the Company failed to timely pay the Federal annual mining claim maintenance fees for each assessment year. The 439 unpatented lode mining claims on the Blackhawk II Property exhibit similar geologic characteristics to the mining claims on INGC's Blackhawk Property that is comprised of 321 unpatented lode claims. Although the Blackhawk II Property has not been explored to the extent of the Blackhawk Property, the Blackhawk II Property is considered by management to contain potential mineralized areas due to its similar geology. Management of the Company intends to continue its efforts to explore, develop and detail the potential mineralization on the Blackhawk II Property, and define its specific metallurgical and recovery methods as required. Surface Work and Analysis The Blackhawk II Property lies within the Magic Reservoir eruptive center - a volcanic depression (or caldera) that has been filled with rhyolite lava flows which are dated at between five to six million years before present and known as Moonstone Rhyolite. This eruptive center occupies an area of approximately one hundred square miles. This broad region indicates that rhyolite lavas would have issued from multiple vents given the short distance that viscous rhyolite lava can flow before cooling to an immobile mass. Accordingly, management believes that certain rhyolite vent areas may be the locus for possible mineralization in this volcanic formation. FORM 10-SB Goldstate Corporation Page 4 of 37 Moreover, the Moonstone Rhyolite is similar chemically to Square Mountain Basalt (technically, a ferrolatite), that lies in a discontinuous ring external to the Moonstone Rhyolite. Both the ferrolatite and the Moonstone Rhyolite contain abundant partially digested fragments of crustal rocks (quartzite and granite) that range in size from less than one centimeter up to one meter and, in addition, both rock types are characterized by an unequilibrated mineral assemblage that may have been generated by mixing of molten crustal and mantle-derived materials. Mapping. The Company will begin geological survey by an initial mapping of the area for exploration. Such a map will note surface features and the various types of surface rock, as well as estimations of the depth of rock formations and structural features. Management is currently intending to make preliminary investigations for property exploration and development on the claimed areas in the following areas: o Land Acquisition and Maintenance o Regional Exploration of the Property o Testing Metallurgical Process for Gold Extraction o Preliminary Drill Testing o Mapping of Surface Geology Management believes that a substantial portion of funding required for preliminary property exploration and development investigation will be made pursuant to a series of private placement offerings commencing after October 7, 1999. Initial Stage of Development Plan. Exploration and development of the Blackhawk II Property will benefit and gain from the experience of metallurgical work, assay testing and drilling conducted on INGC's mining claims on the Blackhawk Property. The Company is currently addressing possible work programs involving assay testing, drilling, metallurgical recovery, and preliminary financial and economic research and development. An assay test is an analysis of rock samples conducted to determine the amount of valuable material they contain. The average assay of an ore deposit, referred to as the tenor or grade of the ore, is ordinarily expressed as a percentage or in units of weight per ton. When ores contain more than one commercially important chemical element, each element is assayed to determine the total value of the ore. Moreover, when the tenor of an ore deposit decreases regularly or irregularly into worthless rock, numerous closely spaced assays may be needed to distinguish ore from undesirable impurities or waste that has no potential value. FORM 10-SB Goldstate Corporation Page 5 of 37 The width of the ore zone may be as important as its tenor and, hence, tenors may be expressed in "percent meters". Although the size, tenor, shape, depth and other geological characteristics of the deposit are important, nongeological factors are also equally important in the economic definition of ore. Nongeological factors include prices, geography, climate, availability of transportation, labor contracts, and governmental policies (especially those dealing with environmental considerations, property rights and taxation). See "Risk Factors" below. As evidenced by INGC's assay testing and recent drilling program on it's Blackhawk Property, it was determined that gold mineralization was defined within the Blackhawk Property and occupied a 6,000 foot by 2,000 foot surface area, elongated in a WNW direction. Electron microscope analysis showed that the rock contains disseminated gold in an extremely finely divided state with the majority of the gold particles being less than one micron with some rare occurrences of gold particles up to twenty microns in size. Management of INGC has retained AuRIC Metallurgical Laboratories, LLC of Salt Lake City, Utah ("AuRIC") to carry out fire assay testing and chemical leach analysis of the core samples derived from drilling on the Blackhawk Property. AuRIC has developed a fire assay procedure that has been validated in a November 30, 1998 report by Dames & Moore ("Dames & Moore") entitled "Verification of Validity of Developed Analytical Procedures - The Blackhawk Project", and a subsequent report dated January 6, 1999 entitled "Determination of Repeatability of the Verified Developed Analytical Procedures For the Blackhawk Project". AuRIC has conducted this fire assay procedure of core samples of holes drilled on the Blackhawk Property. Moreover, Dames & Moore has issued two subsequent reports titled "Reconnaissance Site Visit and Surface Sampling" dated January 21, 1999 and "Verification of Validity of Developed Extraction Methods for the Blackhawk Project" dated April 7, 1999. Through AuRIC, the services of Dames & Moore were engaged by INGC to provide validation audits of each step of the assay process. INGC has also engaged Dames & Moore independently to undertake a wide variety of services, including development geology, chain of custody work, assay data management, permit consulting, project control management. Dames & Moore is an internationally recognized engineering and consulting firm and has performed over 85,000 projects for companies worldwide. Management believes that they have a broad understanding of mining industry priorities and regulatory concerns. 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 on the Blackhawk Property formed the subject of the November 1998 Dames & Moore independent report, providing verification of mineralization in the actual testing. FORM 10-SB Goldstate Corporation Page 6 of 37 Preliminary surface sampling on the Blackhawk II Property indicates rock type consistent with certain geological trends found on the Blackhawk Property. The exploration and development of the Blackhawk II Property could benefit and gain from the experience of metallurgical work, assay testing and drilling conducted on INGC's mining claims on the Blackhawk Property. Management is currently addressing its requirement for the provision of services with AuRIC and independent engineering consultants regarding work programs involving assay testing, drilling, metallurgical recovery and preliminary financial and economic research and development. See "Item 1. Description of Business - Employees and Consultants". From inception (February 28, 1996) to December 31, 1998, the Company has spent approximately $780,000 (66%) of total operating expenses on management and administrative costs relating to the exploration and development of the Blackhawk II Property and public company related administration and finance. The Company has incurred approximately $143,905 on expenses paid to the BLM and for staking costs incurred by and reimbursed to INGC. From January 1, 1999 to the date of this Registration Statement, the Company has spent approximately $600,000 (93%) of total operating expenses on management and administrative costs relating to the exploration and development of the Blackhawk II Property and public company related administration and finance. As of the date of this Registration Statement, the Company has not conducted any mining operations on the Blackhawk II Property, nor has the Company made any physical improvements on the Blackhawk II Property, surface or subsurface. Second Stage of Development Plan. Both the Blackhawk II Property and INGC's Blackhawk Property are without known reserves, and the proposed program for the Blackhawk II Property is exploratory in nature. In the event the Blackhawk II Property proves to also host gold-silver mineralization, management of the Company will then address preliminary resource estimates. This includes the "second stage", which is to quantify the magnitude of potential mineralization by conducting extensive drilling, assay testing, geostatistical, metallurgical recovery, and financial and economic research and development stages. The distinction between "ore reserves" and "resource" is of prime economic and political importance. A "reserve" includes all known deposits that could be economically and legally extracted at the time of the reserve determination. Reserves are customarily stated in terms of ore when dealing with metalliferous minerals. There are three categories of reserves: proven ore, probable ore and possible ore. To be identified as a reserve, the material must have been actually sampled or be an inferred extension of sampled reserves. FORM 10-SB Goldstate Corporation Page 7 of 37 The estimation of reserves is done by physically determining their size and assaying the deposits as described above. Conversely, resources are mineralization based on geological evidence and assumed continuity. Resources may or may not be supported by samples, but are estimated by various statistical methods and data, such as considering the amount and rate of discoveries in past years, the relative sizes of known deposits, and comparing the known or inferred geology of prospected areas with the production and reserves of geologically similar known areas. The estimation of either a reserve or a resource is sensitive to changes in the price of the mineral commodity. See "Risk Factors" below. During fiscal years 1996, 1997 and 1998, the Company has not generated any revenues from operations. The Company's successful financial operations and movement into an operating basis are contingent on the development of the mining claims and the continuing ability to generate capital financing. Joint Venture Agreement The Company owns a fifty-one percent (51%) joint venture interest in profits to be realized from the development of the 439 unpatented lode mining claims on the Blackhawk II Property. On December 11, 1997, the Company entered into a joint venture agreement with IGCO and its wholly-owned subsidiary, INGC, pertaining to the exploration and development of gold and other precious metals on the Blackhawk II Property (the "Joint Venture Agreement"). Under the terms of the Joint Venture Agreement, the Company paid $100,000 and issued 1,000,000 shares of its restricted shares of Common Stock to IGCO. The terms of the Joint Venture Agreement further provide that the Company will be the operating partner and will be responsible for all project funding. The Company will receive eighty percent (80%) of all net profits realized from the joint venture until its invested capital is repaid, and IGCO and INGC will receive twenty percent (20%) of all net profits. After the invested capital of the Company has been repatriated, the Company will then receive fifty-one percent (51%) of the net profits realized from the joint venture and IGCO and INGC will retain forty-nine percent (49%) of the net profits realized from the joint venture. The parties have agreed that the Company will contribute all future capital requirements for further exploration and mining operation costs of the claims on the Blackhawk II Property. See "Item 7. Certain Relationships and Related Transactions". Costs and Effects of Compliance with Environmental Laws At the appropriate point in the exploration and development process if applicable, it is anticipated that a qualified consulting company will be retained to perform environmental studies, reports, required governmental submissions, and provide environmental cost estimates for the future development of the Blackhawk II Property in order to ensure that the Company complies with all environmental laws. FORM 10-SB Goldstate Corporation Page 8 of 37 Work contemplated by management to be conducted by a qualified consulting company relating to environmental compliance is in the permitting function where the following task may be undertaken: 1. Preliminary Environmental Report, which is applicable to Environmental Impact Statement work, may be required later in the project during permitting under the National Environmental Policy Act. The Preliminary Environmental Report task, should it become necessary, is to collect preliminary environmental data that will be used to help scope the Environmental Impact Statement permitting effort. During this task, a qualified consulting company will collect easily assessable existing environmental data, concentrating on five discipline areas: (i) land uses, (ii) water resources, (iii) biological resources, e.g., wildlife and plants, (iv) cultural resources, and (v) hazardous waste. Emphasis will be on obtaining data from existing sources, such as Shoshone District BLM, National Wetland Inventory, Idaho GAP (satellite imagery information), Idaho Department of Fish and Games, Idaho State Lands Department, Idaho Natural Heritage Program, Idaho State Historic Preservation Office (SHPO), and other agency sources. Data will be requested to develop an environmental data base for various project uses. If and when the requirement becomes applicable, data collection will concentrate on those resources that are expected to help develop information for permitting the first phase of a potential mine: o Land Uses Land Jurisdiction Existing and Planned Land Uses Linear Facilities (access, power lines, pipelines, etc.) Special Management areas, such as wilderness study areas, areas of critical environmental concern County Comprehensive Plan Nearby Communities Existing aerial photographs would be used to assist in identifying existing land uses and access. o Water Resources Perennial and Intermittent Streams Springs Wetlands Groundwater Depth and Initial Characterization o Biological Resources Wildlife Habitats Threatened and Endangered Plant and Animal Species Vegetation Wetlands and Riparian Zones FORM 10-SB Goldstate Corporation Page 9 of 37 o Cultural Resources Known Historical or Archeological Sites and Districts Previous Survey Locations Indian Tribes All environmental information would be subsequently mapped, and inventory maps will be produced. The resources would then be assigned permitting or environmental sensitivity, which is defined as the probable adverse response of each resource to proposed mining operations. As of the date of this Registration Statement, the Company cannot reasonably estimate the costs and effects of compliance with environmental laws due to the preliminary nature of development of the Blackhawk II Property. The Company expects that no costs relating to environmental compliance will be incurred before December 31, 1999 (although such estimate is preliminary and requires verification commensurate with future stages of development of the Blackhawk II Property). Future costs of compliance with environmental laws are also dependent on the nature and impact of future unknown events and the outcome of development not yet conducted. Employees and Consultants As of the date of this Registration Statement, the Company does not employ any persons on a full-time or on a part-time basis. All services for the Company are provided either by verbal commitment, contract, work orders or letter agreements on an "as needed" basis. The following lists and described certain services performed for the Company. See "Item 5. Directors, Executive Officers, Promoters and Control Persons". (i) Dr. Michael Mehrtens, the Chief Geologist for the Company, performs consulting services for the Company and invoices the Company through MBM Consultants, Inc. (ii) The Company and Geneva Resources, Inc. of Nevada ("Geneva") entered into a technology sub-license agreement dated March 18, 1999 (the "Sub-License Agreement"). Pursuant to the Sub-License Agreement, the Company has acquired from Geneva a sub-license to utilize AuRIC's proprietary information and related previous 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. (iii)The Company entered into a contract dated July 1, 1999 with Investor Communications International, Inc. ("ICI") whereby ICI will perform a wide range of management, administrative, financial, marketing, and public company operational services for a two-year period. FORM 10-SB Goldstate Corporation Page 10 of 37 The Company is not a party to any labor contract or collective bargaining agreement. The Company has experienced no significant labor stoppages in recent years, and management believes that such relations are satisfactory. Patents, Licenses, Trademarks, Concessions and Royalty Agreements The Company has no patents, trademarks, licenses, franchises, concessions or royalty agreements that are material to its business as a whole. Government Regulation General. The Company's business operations in general are subject to substantial governmental regulation including federal, state and local laws concerning, but not limited to, such factors as safety, land use and environmental protection. The Company must also comply with local, state and federal requirements regarding exploration and drilling operations, public safety, air quality, water pollution, reclamation, solid waste, hazardous waste and wildlife protection, as well as laws protecting the rights of other property owners and the public. The Company must also obtain and comply with local, state and federal permits, including waste discharge requirements, other environmental permits, use permits, plans of operation and other authorizations. Amendments to current laws and regulations governing operations and activities of an exploration, development and mining company or more stringent implementation of such laws are actively considered from time to time. See "Risk Factors" Mining Claims. The Blackhawk II Property is located on federal lands, managed by the Bureau of Land Management (the "BLM"). Title to mineral interests on such land is usually less certain than is the case with privately owned property, and activity on such land is usually subject to more stringent controls than is the case with privately owned property. The following is a description of mining claims on federal land and the requirements established by law which must be met to obtain or keep a valid mining claim. An unpatented mining claim is a parcel of federal land with respect to which there has been asserted a right of possession under the General Mining Law of 1872 for purposes of developing and extracting the minerals discovered on such property. The possessory rights which represent title under any valid unpatented mining claim do not arise by any instrument of grant from the United States or out of any action by any officer or agency of the federal government or any state government. Instead, the possessory title arises as a matter of law out of the performance by the locator(s) of certain acts in compliance with the requirements of federal and state law. Such possessory title, when validly initiated, endures unless lost through abandonment or through a forfeiture, which may result from failure to comply with filing and recording requirements or a default with respect to performance. Although title under a valid unpatented mining claim is not "legal title" in the usual sense of that term, the possessory title has been recognized by the Supreme Court of the United States as a valid property right. Only when a mining claim is patented is there an affirmative government grant pursuant to which legal title vests according to usual concepts of real property ownership. FORM 10-SB Goldstate Corporation Page 11 of 37 Lode claims and placer claims are two distinct classes of mining claims. Lode claims relate to a primary ore deposit located within definite boundaries including classic veins or lodes. Placer claims relate to secondary deposits containing minerals which are generally more dispersed in nature and less well defined by surrounding rock. In order to maintain a valid unpatented mining claim, it is necessary to pay BLM and county levies for such claims on an annual basis. Failure to pay such levies for any year may subject the claim to possible title relocation by third parties and argument by the federal government that the claim is invalid. In general, in order for a mining claim to be eligible for patent, there must be discovery of a valuable mineral deposit. If such a discovery has been made, the owners of the claim may institute patent proceedings with respect to the claim in the BLM land office for the state in which the land is located. After the application for patent is filed, it is subject to challenge, protest or contest by the government or third parties on any ground tending to show that the applicant has failed to comply with legal requirements for valid mineral entry or to challenge by adverse claimants. Contests by the government are generally resolved through administrative proceedings; adverse claims by other claimants are usually resolved by judicial proceedings. If the contest or adverse claim is sustained, the application for patent would be denied. The Company has acquired the right to explore for minerals on unpatented claims on the Blackhawk II Property through its joint venture agreement with IGCO and INGC, and until such time as patent applications are filed and granted, the claims may be subject to challenge. The challenge of unpatented mining claims by private individuals or entities or various agencies of the federal government is not uncommon. Risk Factors Relating to the Business of the Company The shares of the Company are highly speculative and involve an extremely high degree of risk. Shareholders of the Company should consider the following risk factors. Lack of Substantial Operating History and Revenues. The Company is in the developmental stage, and has no substantial history of operations. Therefore, the Company does not have any prior financial results upon which an assessment of the Company's potential for success may be based. Accordingly, the success of the Company is dependent on management's ability to continue financing the research, exploration, and development programs for the Blackhawk II Property in order to quantify the magnitude of the potential mineralization and, ultimately, the drilling, assay, metallurgical and geostatistical studies to define a commercially viable recovery process. The Company faces all of the risks specifically inherent in the type of business in which the Company engages. There can be no assurance that the Company will be able to operate successfully or profitably. FORM 10-SB Goldstate Corporation Page 12 of 37 Highly Speculative Nature of Mineral Acquisition and Exploration. Exploration for minerals is highly speculative, even when conducted on properties which are believed to contain significant deposits of minerals. Overall, most exploration projects undertaken do not result in the discovery of commercially mineable deposits of ore. The financial success of the Company may depend to a large extent upon the ability of the Company to find third parties to successfully mine the Blackhawk II Property. The total amount required in order to develop a mineral deposit and place it into commercial production including, in some cases, the construction and operation of milling or refining facilities is significantly greater than the cost of exploration. It is possible that any reserves discovered by the Company on the Blackhawk II Property may not exist in sufficient quantities to justify the expense of development and production. Uncertainty of Title to Mining Claims. The Company's unpatented lode mining claims located on the Blackhawk II Property are on federal land. It should be understood that there is a degree of uncertainty with respect to the validity of any unpatented mining claim. Title problems could impair the Company's ability to conduct mining activities and potentially negate what might otherwise constitute encouraging results from exploration or prevent the Company from acquiring any interest in minerals discovered as a result of its exploration. See "Government Regulation". Dependence on Key Personnel. The Company is in the developmental stages with no substantial prior operating history. The success of the Company will depend to a significant extent upon the efforts and abilities of its officer and contractors. Certain contractors of the Company have considerable experience in mining and mineral exploration and analysis. The officer of the Company and the administrative and managing consultant to the Company have limited experience in the mining industry, however, such officer and the administrative and managing consultant to the Company have considerable experience in the development, management and finance of start-up companies. Therefore, the loss of the Company's officer/director or any of its contractors could be detrimental to the operations of the Company. The Company has not entered into any long-term employment agreements with nor has it purchased "key man" life insurance for its officer/director. The Company's officer/director may engage in other businesses for his own account. Mr. Gooding will devote such time to the affairs of the Company as he deems necessary. Dependence on Existing Contractual Relations. The Company's success may depend on the continued existence of favorable contractual relations with IGCO, which includes the Joint Venture Agreement dated December 11, 1997 with IGCO and INGC. The Company's operations would be materially and adversely affected by the failure of the Company to fulfill its obligations and duties pursuant to the terms of the Joint Venture Agreement, which include maintenance of the work program in the annual amount of $250,000 and contribution of all future capital FORM 10-SB Goldstate Corporation Page 13 of 37 requirements for the further exploration and mining operation costs of the claims on the Blackhawk II Property. There is no assurance that such favorable contractual relations will continue and, if so, that they will be in the best interests of the Company. Need for Additional Financing. The Company's exploration and development programs will be designed to determine the magnitude of the mineralization on the Blackhawk II Property. If mineralization does exist in commercially mineable quantities and in the form and manner anticipated by management of the Company, substantial additional financing may be needed to fund further evaluation work and mining processes. The Company may not have sufficient funds to cover such expenses and, therefore, substantial additional funds will be required. The Company will attempt to raise such funds from additional offerings of shares of stock, however, there can be no assurance that the Company will be successful in raising additional capital. If the Company is not successful in obtaining additional funds, the Company may resort to cost-sharing arrangements and could be required to give up a significant portion of its interest in the Blackhawk II Property. General Conflicts of Interest. The Company's officer/director may engage in other business interests for his own account in which he may devote a certain amount of his attention. As a result, there may be potential conflicts of interest including, among other things, time, effort and corporate opportunity, which may result from participation by such officer/director in potentially competing business ventures. Such conflicts can be resolved through the exercise by this individual of judgment consistent with his fiduciary duties to the Company. The officer/director of the Company intends to resolve such conflicts in the best interests of the Company. Moreover, the officer/director of the Company will devote his time to the Company as he deems necessary. Future Sales of Common Stock. As of the date of this Registration Statement, the Company has 14,131,300 shares of its Common Stock issued and outstanding. Of the 14,131,300 of the Company's current outstanding shares of Common Stock, 12,025,050 shares are free trading and 2,106,250 shares are restricted as that term is defined in Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The Securities Act and Rule 144 promulgated thereunder place certain prohibitions on the sale of such restricted securities. Such restricted shares will not be eligible for sale in the open market without registration except in reliance upon Rule 144 under the Securities Act. In general, a person who has beneficially owned shares acquired in a non-public transaction for at least one year, including persons who may be deemed "affiliates" of the Company as that term is defined under the Securities Act, would be entitled to sell within any three month-period a number of shares that does not exceed the greater of 1% of the then outstanding shares or the average weekly trading volume on all national securities exchanges and through NASDAQ during the four calendar weeks preceding such sale, provided that certain current public information is then available. If a substantial number of the shares owned by the existing shareholders were sold pursuant to Rule 144 or a registered offering, the market price of the Company's Common Stock could be adversely affected. FORM 10-SB Goldstate Corporation Page 14 of 37 Volatility of Stock Price. The markets for equity securities have been volatile and the price of the Company's Common Stock could be subject to wide fluctuations in response to quarter to quarter variations in operating results, news announcements, trading volume, sales of Common Stock by officers, directors and principal shareholders of the Company, general trends, changes in the supply and demand for the Company's shares, the price of gold or silver, and other factors. Broker-Dealer Sales of the Company's Shares. It is likely that the common shares of the Company will be defined as "penny stocks" under the Securities Exchange Act of 1934, as amended (the "Exchange Act") until the Company's common shares are quoted on the NASDAQ system operated by the National Association of Securities Dealers, Inc. or listed on a national securities exchange. The Exchange Act and such penny stock rules and regulations promulgated thereunder generally impose additional sales practice and disclosure requirements upon broker-dealers who sell the Company's Common Stock to persons other than "accredited investors" (generally, defined as institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or an annual income exceeding $200,000 ($300,000 jointly with a spouse)) or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, the broker-dealer must make a suitability determination for each purchaser and receive the purchaser's written agreement prior to the sale. In addition, the broker-dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons, and deliver certain disclosures required by the Securities and Exchange Commission. Consequently, the penny stock rules may affect the willingness of broker-dealers to make a market in or trade the common shares of the Company and thus may also affect the ability of shareholders of the Company's Common Stock to resell those shares in the public markets. General Risks of the Mining Industry Nature of Mineral Exploration and Development. The business of exploring for and developing mineral deposits is highly speculative and involves greater risks than many other businesses. Mineral properties, including those which may have encouraging exploratory results, may not lend themselves to engineering, geological or other recognized appraisal procedure, or mining. The Company's operations will be subject to all of the operating hazards and risks normally incident to exploring or developing mineral properties, such as encountering unusual or unexpected geologic faults or conditions, periodic interruptions due to inclement weather conditions and environmental constraints. The Company intends to carry liability insurance covering the Company's activities and properties. However, there can be no assurance that such insurance will protect the Company from significant loss or liability. In the event the Company should sustain an uninsured loss or liability, its ability to operate may be materially adversely affected. FORM 10-SB Goldstate Corporation Page 15 of 37 Governmental Regulation. The Company's business operations in general are subject to substantial government regulation including federal, state and local laws concerning, but not limited to, such factors as safety, land use and environmental protection. The Company must also comply with local, state and federal requirements regarding exploration and drilling operations, public safety, air quality, water pollution, reclamation, solid waste, hazardous waste and wildlife protection, as well as laws protecting the rights of other property owners and the public. Although the Company intends to fully comply with all such laws, regulations and requirements, failure to do so would have a materially adverse effect on the Company including substantial penalties, fees and expenses, and could result in significant delays in the Company's operations or a potential shutdown of some of the operations. The Company must also obtain and comply with federal, state and local permits, including waste discharge requirements, other environmental permits, use permits, plans of operation and other authorizations. Amendments to current laws and requirements governing operations and activities of exploration, development and mining companies or more stringent implementation of such laws are actively considered from time to time and could have a material adverse impact on the Company. There can be no assurance that future changes in existing law or new legislation will not limit or adversely impact the Company's business operations. Environmental Hazards and Controls. Compliance with environmental quality requirements imposed by federal, state and local governmental authorities may necessitate significant expenditures or may delay or interrupt the exploration and development of Blackhawk II Property. There can be no assurance that environmental standards imposed by any governmental authority will not be changed or become more stringent, thereby possible materially and adversely affecting the activities of the Company. Failure by the Company to comply with such restrictions could delay or preclude the Company operations which are in violation of such restrictions. Although the Company intends to conduct its operations in an environmentally acceptable manner, the Company could be found liable for damages if its operations result in pollution or other damages. The Company will be required to restore all lands on which its conducts exploration activities to essentially their condition prior to such activities. Payment of Taxes and Annual Obligations. The Company may be obligated to pay annual taxes and annual county and BLM fees on the Blackhawk II Property. Such fixed obligations must be met by the Company or the Company will lose its interests in such mining claims. The Company may need additional revenues from operations or financing to meet these obligations or possible forfeiture of claimed lands could result. Availability of Water. Water is usually required in all phases of the exploration and development of mineral properties. It is used in certain activities in which the Company is or maybe involved, such as exploratory drilling and testing. The Company anticipates that sufficient water for exploratory purposes will be available from private sources near the Blackhawk II Property. However, there can be no assurance that sufficient water will continue to be available or that necessary water rights will be granted by regulatory authorities or obtained from private sources. All water disposal or FORM 10-SB Goldstate Corporation Page 16 of 37 discharge, if any, will be subject to regulation pursuant to federal, state and local water quality standards. If sufficient water is not available or if the cost of complying with water quality regulations is too high, large scale exploration and development of the Blackhawk II Property may become economically unfeasible and adversely affect the value of such properties. Dependence on Precious Metals Mining Industry. The Company's operations may be dependent upon the levels of activity in precious metal exploration and development industries. Such activity levels are affected by trends in the precious metal industry and precious metal prices. Historically, prices for precious metals have been volatile and are subject to wide fluctuations in response to changes in the supply of and demand for precious metals, market uncertainty and a variety of political, economic and other factors beyond the control of the Company. The Company cannot predict future price movements with any certainty. Any prolonged reduction in precious metal prices, however, may depress the level of exploration, development and production activity and result in a material adverse affect on the Company's operations. Fluctuation in and Regulation of Prices for Precious Metals. If gold, silver or other precious metals are recoverable on the Blackhawk II Property, the success of the Company will depend to a degree on the price which may be realized upon the sale of such metals. The prices of gold and silver, as well as other precious metals, have been quite volatile. For example, at the time the United States government began allowing its citizens to hold gold in 1970, the price of gold was $35.00 per Troy ounce. The price has been as high as $875.00 per ounce and as low as $125.00 per ounce since that date. In 1998, the price of gold per ounce by the London afternoon fix ranged from $273.40 to $313.15 per ounce, and averaged $294.09 that year. Among other factors affecting the price of gold are (i) the supply of and demand for gold, (ii) world economic conditions, (iii) the confidence or lack of confidence in various mediums of exchange (including the dollar), and (iv) governmental regulation. Although the price of gold and silver have fluctuated substantially over the years, the costs of exploration and development have also increased. It can be expected that such costs will continue to rise in accordance with inflationary trends, while there is no assurance that gold and silver prices will rise proportionately or remain at current levels. Item 2. Management's Discussion and Analysis or Plan of Operation. For Fiscal Year Ended December 31, 1998 compared with Fiscal Year Ended December 31, 1997 Results of Operation The Company's net losses for fiscal year ended 1998 were approximately $410,256 compared to a net loss of approximately $904,176 for fiscal year ended 1997. The decrease in net loss is attributable primarily to a decrease in overall property administrative expenses, such as management, overhead and administrative costs, payments to consultants, and general office expenses. FORM 10-SB Goldstate Corporation Page 17 of 37 Mineral and property exploration expenditures are expensed as incurred. The exploration expenses for fiscal year ended 1998 were approximately $43,905 for amounts paid to the BLM compared to $100,000 for staking and exploration expenses reimbursed to IGCO and INGC pursuant to the Joint Venture Agreement during fiscal year ended 1997. Other net expenses (administrative) incurred during fiscal year 1998 of approximately $366,351 decreased greatly from approximately $804,176 incurred during fiscal year 1997. Liquidity and Capital Resources As of December 31, 1998, the Company's current assets were $171,147 and its current liabilities were $557,515. As of December 31, 1998, the current liabilities exceeded current assets by $386,368. As of December 31, 1997, the Company's current assets were $1,186 and its current liabilities were $578,081. As of December 31, 1997, the current liabilities exceeded current assets by $576,895. The decrease in current liabilities in fiscal year 1998 was due primarily to repayment by the Company of advances to certain companies in the approximate amount of $202,019. From December 31, 1997 to December 31, 1998, cash and cash equivalents decreased slightly from approximately $916 to $877; the investment in profit sharing interest increased from $0 to $170,000. From December 31, 1997 to December 31, 1998, accounts payable increased from $17,274 to $58,509; directors' fees payable increased from $12,000 to $18,000; notes payable increased from $70,000 to $175,000, and accrued interest payable increased from $38,762 to $67,980. Total assets increased primarily as a result in the increase of the investment in profit sharing interest. Total liabilities decreased slightly as a result of the payment of advances. Stockholders' equity (deficit) increased from ($576,895) for fiscal year ended 1997 to ($386,368) for fiscal year ended 1998. To provide capital, the Company sold stock in private placement offerings or issued stock in exchange for debts of the Company. The issuances of stock resulted in an increase of approximately $1,695,000 in the capital of the Company since inception. See "Part II. Item 4. Recent Sales of Unregistered Securities". A significant and estimated commitment for the Company for fiscal year 1999 pertaining to contractual arrangements and work orders is an amount not greater than $480,000 to Investor Communications International, Inc. FORM 10-SB Goldstate Corporation Page 18 of 37 From the date of this Registration Statement, management believes that the Company can satisfy its cash requirements for approximately the next three months based on its ability to obtain advances. From the net proceeds received pursuant to the Private Placement Memorandum dated March 17, 1999, management utilized a substantial portion of the funding for (i) management and administration expenses relating to development programs for metallurgical technology and planning for the Blackhawk II Property; (ii) repayment of advances to companies which provided past management services, and (iii) general working capital. Management does not anticipate any purchases or sales of plant and/or significant equipment, nor does it expect any significant changes in the number of its employees. Item 3. Description of Property. Except as described above, the Company does not own any other real estate or other properties. Management believes that the Company's offices are adequate for its reasonable foreseeable needs. The Company does not intend to acquire any properties at the current date. Item 4. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth the name and address, as of the date of this Registration Statement, and the approximate number of shares of Common Stock of the Company 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 Amount and Nature (1) Percent of Beneficial Owner of Class of Class - -------------------------------------------------------------------------------- Common Stock (2) Delta Financial Resources 705,000 5% P.O. Box 2097 George Town, Grand Cayman Cayman Islands, BWI Common Stock (2) Intergold Corporation 1,000,000 7% 5000 Birch Street, Suite 4000 Newport Beach, CA 92660 Common Stock AuRIC Metallurgical Laboratories 1,000,000 7% 3260 West Directors Row Salt Lake City, Utah 84104 Common Stock All officers and directors -0- 0% as a group (3 persons) - -------------------------------------------------------------------------------- (1) Does not assume the exercise of options pursuant to the terms of the Non-Qualified Stock Option Plan to purchase an aggregate of 1,500,000 shares of restricted Common Stock at $.15 per share (2) (2) These are restricted shares of Common Stock. FORM 10-SB Goldstate Corporation Page 19 of 37 Item 5. Directors, Executive Officers, Promoters and Control Persons. The directors, executive officers and significant contractors to the Company are as follows: Name Age Position with the Company - ---- --- ------------------------- Harold Gooding 36 Director and the President, Secretary/Treasurer Michael Mehrtens, Ph.D. 63 Project Management Consultant The directors and executive officers of Intergold Corporation ("IGCO") are as follows: Name Age Position with IGCO - ---- --- ------------------ Gary J. Powers 52 President and Director Grant Atkins 39 Secretary, Treasurer and Director Harold Gooding 36 Director Michael Mehrtens, Ph.D. 63 Chief Geologist, Consultant HAROLD GOODING has been a Director and the President, Secretary/Treasurer of the Company since September 16, 1997. From April 1992 to August of 1994, Mr. Gooding worked in sales in the water treatment industry with Osmonics, located in Minnetonka, Minnesota. Osmonics is a diversified multi company entity that caters to various facets of the water treatment industry. As sales manager, Mr. Gooding was responsible for the sale of large scale water treatment systems for industrial applications requiring consistent water quality such as the beverage bottling industry. From April 1994 to August of 1995, Mr. Gooding was the sales manager for the northeast region for Ultra Pure Water Systems (U.S.A.), Inc., located in Massachusetts. From August 1995 until summer of 1998, Mr. Gooding was employed as an international sales manager with Cambridge Applied Systems based out of Medford, Massachusetts, where he was responsible for the manufacture and sale of the viscosity system. From mid 1998 to current, Mr. Gooding has provided the role of international sales manager to Photofabrication Engineering, Inc. FORM 10-SB Goldstate Corporation Page 20 of 37 where he is responsible for the sales and distribution of precision metal products to the aerospace and micro electronic industry. Mr. Gooding is also a director of IGCO and has previously held the position of president and a director of Vega-Atlantic Corporation, an OTC Bulletin Board public company that was formerly marketing point of entry water treatment appliances for commercial and residential use before changing business focus and direction to gold exploration and development. MICHAEL B. MEHRTENS, Ph.D is the Project Management Consultant for the Company. Dr. Mehrtens also serves as Chief Geologist for IGCO and as Project Manager of the Blackhawk Gold Project. He is a Consulting Geologist whose professional experience in the mining industry commenced in Southern Africa in 1957 as a geologist with Anglo American Corporation and later with Rio Tinto Group in the United Kingdom, Canada and the United States. During this twenty-one year period, Dr. Mehrtens gained mining, exploration and management experience with the two largest multinational mining corporations. Between 1974 and 1979, Dr. Mehrtens served as head of U.S. exploration for Rio Algom, a division of Rio Tinto Zinc. Since 1990, Dr. Mehrtens has been president of MBM Consultants, Inc., a firm through which he does consulting work. Dr. Mehrtens was also the President and a director of IGCO from October 5, 1997 to September 15, 1998. Dr. Mehrtens was also the President, Secretary, Treasurer, and director to IGCO's wholly owned subsidiary, International Gold Corporation, from July 24, 1997 to September 15, 1998. At the present time, no family relationship exists among any of the named directors and executive officers. No arrangement or understanding exists between any such director or officer and any other persons pursuant to which any director or executive officer was elected as a director or executive officer of the Company. The directors of the Company serve until their successors take office or until their death, resignation or removal. The executive officers serve at the pleasure of the Board of Directors of the Company. As of the date of this Registration Statement, no director or executive officer of the Company is or has been involved in any legal proceeding concerning (i) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (ii) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses) within the past five years; (iii) being subject to any order, judgment or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities or banking activity; or (iv) being found by a court, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law (and the judgment has not been reversed, suspended or vacated). FORM 10-SB Goldstate Corporation Page 21 of 37 Item 6. Executive Compensation. As of the date of this Registration Statement, directors of the Company accrue $500 per month in directors' fees for their roles as directors. Mr. Gooding accrued $6,000 during fiscal year 1998 as compensation for his role as director of the Company. Dr. Mehrtens, the Company's Project Management Consultant, has engaged in an informal consulting arrangement with the Company pursuant to which he invoices the Company through MBM Consultants, Inc. ("MBM") for consulting services performed. Officers and directors of the Company are reimbursed for any out-of-pocket expenses incurred by them on behalf of the Company. As of fiscal year end December 31, 1997, the Company has accrued since inception approximately $12,000 and paid $0 to its officers and directors as executive compensation. As of fiscal year end December 31, 1997, the Company has accrued approximately $480,000 and paid approximately $160,000 to Tri Star Financial Services, Inc. ("Tri Star"), for managerial and administrative services rendered. As of fiscal year end December 31, 1998, the Company accrued approximately $6,000 and paid $0 to its officer and director as executive compensation. As of fiscal year end December 31, 1998, the Company accrued approximately $300,000 and paid approximately $550,000 to Tri Star for managerial and administrative services rendered. See "Summary Compensation Table". Mr. Harold Gooding, as an officer and director of the Company, is reimbursed for any out-of-pocket expenses incurred by him on behalf of the Company. Executive compensation is subject to change concurrent with Company requirements. Mr. Harold Gooding is not a director or officer of either Tri Star or ICI, nor does the Company own of record capital stock of either Tri Star or ICI. Neither Tri Star nor ICI own of record any capital stock of the Company. Summary Compensation Table Annual Compensation Awards Payouts --------------------- ---------- ------- $ $ $ $ # $ $ Name and Position Salary Bonus Other RSA Options LTIP Other - ----------------- ------ ----- ----- --- ------- ---- ----- Brian Harris 1997 0 0 0 0 0 0 0 Pres./Director Ronald Lambrecht 1997 0 0 0 0 0 0 0 Secy./Director Harold Gooding 1997 0 0 0 0 0 0 0 Pres./Director 1998 0 0 0 0 0 0 0 FORM 10-SB Goldstate Corporation Page 22 of 37 Non-Qualified Stock Option Plan On March 1, 1999, the Board of Directors of the Company adopted the Non-Qualified Stock Option Plan (the "SOP") which initially provided for the grant of options to purchase an aggregate of 1,500,000 shares of Common Stock at $.15 per share. The purpose of the SOP is to make options available to directors, management and significant contractors of the Company in order to encourage them to secure an increase on reasonable terms of their stock ownership in the Company and to remain in the employ of the Company, and to provide them compensation for past services provided. The SOP is administered by the Board of Directors which determines the persons to be granted options under the SOP, the number of shares subject to each option, the exercise price of each option and the option period, and the expiration date, if any, of such options. The exercise of an option may be less than fair market value of the underlying shares of Common Stock. No options granted under the SOP will be transferable by the optionee other than by that provided by the Option Grant Agreements or will or the laws of descent and distribution and each option will be exercisable, during the lifetime of the optionee, only by such optionee. The exercise price of an option granted pursuant to the SOP may be paid in cash, by the surrender of options, in Common Stock, in other property, including the optionee's promissory note, or by a combination of the above. Options have been granted in the aggregate of 1,000,000 shares to the following individuals as at the date of this Registration Statement: - ------------------------------------------------ Number of Date of Grant Shares Granted - ------------------------------------------------ Gino Cicci 200,000 15-Jun-99 Grant Atkins 300,000 15-Mar-99 Brent Pierce 300,000 15-Mar-99 Harold Gooding 100,000 15-Mar-99 Marcus Johnson 100,000 15-Mar-99 TOTAL 1,000,000 - ------------------------------------------------ No share options have been exercised as at the date of this Registration Statement. Item 7. Certain Relationships and Related Transactions. On December 11, 1997, the Company, IGCO and its wholly-owned subsidiary, INGC, entered into a joint venture agreement in profits to be realized from the exploration and development of gold and other precious metals on the Blackhawk II Property (the "Joint Venture Agreement"). Pursuant to the terms of the Joint FORM 10-SB Goldstate Corporation Page 23 of 37 Venture Agreement, the Company paid $100,000 and issued 1,000,000 shares of its restricted common stock to IGCO. The terms of the Joint Venture Agreement further provide that the Company will be the operating partner and be responsible for providing funding for all development and exploration expenses to be incurred on the Blackhawk II Property. In accordance with the terms of the Joint Venture Agreement, the Company will receive eighty percent (80%) of the net profits realized from the joint venture until its invested capital is repaid, and IGCO and INGC will receive twenty percent (20%) of the net profits realized from the joint venture. After the invested capital by the Company has been repatriated, the Company will then receive fifty-one percent (51%) of the net profits realized from the joint venture and IGCO and INGC will retain forty-nine percent (49%) of the net profits realized from the joint venture. The Company has also agreed to contribute all future capital requirements for the further exploration and mining operation costs of the claims on the Blackhawk II Property. The above described transaction was conducted pursuant to arms-length negotiations and is on terms as fair as those that would have been obtainable from independent third parties. The board of directors of the Company has not adopted or approved any policy regarding future transactions with related third parties. The officer/director of the Company is engaged in other businesses, either individually or through partnerships and corporations in which he may have an interest, hold an office or serve on the boards of directors. The director of the Company, Mr. Harold Gooding, has other business interests to which he may devote a major or significant portion of his time. Certain conflicts of interest, therefore, may arise between the Company and its director. Such conflicts can be resolved through the exercise by Mr. Gooding of judgment consistent with his fiduciary duties to the Company. The officer/director of the Company intends to resolve such conflicts in the best interests of the Company. Moreover, the officer/director will devote his time to the affairs of the Company as he deems necessary. Item 8. Description of Securities. The Company is authorized to issue 75,000,000 shares of $.0003 par value Common Stock and 25,000,000 shares of $.001 par value Preferred Stock. Common Stock Holders of shares of Common Stock are entitled to one vote per share on all matters submitted to a vote of the stockholders of the Company. Except as may be required by law, holders of shares of Common Stock will not vote separately as a class, but will vote together with the holders of outstanding shares of other classes or capital stock. There is no right to cumulate votes for the election of directors. A majority of the issued and outstanding Common Stock constitutes a quorum at any meeting of stockholders and the vote by the holders of a majority of the outstanding shares is required to effect certain fundamental corporate changes such as liquidation, merger or an amendment to the Articles of Incorporation. FORM 10-SB Goldstate Corporation Page 24 of 37 Holders of shares of Common Stock are entitled to receive dividends if, as and when, declared by the Board of Directors out of funds legally available therefore, after payment of dividends required to be paid on outstanding shares of Preferred Stock. The Company's agreement with its bank lender may prohibit payment of Common Stock dividends without the consent of the lender. Upon liquidation of the Company, holders of shares of Common Stock are entitled to share ratably in all assets of the Company remaining after payment of liabilities, subject to the liquidation preference rights of any outstanding shares of Preferred Stock. Holders of shares of Common Stock have no conversion, redemption or preemptive rights. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of Preferred Stock. The outstanding shares of Common Stock are fully paid and nonassessable. The shares of Common Stock issued upon conversion of Preferred Stock, Preferred Stock Dividends, or exercise of Warrants and payment therefore, will be validly issued, fully paid and nonassessable. Preferred Stock Under the Company's Articles of Incorporation, as amended (the "Articles"), the Board of Directors has the power, without further action by the holders of the Common Stock, to designate the relative rights and preferences of the Company's Preferred Stock, when and if issued. Such rights and preferences could include preferences as to liquidation, redemption and conversion rights, voting rights, dividends or other preferences, any of which may be dilutive of the interest of the holders of the Common Stock. The issuance of the Preferred Stock may have the effect of delaying or preventing a change in control of the Company and may have an adverse effect on the rights of the holders of Common Stock. As of the date of this Registration Statement, a total of 2,000,000 shares of the authorized Preferred Stock have been designated as Series A Cumulative Convertible Preferred Stock; however, no shares of the Series A Cumulative Convertible Preferred Stock have been issued. Additional classes of Preferred Stock may be designated and issued from time to time in one or more series with such designations, voting powers or other preferences and relative rights or qualifications as are determined by resolution of the Board of Directors of the Company. Series A Preferred Stock The Series A Preferred Stock has been authorized by the Board of Directors of the Company. So long as any Series A Preferred Stock is outstanding, the Company is prohibited from issuing any series of stock having rights senior to the Series A Preferred Stock ("Senior Stock") without the approval of the holders of 66 2/3% of the outstanding Series A Preferred Stock. Additionally, so long as any Series A Preferred Stock is outstanding, the Company may not, without the approval of the holders of at least 50% of the outstanding Series A FORM 10-SB Goldstate Corporation Page 25 of 37 Preferred Stock, issue any series of stock ranking on parity with the Series A Preferred Stock ("Parity Stock") as to dividend or liquidation rights, or having a right to vote on matters as to which the Series A Preferred Stock is not entitled to vote, or if the Company's stockholder equity is less than the total liquidation preferences of all outstanding Series A Preferred Stock. Dividends. Holders of shares of Series A Preferred Stock will be entitled to receive when, as, and if declared by the Board of Directors out of funds at the time legally available therefore, cash dividends at an annual rate of 20% and no more, payable annually in arrears, commencing January 1, 1999. Dividends will accrue and be cumulative from the date of first issuance of the Series A Preferred Stock and will be payable to holders of record as they appear on the stockbooks of the Company on such record dates as are fixed by the Board of Directors. Unless a class or series of Senior Stock or Parity Stock is authorized as described above, the Series A Preferred Stock will be senior as to dividends to any series or class of the Company's stock hereafter issued, and if at any time the Company has failed to pay or declare and set apart for payment accrued and unpaid dividends on the Series A Preferred Stock, the Company may not pay any other dividends. The Series A Preferred Stock will have priority as to dividends over the Common Stock and any series or class of the Company's stock hereafter issued, and no dividend (other than dividends payable solely in Common Stock or any other series or class of the Company's stock hereafter issued that ranks junior as to dividends to the Series A Preferred Stock) may be declared, paid or set apart for payment on, and no purchase, redemption or other acquisition may be made by the Company of any Common Stock or other stock unless all accrued and unpaid dividends on the Series A Preferred Stock have been paid or declared and set apart for payment, or contemporaneously pays or declares and sets apart for payment, all accrued and unpaid dividends for all prior periods on the Series A Preferred Stock; and the Company may not pay dividends on the Preferred Stock unless it has paid or declared and set apart for payment, or contemporaneously pays or declares and sets apart for payment, all accrued and unpaid dividends for all prior periods on any outstanding Parity Stock. Whenever all accrued dividends are not paid in full on the Preferred Stock or any Parity Stock, all dividends declared on the Preferred Stock and any such Parity Stock will be declared or made pro rata so that the amount of dividends declared per share on the Preferred Stock and any such Parity Stock will bear the same ratio amount of dividends declared per share on the Preferred Stock, and any such Parity Stock will bear the same ratio that accrued and unpaid dividends per share on the Preferred Stock and such Parity Stock bear to each other. The amount of dividends payable for the initial dividend period and any period shorter than a full dividend period will be computed on the basis of a 360 day year. No interest will be payable in respect of any dividend payment on the Series A Preferred Stock which may be in arrears. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, holders of shares of Series A Preferred Stock are entitled to receive the liquidation preference of $.50 per share, plus an amount equal to FORM 10-SB Goldstate Corporation Page 26 of 37 any accrued and unpaid dividends to the payment date, and no more, before any payment or distribution is made to the holders of Common Stock, or any series or class of the Company's stock hereafter issued that ranks junior as to liquidation rights to the Series A Preferred Stock. The holders of Preferred Stock and any Parity Stock hereafter issued that rank on a parity as to liquidation rights with the Series A Preferred Stock will be entitled to share ratably, in accordance with the respective preferential amounts payable on such stock, in any distribution which is not sufficient to pay in full the aggregate of the amounts payable thereon. After payment in full of the liquidation preference of the shares of Series A Preferred Stock, the holders of such shares will not be entitled to any further participation in any distribution of assets by the Company. Neither a consolidation, merger or other business combination of the Company with or into another corporation or other entity nor a sale or transfer of all or part of the Company's assets for cash, securities or other property will be considered a liquidation, dissolution or winding up of the Company. Voting Rights. The holders of the Series A Preferred Stock will have no voting rights except as described below or as required by law. In exercising any such vote, each outstanding share of Series A Preferred Stock will be entitled to one vote, excluding shares held by the Company or any entity controlled by the Company, which shares will have no voting rights. So long as any Series A Preferred Stock is outstanding, the Company will not, without the affirmative vote of the holders of at least 66 2/3% of all outstanding shares of Series A Preferred Stock, voting separately as a class, (i) amend, alter or repeal any provision of the Articles or by Bylaws of the Company so as to adversely affect the relative rights, preferences, qualifications, limitations or restriction of the Series A Preferred Stock, (ii) authorize or issue, or increase the authorized amount of, any additional class or series of stock, or any security convertible into stock of such class or series, ranking senior to the Series A Preferred Stock as to dividends or upon liquidation, dissolution or winding up of the Company, or (iii) effect any reclassification of the Series A Preferred Stock. So long as any Series A Preferred Stock is outstanding, the Company will not, without the affirmative vote of the holders of at least 50% of all outstanding shares of Series A Preferred Stock, voting separately as a class, (i) authorize, issue or increase the authorized amount of any additional class or series of stock, or any security convertible into stock of such class or series, ranking on parity with the Series A Preferred Stock as to dividends or liquidation and having superior voting rights, or (ii) incur indebtedness or authorize or issue, or increase the authorized amount of, any additional class or series of stock, or any security convertible into stock of such class or series, ranking on parity with the Series A Preferred Stock as to dividend or liquidation rights if, immediately following such event, Adjusted Stockholder's Equity is less than the aggregate liquidation preferences of all Series A Preferred Stock and stock ranking senior to or on parity with the Series A Preferred Stock as to liquidation. Adjusted Stockholder's Equity is the Company's stockholder's equity as shown on its most recent balance sheet, increased by (a) any amount of any liability or other reduction in stockholder's equity attributable to the Series A Preferred Stock and each series of stock FORM 10-SB Goldstate Corporation Page 27 of 37 senior to or on parity with the Series A Preferred Stock as to liquidation, and (b) the net proceeds of any equity financing since the date of the balance sheet, reduced by any reduction in stockholder's equity resulting from certain dispositions of assets since the date of the balance sheet. Redemption. The Series A Preferred Stock is redeemable at any time after April 6, 2001 for cash, in whole or in part, at the option of the Company, at $.50 per share plus any accrued and unpaid dividends, whether or not declared. If fewer than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the Company will select those to be redeemed pro rata or by lot or in such other manner as the board of Directors may determine. There is no mandatory redemption in sinking fund obligation with respect to the Series A Preferred Stock. In the event that the Company has failed to pay accrued dividends on the Series A Preferred Stock, it may not redeem any of the then outstanding shares of the Series A Preferred Stock until all such accrued and unpaid dividends and (except with respect to shares to be redeemed) the then current dividends have been paid in full. Notice of redemption will be mailed at least thirty (30) days but not more than sixty (60) days before the redemption date to each holder of record of shares of Series A Preferred Stock to be redeemed at the holder's address shown on the stock transfer books of the Company. After the redemption date, unless there shall have been a default in payment of the redemption price, dividends will cease to accrue on the shares of Series A Preferred Stock called for redemption and all rights of the holders of such shares will terminate, except the right to receive the redemption price without interest. Conversion Rights of Series A Preferred Stock Optional Conversion. At any time after the initial issuance of the Series A Preferred Stock and prior to the redemption thereof, the holder of any shares of Series A Preferred Stock will have the right, at the holder's option, to convert any or all such shares into restricted Common Stock on a one for one basis and all accrued and unpaid dividends thereon into shares of Common Stock at a rate of $.50 per share. If the Series A Preferred Stock has been called for redemption, the conversion right will terminate at the close of business on the last business day prior to the date fixed for redemption (unless the Company defaults in the payment of the redemption price). Fractional shares of Common Stock will be rounded to the nearest full share upon conversion. In case of any reclassification of the Common Stock, any consolidation of the Company with, or merger of the Company into, any other person, any merger of any person into the Company (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other properties, then provisions will be made that the holder of such share of Series A Preferred Stock then outstanding will have the right thereafter, during the period such share of FORM 10-SB Goldstate Corporation Page 28 of 37 Series A Preferred Stock shall be convertible, to convert such share into the kind and amount of securities, cash or other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such share of Series A Preferred Stock might have been converted immediately prior to such reclassification, consolidation, merger, sale transfer or share exchange. Other Provisions. The shares of Series A Preferred Stock, when issued as described herein, will be duly and validly issued, fully paid and nonassessable. PART II Item 1. Market for Common Equity and Related Stockholder Matters The Company's Common Stock is traded only in the United States on the over-the-counter Bulletin Board, under the trading symbol, GDSA. The table set forth below presents the range, on a quarterly basis, of high and low closing sales prices per share of Common Stock as reported for the last two fiscal years. The quotations represent prices between dealers and do not include retail markup, markdown or commissions and may not necessarily represent actual transactions. Common Stock - -------------------------------------------- Quarter Ended High Low - -------------------------------------------- Fiscal Year 1998 March 31, 1998 $0.69 $0.64 June 30, 1998 $0.35 $0.35 September 30, 1998 $0.17 $0.17 December 31, 1998 $0.15 $0.15 Fiscal Year 1997 March 31, 1997 $1.31 $0.98 June 30, 1997 $0.44 $0.34 September 30, 1997 $0.37 $0.34 December 31, 1997 $0.31 $0.26 - -------------------------------------------- The 8,738,800 shares of Common Stock outstanding as of December 31, 1998 were held by approximately 23 holders of record worldwide, including 10 holders of record in the United States. FORM 10-SB Goldstate Corporation Page 29 of 37 The Board of Directors has never authorized or declared the payment of any dividends on the Company's Common Stock and does not anticipate the declaration or payment of cash dividends in the foreseeable future. The Company intends to retain future earnings, if any, to finance the exploration and development of its business. Future dividend policies will be subject to the discretion of the Board of Directors and will be contingent upon, among other things, future earnings, the Company's financial condition, capital requirements, general business conditions, level of debt, restrictions with respect to payment of dividends with respect to Series A Preferred Stock, and other relevant factors. Transfer Agent The transfer agent and registrar for the Common Stock is Silver State Registrar & Transfer, 3541 Summer Estate Circle, Salt Lake City, Utah 84121, telephone number (801) 944-0713. Item 2. Legal Proceedings. Management is not aware of any legal proceedings contemplated by any governmental authority or other party involving the Company or its properties. No director, officer or affiliate of the Company is (i) a party adverse to the Company in any legal proceedings, or (ii) has an adverse interest to the Company in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against the Company or its properties. Item 3. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Since the inception of the Company (February 28, 1996) and to date, the Company's current principal independent accountant has not resigned or declined to stand for re-election or were dismissed. The Company's former principal independent accountant declined to stand for re-election after the Company's formative year as his policy for providing accounting services did not extend to include the Company's growing scale of transactions. Such decision to change accountants was approved by the Board of Directors. There were no disagreements with the former accountant which were not resolved on any matter concerning accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Moreover, neither the Company's current principal independent accountant nor its former principal independent accountant have provided an adverse opinion or disclaimer of opinion to the Company's financial statements, nor modified their respective opinion as to uncertainty, audit scope or accounting principles. The Company's principal independent accountant from February 28, 1996 to December 31, 1996 was DAVID E. COFFEY, Certified Public Accountant, of 3651 Lindell Road, Suite H, Las Vegas, NV 89103. The Company's principal independent accountant from January 1, 1997 to the current date is Johnson, Holscher & Company, P.C. of 5975 Greenwood Plaza Blvd., Suite 140, Greenwood Village, CO 80111. FORM 10-SB Goldstate Corporation Page 30 of 37 Item 4. Recent Sales of Unregistered Securities. 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: (i) On December 11, 1997, the Company entered into a joint venture agreement with IGCO and its wholly owned subsidiary, INGC, whereby the Company issued 1,000,000 shares of its restricted Common Stock to IGCO. The issuance of the Common Stock described herein was made in connection with a joint venture agreement in profits not involving a public offering to a single corporate investor, and is exempt from registration pursuant to Section 4 (2) of the Securities Act of 1933, as amended (the "1933 Act") The certificate representing issuance of such shares of Common Stock to IGCO has a legend indicating that the shares of Common Stock cannot be resold without registration under the 1933 Securities Act of in compliance with an available exemption from registration. No underwriter was involved in the transaction, and no commissions or other remuneration were paid in connection with the offer and sale of the securities. (ii) On February 4, 1998, the Company completed an offering in which it raised $525,000 under Rule 504 of Regulation D pursuant to which it sold 2,625,000 shares of Common Stock at $.20 per share. The Company issued shares of Common Stock to 10 investors. Nine of the investors were accredited investors as that term is defined under Regulation D. The investors executed subscription agreements and acknowledged that the securities to be issued have not been registered under the 1933 Securities Act, that the investors understood the economic risk of an investment in the securities, and that the investors had the opportunity to ask questions of and receive answers from the Company's management concerning any and all matters related to the acquisition of securities. No underwriter was involved in the transaction, and no commissions or other remuneration were paid in connection with the offer and sale of the securities. (iii)On March 30, 1998, the Company completed an offering in which it raised $290,000 under Rule 504 of the Regulation D pursuant to which it sold 1,450,000 shares of Common Stock at $.20 per share. The Company issued shares of Common Stock to 10 investors. Eight of the investors were accredited investors as that term is defined under Regulation D. The investors executed subscription agreements and acknowledged that the securities to be issued have not been registered under the 1933 Securities Act, that the investors understood the FORM 10-SB Goldstate Corporation Page 31 of 37 economic risk of an investment in the securities, and that the investors had the opportunity to ask questions of and receive answers from the Company's management concerning any and all matters related to the acquisition of securities. No underwriter was involved in the transaction, and no commissions or other remuneration were paid in connection with the offer and sale of the securities. (iv) On January 15, 1999, the Company entered into a settlement agreement with a creditor whereby the Company agreed to issue 42,500 shares of its Common Stock at $.20 per share pursuant to Section 4(2) of the 1933 Securities Act. Under the terms of the settlement agreement, the creditor agreed to accept the 42,500 shares of Common Stock as payment for the approximate $8,509.00 debt owed to such creditor. The Company issued the shares in reliance upon the exemption from registration provided by Section 4(2) of the 1933 Securities Act. The creditor represented to the Company that he acquired the shares for his own account, and not with a view to distribution, and that the Company made available to him all material information concerning the Company. (v) On March 18, 1999, the Company entered into a technology sub-license agreement with Geneva Resources, Inc. ("Geneva"), whereby the Company issued 1,000,000 shares of its restricted Common Stock to AuRIC Metallurgical Laboratories and a convertible promissory note to Geneva Resources, Inc. dated March 18, 1999 in the amount of $100,000 that is convertible to common restricted shares of the Company at the option of Geneva at the rate of $0.20 per share. The issuance of the Common Stock described herein was made in connection with the technology sub-license agreement not involving a public offering to corporate investors, and is exempt from registration pursuant to Section 4(2) of the 1933 Securities Act. The certificates representing issuances of such shares of Common Stock by the Company to AuRIC have a legend indicating that the shares of Common Stock cannot be resold without registration under the 1933 Securities Act or in compliance with an available exemption from registration. No underwriter was involved in the transaction, and no commissions or other remuneration were paid in connection with the offer and sale of the Common Stock. (vi) On April 6, 1999, the Company completed an offering in which it raised $870,000 under Rule 504 of Regulation D pursuant to which it sold 4,350,000 shares of Common Stock at $.20 per share. The Company issued shares of Common Stock to 9 investors. All of the investors were accredited investors as that term is defined under Regulation D. The investors executed subscription agreements and acknowledged that the securities to be issued have not been registered under the 1933 Securities Act, that the investors understood the economic risk of an investment in the securities, and that the investors had the opportunity to ask questions of and receive answers from the Company's management concerning any and all matters related to the acquisition of securities. No underwriter was involved in the transaction, and no commissions or other remuneration were paid in connection with the offer and sale of the securities. FORM 10-SB Goldstate Corporation Page 32 of 37 As of the date of this Registration Statement, the Company has 14,131,300 shares of its Common Stock issued and outstanding. Of the 14,131,300 of the Company's current outstanding shares of Common Stock, 12,025,050 shares are free trading. At such time, the holders may offer and sell these shares of Common Stock at such times and in such amounts as they may respectively determine in their sole discretion. The holders of free trading Common Stock in the capital of the Company may offer these shares of Common Stock through market transactions at prices prevailing in the OTC market or at negotiated prices which may be fixed or variable and which may differ substantially from OTC prices. The holders have not advised the Company that they anticipate paying any consideration, other than the usual and customary broker's commission, in connection with the sales of these free trading shares of Common Stock. The holders are acting independently of the Company making such decisions with respect to the timing, manner and size of each sale. Of the 14,131,300 of the Company's current outstanding shares of Common Stock, 2,106,250 shares are "restricted shares" as that term is defined in the Securities Act of 1933 and the rules and regulations thereunder. To be eligible for sale in the public market, the holders must comply with Rule 144. In general, Rule 144 allows a person holding restricted shares for a period of at least one year to sell within any three month period that number of shares which does not exceed the greater of 1% of the Company's then outstanding shares or the average weekly trading volume of the shares during the four calendar weeks preceding such sale. Rule 144 also permits, under certain circumstances, sale of shares by a person who is not an affiliate of the Company and who has satisfied a two year holding period without any volume limitations, manner of sale provisions or current information requirements. As defined in Rule 144, an affiliate of an issuer is a person who, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such issuer, and generally includes members of the Board of Directors. Sales pursuant to Rule 144 or otherwise, if in sufficient volume, could have a depressive effect on the market price of the Company's securities. Moreover, the possibility of such sales may have a depressive effect on market prices. To date, no sales of restricted shares of Common Stock have been made. Item 5. Indemnification of Officers and Directors. Section 78.751 of Chapter 78 of the Nevada Revised Statutes contains provisions for indemnification of the officers and directors of the Company. The Bylaws require the Company to indemnify such persons to the full extent permitted by Nevada law. The Bylaws with certain exceptions, eliminate any personal liability of a director to the Company or its shareholders for monetary damages to the Company or its shareholders for gross negligence or lack of care FORM 10-SB Goldstate Corporation Page 33 of 37 in carrying out the director's fiduciary duties as such. Nevada law permits such indemnification if a director or officer acts in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the Company. A director or officer must be indemnified as to any matter in which he successfully defends himself. The officers and directors of the Company are accountable to the shareholders of the Company as fiduciaries, which means such officers and directors are required to exercise good faith and integrity in handling the Company's affairs. A shareholder may be able to institute legal action on behalf of himself and all other similarly situated shareholders to recover damages where the Company has failed or refused to observe the law. Shareholders may, subject to applicable rules of civil procedure, be able to bring a class action or derivative suit to enforce their rights, including rights under certain federal and state securities laws and regulations. Shareholders who have suffered losses in connection with the purchase or sale of their interest in the Company due to a breach of a fiduciary duty by an officer or director of the Company in connection with such sale or purchase including, but not limited to, the misapplication by any such officer or director of the proceeds from the sale of any securities, may be able to recover such losses from the Company. The Company and its affiliates may not be liable to its shareholders for errors in judgment or other acts or omissions not amounting to intentional misconduct, fraud or a knowing violation of the law, since provisions have been made in the Articles of Incorporation and By-laws limiting such liability. The Articles of Incorporation and By-laws also provide for indemnification of the officers and directors of the Company in most cases for any liability suffered by them or arising out of their activities as officers and directors of the Company if they were not engaged in intentional misconduct, fraud or a knowing violation of the law. Therefore, purchasers of these securities may have a more limited right of action than they would have except for this limitation in the Articles of Incorporation and By-laws. In the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act of 1933 is contrary to public policy and, therefore, unenforceable. The Company may also purchase and maintain insurance on behalf of directors and officers insuring against any liability asserted against such person incurred in the capacity of director or officer or arising out of such status, whether or not the Company would have the power to indemnify such person. The Company will not acquire assets from its current management or any entity in which such management has a five percent (5%) or greater equity interest unless the Company has first received an independent opinion as to the fairness of the terms of the acquisition. In negotiating the terms of the acquisition of the assets, management may be influenced by the possibility of future personal benefit from unrelated business dealings with such persons or entities. Management believes that any such conflict will be resolved in favor of the Company and its shareholders. The officers and directors are required to exercise good faith and integrity in handling the Company's affairs. Management of the Company has agreed to abide by this fiduciary duty. FORM 10-SB Goldstate Corporation Page 34 of 37 Item 6. Financial Statements. Reference is made to Part III, Item 1 and 2 - Index to and Description of Exhibits for a list of all financial statements filed as part of this Registration Statement on Form 10-SB. PART III Item 1 & 2. Index to and Description of Exhibits. (a) The following Financial Statements are filed as a part of this Registration Statement: 1. Independent Auditors' Report dated July 6, 1999. 2. Balance Sheets for fiscal year ended December 31, 1998 and December 31, 1997. 3. Statements of Operation for fiscal year ended December 31, 1998, December 31, 1997 and from inception (February 28, 1996) to December 31, 1998. 4. Statements of Cash Flow for fiscal year ended December 31, 1998, December 31, 1997 and from inception (February 28, 1996) to December 31, 1998. 5. Statements of Stockholders' Equity (Deficit) for year ended December 31, 1996, fiscal year ended December 31, 1997 and fiscal year ended December 31, 1998. 6. Notes to Financial Statements for December 31, 1998 and 1997. 7. Balance Sheet for quarter ended March 31, 1999. 8. Statements of Operation for quarter ended March 31, 1999. 9. Statement of Cash Flow for quarter ended March 31, 1999. 10. Notes to Financial Statements for quarter ended March 31, 1999. (b) The following Exhibits are filed as part of this Registration Statement: - -------------------------------------------------------------------------------- Exhibit No. Description - -------------------------------------------------------------------------------- 2 Not applicable. 3 Articles of Incorporation for the Company By-laws of the Company FORM 10-SB Goldstate Corporation Page 35 of 37 - -------------------------------------------------------------------------------- Exhibit No. Description - -------------------------------------------------------------------------------- 4 Not Applicable 9 Not Applicable 10.1 Joint Venture Agreement between the Company, IGCO and INGC, dated December 11, 1997 10.2 Technology Sub-License Agreement between Geneva Resources, Inc. and the Company dated March 18, 1999 11 Not Applicable 16 Letter on Change in Certifying Accountant 21 Not Applicable 24 Not Applicable - -------------------------------------------------------------------------------- The following additional Exhibits are filed as part of this Registration Statement: - -------------------------------------------------------------------------------- Exhibit No. Description - -------------------------------------------------------------------------------- 99.1 "Verification of Validity of Developed Analytical Procedures - The Blackhawk Project", by Dames & Moore, dated November 30, 1998 99.2 "Determination of Repeatability of the Verified Developed Analytical Procedures for The Blackhawk Project", by Dames & Moore, dated January 6, 1999 99.3 "Reconnaissance Site Visit and Surface Sampling", by Dames and Moore, dated January 21, 1999 99.4 "Verification of Validity of Developed Extraction Methods for the Blackhawk Project", by Dames & Moore, dated April 7, 1999 99.5 BLM Claims Listing - -------------------------------------------------------------------------------- FORM 10-SB Goldstate Corporation Page 36 of 37 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. GOLDSTATE CORPORATION, a Nevada corporation By: /s/ Harold S. Gooding ----------------------------- Harold S. Gooding , President DATE: July 9, 1999 FORM 10-SB Goldstate Corporation Page 37 of 37 GOLDSTATE CORPORATION FINANCIAL STATEMENTS December 31, 1998 and 1997 TABLE OF CONTENTS Page ---- Independent Auditors' Report F-1 Balance Sheets F-2 Statements of Operations F-3 Statements of Cash Flows F-4 Statement of Stockholders' Equity F-5 Notes to Financial Statements F-6 - F-10 Johnson, Holscher & Company, P.C. Certified Public Accountants Stockholders and Board of Directors Goldstate Corporation INDEPENDENT AUDITORS' REPORT ---------------------------- We have audited the balance sheets of Goldstate Corporation (the Company), as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended December 31, 1998 and 1997 and for the period from inception (February 28, 1996) to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion. The financial statements of Goldstate Corporation as of December 31, 1996 and the period from inception (February 28, 1996) to December 31, 1996, were audited by other auditors whose report dated May 22, 1997, expressed an unqualified opinion on those statements. In our opinion, based on our audit and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Goldstate Corporation as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years ended December 31, 1998 and 1997, and for the period from inception (February 28, 1996) to December 31, 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 to the financial statements, the Company has not generated revenues from operations, which raises substantial doubt about its ability to continue as a going concern. The Company has established a plan to continue operations through additional stock offerings as outlined in Note 7. The financial statements do not include any adjustments that might result if management's plan is unsuccessful. July 6, 1999 F-1
GOLDSTATE CORPORATION (A Development Stage Company) Balance Sheets December 31, December 31, 1998 1997 ---- ---- ASSETS CURRENT ASSETS Cash and cash equivalents $ 877 $ 916 Investment in profit sharing interest 170,000 0 Goodwill 270 270 ----------- ----------- Total Assets $ 171,147 $ 1,186 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable - trade $ 58,509 $ 17,274 Advances payable 238,026 440,045 Directors fees payable 18,000 12,000 Notes payable 175,000 70,000 Accrued interest payable 67,980 38,762 ----------- ----------- Total Liabilities 557,515 578,081 ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, $.001 par value; authorized 25,000,000 shares; issued and outstanding 0 shares at December 31, 1998 and December 31, 1997 0 0 Common stock $.0003 par value; authorized 75,000,000 shares; issued and outstanding 8,738,800 and 5,438,000 at December 31, 1998 and 1997 respectively 2,926 1,936 Paid - in capital 997,281 368,271 Accumulated deficit through development stage (1,386,575) (947,102) ----------- ----------- Total Stockholders' Equity (386,368) (576,895) ----------- ----------- Total Liabilities and Stockholders' Equity $ 171,147 $ 1,186 =========== =========== The accompanying notes are an integral part of the financial statements. F-2
GOLDSTATE CORPORATION (A Development Stage Company) Statements of Operations Inception (February 28, Year Ended December 31, 1996) to -------------------------- December 31, 1998 1997 1998 ---- ---- ---- REVENUES Other income $ 0 $ 0 $ 1,026 ----------- ----------- ----------- Total Revenues 0 0 1,026 ----------- ----------- ----------- OPERATING EXPENSES PROPERTY EXPLORATION EXPENSES Claims maintenance fees and staking costs 43,905 100,000 143,905 ----------- ----------- ----------- ADMINISTRATIVE EXPENSES Overhead and Administration 300,000 480,000 780,000 Legal and accounting 50,237 37,612 91,890 Directors fees 6,000 12,000 18,000 Internet design and access 3,461 1,711 5,172 Printing and stationary 1,798 2,462 4,260 Transfer agent 1,568 545 2,113 News wire services 1,150 2,850 4,000 Courier and postage 966 8,662 9,628 Reports/information/subscripitions 925 32,405 33,330 Bank charges 151 133 367 Office supplies 95 5,449 6,010 Consultants 0 88,190 88,190 Office rent 0 42,033 42,033 Telephone and fax 0 35,556 35,556 Wages and salaries 0 22,444 22,444 Travel 0 16,731 16,731 Auto 0 7,259 7,259 Promotion 0 7,165 7,165 Miscellaneous 0 810 1,410 Computer supplies 0 159 159 ----------- ----------- ----------- Total Administrative Expenses 366,351 804,176 1,175,717 ----------- ----------- ----------- Total Operating Expenses 410,256 904,176 1,319,622 ----------- ----------- ----------- Income (Loss) from Operations (410,256) (904,176) (1,318,596) OTHER INCOME (EXPENSES) Interest Income 1 0 1 Interest Expense (29,218) (38,762) (67,980) ----------- ----------- ----------- Net (Loss) $ (439,473) $ (942,938) $(1,386,575) =========== =========== =========== Income (Loss) per Share $ (0.053) $ (0.183) $ (0.207) =========== =========== =========== Weighted Average Number of Common Shares Outstanding 8,248,663 5,164,869 6,698,736 =========== =========== =========== The accompanying notes are an integral part of the financial statements. F-3
GOLDSTATE CORPORATION (A Development Stage Company) Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents Inception (February 28, Year Ended December 31, 1996) to -------------------------- December 31, 1998 1997 1998 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (439,473) $ (942,938) $(1,386,575) Adjustments to reconcile net (loss) to cash flows used by operating activities Amortization and depreciation 0 0 90 Changes in Assets and Liabilities Other assets 0 0 0 Accounts payable 41,235 17,274 58,509 Director fees payable 6,000 12,000 18,000 Deposits and inventory 0 337 0 ----------- ----------- ----------- Net Cash Flows Used for Operating Activities (392,238) (913,327) (1,309,976) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Equipment (purchases) dispositions 0 308 (90) Organization costs 0 0 (270) ----------- ----------- ----------- Net Cash Flows Provided (Used) for Investing Activities 0 308 (360) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Sale (redemption) of common stock 690 (1,102) 2,926 Additional paid-in capital 459,310 366,102 834,454 Offering costs 0 0 (7,173) Advances payable (net) (202,019) 440,045 238,026 Accrued interest payable 29,218 38,762 67,980 Proceeds from notes payable 105,000 70,000 175,000 ----------- ----------- ----------- Net Cash Flows Provided by Financing Activities 392,199 913,807 1,311,213 ----------- ----------- ----------- Net increase in cash (39) 788 877 Cash and cash equivalents - Beginning of period 916 128 0 ----------- ----------- ----------- Cash and cash equivalents - End of period $ 877 $ 916 $ 877 =========== =========== =========== Schedule of Non-Cash Investing and Financing Activities: - -------------------------------------------------------- On January 21, 1998, Goldstate Corporation exchanged 1,000,000 shares of stock for a profit sharing interest in 439 unpatented lode mining claims. The discounted value of this exchange was $170,000. The Company accrued interest on notes and advances payable of $29,218 and $38,762 for the years ended December 31, 1998 and 1997 respectively. The Company has not paid any interest. The accompanying notes are an integral part of the financial statements. F-4
GOLDSTATE CORPORATION (A Development Stage Company) Statements of Stockholders' Equity Deficit Accumulated Common Stock During ------------------------- Paid - in Development Shares Amount Capital Stage Total ------ ------ ------- ----- ----- Balance, February 28, 1996 0 $ 0 $ 0 $ 0 $ 0 Issuance of common stock for cash ($.001 par per share, total of $.004 per share) 3,038,000 3,038 9,342 0 12,380 Less offering costs 0 0 (7,173) 0 (7,173) Stock Split 6,076,000 0 0 0 0 Net income (loss), February 28, 1996 (inception) to December 31, 1996 0 0 0 (4,164) (4,164) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1996 9,114,000 3,038 2,169 (4,164) 1,043 Shares redeemed (5,500,200) (1,650) 1,650 0 0 Issuance of common stock SEC Reg D-504 for cash ($.0003 par per share, total of $.20 per share) 1,825,000 548 364,452 0 365,000 Net loss, Year ended December 31, 1997 0 0 0 (942,938) (942,938) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1997 5,438,800 1,936 368,271 (947,102) (576,895) Issuance of common stock pursuant to profit sharing agreement ($.0003 par per share, total of $.17 per share) 1,000,000 300 169,700 0 170,000 Issuance of common stock SEC Reg D-504 for cash ($.0003 par per share, total of $.20 per share) 2,300,000 690 459,310 0 460,000 Net Loss, Year ended December 31, 1998 0 0 0 (439,473) (439,473) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 8,738,800 $ 2,926 $ 997,281 $(1,386,575) $ (386,368) =========== =========== =========== =========== =========== The accompanying notes are an integral part of the financial statements. F-5
GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Goldstate Corporation (the Company) was incorporated on February 28, 1996 under the laws of the State of Nevada. The Company is a development stage company. The Company's principal operations are the exploration and development of 439 unpatented lode-mining claims in the State of Idaho pursuant to a profit sharing agreement as discussed in Note 4. Basis of Accounting ------------------- The Company utilizes the accrual basis of accounting. Financial statements have been prepared using generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Research, Development and Exploration Costs ------------------------------------------- Research, development and exploration costs are expensed as incurred. Cash Equivalents ---------------- For purposes of the Statement of Cash Flows, cash equivalents are defined as investments with maturities of three months or less. NOTE 2: ADVANCES AND NOTES PAYABLE Advances are comprised of the following: Advances -------- The Company at December 31, 1998 had advances, payable on demand, bearing 10% simple interest, to the following affiliated company: Tri-Star Financial Services, Inc. $ 238,026 ========= Notes Payable ------------- The Company entered into three note agreements during 1997 and 1998. All three notes are related to the defective common stock subscriptions described in Note 9. F-6 GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 NOTE 2: ADVANCES AND NOTES PAYABLE (continued) The Company has entered into two promissory notes with Brent Pierce. The first note, dated July 31, 1997, is for $70,000. The second note is dated February 3, 1998 and is for $5,000. The notes bear an 8% interest rate and are due on demand. The notes are convertible at the option of the holder into 350,000 and 25,000 shares of common stock, respectively. The third note, dated March 5, 1998, is to Rising Sun Capital Corporation and is for $100,000. The note also bears interest at 8% and is due on demand. The note is also convertible at the option of the holder into 500,000 shares of common stock. NOTE 3: STOCKHOLDERS' EQUITY Common Stock ------------ Pursuant to a July 30, 1997 Offering Memorandum, the Company issued under SEC Rule 504 of Regulation D, 2,625,000 shares of common stock at $.0003 par value for $525,000 during 1997 and 1998. Pursuant to a March 3, 1998 Offering Memorandum, the Company has issued 1,500,000 shares of common stock at $.0003 par value for $300,000 during 1998. The Company has also issued 1,000,000 common shares to Intergold Corporation pursuant to a profit sharing agreement as detailed in Notes 1 and 4. Preferred Stock --------------- Pursuant to a Board resolution, the Corporation has authorized the creation of preferred stock and related rights. The Company also filed a "Certificate of Designation of Series A Preferred Stock" with the Nevada Secretary of State on May 8, 1998. The Company has not issued any shares of preferred stock as of December 31, 1997 or 1998. NOTE 4: PROFIT SHARING AGREEMENT On December 11, 1997, Intergold Corporation and its subsidiary entered into a profit sharing agreement with the Company. Under terms of the agreement, Intergold would receive 1,000,000 of restricted shares of common stock in the Company. The Company will be responsible to provide funding and will be the operating partner owning 51% of the profits resulting from the venture, while Intergold Corporation and its subsidiary will retain 49% of the profits. The Company will receive 80% of all profits until invested capital is repaid. There are 439 unpatented lode-mining claims that form the subject of this arrangement known as Blackhawk II. F-7 GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 NOTE 4: PROFIT SHARING AGREEMENT (continued) Pursuant to the agreement with Intergold Corporation, on January 21, 1998 the Company transferred the 1,000,000 restricted common shares. The sole director and officer of Goldstate Corporation is also a director of Intergold Corporation. NOTE 5: INVESTMENTS Pursuant to the agreement discussed in Note 4, the Company now owns a profit sharing interest in 439 unpatented lode-mining claims. As the 1,000,000 shares of common stock cannot be marketed for a period of twelve months from the date of issuance, the Company has valued the profit sharing interest at 50% of the trading value as of the date of issuance, $170,000. NOTE 6: INCOME TAXES The Company incurred an operating loss for the year ended December 31, 1998 and 1997 of $410,255, and $804,176, respectively. The Company had adopted FASB No. 109 for reporting purposes. As of December 31, 1998 and 1997, the Company had net operating loss carry forwards of $1,218,595 and $808,340, respectively, which expire between the years 2006 - 2012. The deferred tax assets resulting from these carry forwards were as follows: 1998 1997 ---- ---- Deferred Tax Asset $ 414,322 $ 274,836 Less Valuation of Net Assets (414,322) (274,836) --------- --------- Balance at End of Year $ -0- $ -0- ========= ========= NOTE 7: GOING CONCERN AND CONTINUED OPERATIONS At December 31, 1998 and 1997, the Company has not generated revenues from operations. The Company's successful financial operations and movement into an operating basis are solely contingent on the development of the lode mining claims and related profit sharing agreement. The Company expects to fund ongoing operations for the next twelve months through the common stock offering described in Note 8, which has provided an additional $870,000 of funding, and subsequent offerings to commence after October 7, 1999. NOTE 8: MANAGEMENT SERVICES AGREEMENT The Company has entered into a management services agreement with Tri Star Financial Services, Inc ("Tri Star") to provide management of the day-to-day operations of the Company. The management services agreement required a monthly payment not to exceed $25,000 for services rendered. The individuals comprising the management team provided by Tri Star are the same individuals managing the operations of Intergold Corporation. The sole director and officer of the Company is not employed by Tri Star or part of the Tri Star management team. F-8 GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 NOTE 9: SUBSEQUENT EVENTS Technology Sub-License Agreement -------------------------------- The Company has entered into a Technology Sub-License agreement with Geneva Resources, Inc. during 1999 related to its mining claim development and exploration. The agreement signed in March of 1999, is for a technology license to utilize the Precious Metals Recovery Process and Assay Process and relating technology and know-how developed by AuRIC Metallurgical Laboratories, LLC. This license is for non-exclusive use in the claim area in the State of Idaho. Pursuant to this agreement, the Company will issue 500,000 restricted common shares to Geneva and 1,000,000 shares to AuRIC. Pursuant to the same agreement the Company also 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 above agreement, during 1999 the Company issued a note payable for $100,000, bearing interest at 8% and payable on demand, to Geneva in lieu of issuance of the 500,000 restricted common shares required by the Technology Sub-License Agreement. This promissory note is convertible into 500,000 shares of the Company's common stock at the option of Geneva. Common Stock Private Placement ------------------------------ Pursuant to a private placement memorandum dated March 15, 1999, and a related supplement dated April 1, 1999, the Company offered 4,350,000 shares of common stock with a par value of $.003 for $.20 per share. This private placement memorandum generated $870,000 of additional operating funds that will be utilized primarily on management and administration relating to development programs for metallurgical technology and planning for the Blackhawk II property as well as repayment of advances to companies which provided past management services, and for general working capital for the continued development of the Company's Blackhawk II claims. As of April 6, 1999, the entire offering had been subscribed. Employee Stock Option Plan -------------------------- During 1999 the Company authorized an Employee Stock Option Plan. The plan authorized the issuance of 1,500,000 options that can be exercised at $.15 per share of common stock. Options granted expire March 1, 2019. The options are non-cancelable once granted. Shares, which may be acquired through the plan, may be authorized but unissued shares of common stock or issued shares of common stock held in the Company's treasury. Options granted under the plan will not be in lieu of salary or other compensation for services. F-9 GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 NOTE 9: SUBSEQUENT EVENTS (continued) During 1997 and 1998, and as of December 31, 1997, and 1998, there were no options granted, exercised, or forfeited and no options expired. During 1999 the Company granted 1,000,000 options that can be exercised at $.15 per common share. To date, none of the options have been exercised. Management Services Agreement ----------------------------- The Company's management service agreement with Tri Star Financial Services, Inc. ("Tri Star") was amended for 1999 to a monthly amount not to exceed $100,000. The contract with Tri Star ran through June 30, 1999. The Company subsequently entered into a similar agreement with Investor Communications, Inc. for a 24 month period beginning July 1, 1999. The not to exceed monthly fee is $75,000. The management team provided by Investor Communications and Tri Star is the same. NOTE 10: PRIOR PERIOD RESTATEMENT Subsequent to the release of the December 31, 1997 and 1996 financial statements it was determined that the Company failed to properly accept three common stock subscriptions that it had received during 1997 and 1998. The first subscription was from Brent Pierce for 350,000 shares of common stock pursuant to the July 30, 1997 private placement memorandum. The second subscription was also from Brent Pierce for 25,000 shares and is also related to the July 30, 1997 private placement memorandum. The final subscription that was not properly accepted was from Rising Sun Capital Corporation for 500,000 share of common stock. This subscription is from a March 3, 1998 private placement memorandum. The Company subsequently issued convertible promissory notes in replacement of the failed subscriptions. Details of the promissory notes are outlined in Note 2. In conjunction with the issuance of the promissory note during 1997, the Company has restated the balance sheet as of December 31, 1997 to reflect the promissory note of $70,000 and accrued interest of $2,387. The Company has reversed the stock issuance and accordingly has reduced the common stock balance by $105 and paid in capital by $69,895. The Company has also recorded $2,387 of interest expense for 1997. It was also determined that the Company failed to accrue interest during 1997 on the advance from Tri-Star Financial Services, Inc. as described in Note 2. The effect of the accrual is to record accrued interest payable as of December 31, 1997 of $38,762 related to the advance and to record additional interest expense of $38,762 for the year ended December 31, 1997. F-10 GOLDSTATE CORPORATION (A Development Stage Company) FINANCIAL STATEMENTS (Unaudited) MARCH 31, 1999 TABLE OF CONTENTS Page ---- Table of Contents FQ-1 Balance Sheet FQ-2 Statements of Operations FQ-3 Statements of Cash Flows FQ-4 Notes to Financial Statements FQ-5 - FQ-10 FQ-1 GOLDSTATE CORPORATION (A Development Stage Company) Balance Sheets March 31, 1999 ---- ASSETS CURRENT ASSETS Cash and cash equivalents $ 39,469 Receivable - Technology 690,000 OTHER ASSETS Investment in profit sharing interest 170,000 Goodwill 270 ----------- Total Assets $ 899,739 =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable - trade $ 50,000 Advances payable 77,426 Directors fees payable 19,500 Notes payable 775,000 Accrued interest payable 78,800 ----------- Total Liabilities 1,000,726 ----------- STOCKHOLDERS' EQUITY Preferred stock, $.001 par value; authorized 25,000,000 shares; issued and outstanding 0 shares at March 31, 1999 0 Common stock $.0003 par value; authorized 75,000,000 shares; issued and outstanding 12,131,300 at March 31, 1999 3,943 Paid - in capital 1,564,772 Accumulated deficit through development stage (1,669,702) ----------- Total Stockholders' Equity (Deficit) (100,987) ----------- Total Liabilities and Stockholders' Equity $ 899,739 =========== See accompanying summary of accounting policies and notes to financial statements. FQ-2
GOLDSTATE CORPORATION (A Development Stage Company) Statements of Operations Inception (February 28, For the 3 Months Ended March 31, 1996) to -------------------------------- March 31, 1999 1998 1999 ---- ---- ---- REVENUES Other income $ 0 $ 0 $ 1,026 ----------- ----------- ----------- Total Revenues 0 0 1,026 ----------- ----------- ----------- OPERATING EXPENSES PROPERTY EXPLORATION EXPENSES Claims maintenance fees and staking costs 0 0 143,905 ----------- ----------- ----------- ADMINISTRATIVE EXPENSES Overhead and Administration 267,900 75,000 1,047,900 Legal and accounting 2,785 5,704 94,675 Directors fees 1,500 1,500 19,500 Internet design and access 0 2,742 5,172 Printing and stationary 0 0 4,260 Transfer agent 50 102 2,163 News wire services 0 0 4,000 Courier and postage 30 295 9,658 Reports/information/subscripitions 0 925 33,330 Bank charges 41 24 408 Office supplies 0 95 6,010 Consultants 0 0 88,190 Office rent 0 0 42,033 Telephone and fax 0 0 35,556 Wages and salaries 0 0 22,444 Travel 0 0 16,731 Auto 0 0 7,259 Promotion 0 0 7,165 Miscellaneous 0 0 1,410 Computer supplies 0 0 159 ----------- ----------- ----------- Total Administrative Expenses 272,306 86,387 1,448,023 ----------- ----------- ----------- Total Operating Expenses 272,306 86,387 1,591,928 ----------- ----------- ----------- Income (Loss) from Operations (272,306) (86,387) (1,590,902) OTHER INCOME (EXPENSES) Interest Income 0 0 1 Interest Expense (10,821) (9,696) (78,801) ----------- ----------- ----------- Net (Loss) $ (283,127) $ (96,083) $(1,669,702) =========== =========== =========== Income (Loss) per Share $ (0.029) $ (0.013) $ (0.240) =========== =========== =========== Weighted Average Number of Common Shares Outstanding 9,755,189 7,656,578 6,942,818 =========== =========== =========== See accompanying summary of accounting policies and notes to financial statements. FQ-3
GOLDSTATE CORPORATION (A Development Stage Company) Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents Inception (February 28, For the 3 Months Ended March 31, 1996) to -------------------------------- March 31, 1999 1998 1999 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (283,127) $ (96,083) $(1,669,702) Adjustments to reconcile net (loss) to cash used by operating activities Amortization and depreciation 0 0 90 Changes in Assets and Liabilities Accounts payable (8,509) (1) 50,000 Director fees payable 1,500 1,500 19,500 ----------- ----------- ----------- Net Cash Flows Used for Operating Activities (290,136) (94,584) (1,600,112) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Equipment (purchases) dispositions 0 0 (90) Organization costs 0 0 (270) ----------- ----------- ----------- Net Cash Flows Provided (Used) for Investing Activities 0 0 (360) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Sale (redemption) of common stock 1,017 989 3,943 Additional paid-in capital 477,491 459,310 1,311,945 Offering costs 0 0 (7,173) Advances payable - net (160,600) (279,700) 77,426 Accrued interest payable 10,820 9,697 78,800 Proceeds from notes payable 0 105,000 175,000 ----------- ----------- ----------- Net Cash Flows Provided by Financing Activities 328,728 295,296 1,639,941 ----------- ----------- ----------- Net increase in cash 38,592 200,712 39,469 Cash and cash equivalents - Beginning of period 877 916 0 ----------- ----------- ----------- Cash and cash equivalents - End of period $ 39,469 $ 201,628 $ 39,469 =========== =========== =========== Schedule of Non-Cash Investing and Financing Activities: During 1998, the Company exchanged 1,000,000 restricted common shares for a profit sharing interest in 439 lode-mining claims. During 1999, the Company exchanged $600,000 of notes payable and 1,000,000 shares of restricted common stock for a Technology Sub-License Agreement. The Technology had not been received as of March 31, 1999. The Company accrued interest on notes payable of $10,821 and $9,696 for the periods ended March 31, 1999 and 1998, respectively. The Company has not paid any accrued interest. See accompanying summary of accounting policies and notes to financial statements. FQ-4
GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Goldstate Corporation (the Company) was incorporated on February 28, 1996 under the laws of the State of Nevada. The Company is a development stage company. The Company's principal operations are the exploration and development of 439 unpatented lode-mining claims in the State of Idaho pursuant to a profit sharing agreement as discussed in Note 4. Basis of Accounting ------------------- The Company utilizes the accrual basis of accounting. Financial statements have been prepared using generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Research, Development and Exploration Costs ------------------------------------------- Research, development and exploration costs are expensed as incurred. Cash Equivalents ---------------- For purposes of the Statement of Cash Flows, cash equivalents are defined as investments with maturities of three months or less. NOTE 2: RECEIVABLES The Company entered into a Technology Sub-License agreement with Geneva Resources, Inc. on March 18, 1999 related to its mining claim development and exploration. The agreement is for a technology license to utilize the Precious Metals Recovery Process and Assay Process and relating technology and know-how developed by AuRIC Metallurgical Laboratories, LLC ("AuRIC"). This license is for non-exclusive use in the claim area in the State of Idaho. Pursuant to this agreement, the Company was to issue 500,000 restricted common shares to Geneva Resources, Inc. ("Geneva") and the Company also issued 1,000,000 restricted common shares to AuRIC. Pursuant to the same agreement the Company also 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. FQ-5 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 NOTE 2: RECEIVABLES (continued) Pursuant to an amendment to the above agreement, the Company issued a convertible promissory note to Geneva in the amount of $100,000 that is convertible to 500,000 restricted common shares upon demand, and bears simple interest at the rate of 8% per annum. This promissory note is in lieu of the 500,000 restricted common shares required by the agreement. This promissory note is convertible into 500,000 shares of the Company's common stock at the option of Geneva. As of March 31, 1999 the promissory notes and common stock have been issued to the various parties. These promissory notes and stock certificates are being held in trust pending the transfer of the technology. Accordingly, the Company has recorded a receivable equal to the value of the assets held in trust related to the Technology Sub-License Agreement, $690,000. Subsequent to March 31, 1999 the technology was transferred. NOTE 3: INVESTMENTS Investment in Profit Sharing Interest ------------------------------------- On December 11, 1997, Intergold Corporation and its subsidiary entered into a profit sharing agreement with the Company. Under terms of the agreement, Intergold would receive 1,000,000 of restricted shares of common stock in the Company. The Company will be responsible to provide funding and will be the operating partner owning 51% of the profits resulting from the venture, while Intergold Corporation and its subsidiary will retain 49% of the profits. The Company will receive 80% of all profits until invested capital is repaid. There are 439 unpatented lode-mining claims that form the subject of this arrangement known as Blackhawk II. Pursuant to the agreement with Intergold Corporation, on January 21, 1998 the Company transferred the 1,000,000 restricted common shares. The Company now owns a profit sharing interest in 439 unpatented lode-mining claims. As the 1,000,000 shares of common stock cannot be marketed for a period of twelve months from the date of issuance, the Company has valued the profit sharing interest at 50% of the trading value as of the date of issuance, $170,000. The sole director and officer of Goldstate Corporation is also a director of Intergold Corporation. FQ-6 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 NOTE 4: ADVANCES AND NOTES PAYABLE Advances are comprised of the following: Advances -------- The Company at March 31, 1999 had advances, payable on demand, bearing 10% simple interest, to the following affiliated company: Tri-Star Financial Services, Inc. $ 77,426 ======== Notes Payable ------------- The Company had Notes Payable at March 31, 1999 as follows: Brent Pierce $ 75,000 Rising Sun Capital Corporation 100,000 Geneva Resources, Inc. 350,000 AuRIC Metallurgical Laboratories, LLC 250,000 -------- $775,000 ======== Accrued Interest Payable to March 31, 1999 from Advances and Notes Payable was $78,800. The Company has entered into two promissory notes with Brent Pierce. The first note, dated July 31, 1997, is for $70,000. The second note is dated February 3, 1998 and is for $5,000. The notes bear an 8% interest rate and are due on demand. The notes are convertible at the option of the holder into 350,000 and 25,000 shares of common stock, respectively. The Company has also issued a $100,000 note, dated March 5, 1998, to Rising Sun Capital Corporation. The note bears interest at 8% and is due on demand. The note is convertible at the option of the holder into 500,000 shares of common stock. Note agreements executed in 1999 relate to requirements under the Technology Sub-license agreement that the Company executed on March 18, 1999 (see Note 3). Pursuant to the Technology Sub-license agreement, 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. FQ-7 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 NOTE 4: ADVANCES AND NOTES PAYABLE (continued) 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. NOTE 5: STOCKHOLDERS' EQUITY Common Stock ------------ Pursuant to a July 30, 1997 Offering Memorandum, the Company issued under SEC Rule 504 of Regulation D, 2,625,000 shares of common stock at $.0003 par value for $525,000 during 1997 and 1998. Pursuant to a March 3, 1998 Offering Memorandum, the Company has issued 1,500,000 shares of common stock at $.0003 par value for $300,000 during 1998. The Company has also issued 1,000,000 common shares to Intergold Corporation pursuant to a profit sharing agreement as detailed in Note 3. Pursuant an $8,509 debt settlement agreement, the Company issued 42,500 shares of common stock on January 15, 1999. On March 18, 1999, the company issued 1,000,000 shares of common stock to AuRIC Metallurgical Laboratories, LLC pursuant to terms and conditions of the Technology Sub-license Agreement executed on March 18, 1999 as detailed in Note 2. Pursuant to a March 15, 1999 Offering Memorandum, the Company has issued 2,350,000 shares of common stock at $.0003 par value for $470,000 to March 31, 1999. Subsequent to March 31, 1999, the Company issued 2,000,000 shares of common stock at $.0003 par value for $400,000. The private placement memorandum dated March 15, 1999 generated $870,000 of additional operating funds that will be utilized primarily on management and administration relating to development programs for metallurgical technology and planning for the Blackhawk II Property as well as repayment of advances to companies which provided past management services, and for general working capital for the continued exploration and development of the Company's Blackhawk II claims. As of April 6, 1999, the entire offering had been subscribed. Preferred Stock --------------- Pursuant to a Board resolution, the Corporation has authorized the creation of preferred stock and related rights. The Company also filed a "Certificate of Designation of Series A Preferred Stock" with the Nevada Secretary of State on May 8, 1998. The Company has not issued any shares of preferred stock as of March 31, 1999. FQ-8 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 NOTE 6: EMPLOYEE STOCK OPTION PLAN On March 1, 1999 the Company authorized an Employee Stock Option Plan. The plan authorized the issuance of 1,500,000 options that can be exercised at $.15 per share of common stock. Options granted expire March 1, 2019. The options are non-cancelable once granted. Shares, which may be acquired through the plan, may be authorized but unissued shares of common stock or issued shares of common stock held in the Company's treasury. Options granted under the plan will not be in lieu of salary or other compensation for services. During the three month period ending March 31, 1999, the Board of Directors of the Company authorized the grant of stock options to certain officers, directors and consultants. The options granted consisted of 800,000 options with an exercise price of $.15 per share of common stock. Selected information regarding the options as of March 31, 1999 and 1998 are as follows: March 31, 1999 March 31, 1998 -------------------- ----------------- Weighted Weighted Number Average Number Average of Exercise of Exercise Options Price Options Price ------- ----- ------- ----- Outstanding at Beg. of Period -0- -0- -0- -0- Outstanding at End of Period 800,000 $.15/share -0- -0- Exercisable at End of Period 800,000 $.15/share -0- -0- Options Granted 800,000 $.15/share -0- -0- Options Exercised -0- -0- -0- -0- Options Forfeited -0- -0- -0- -0- Options Expired -0- -0- -0- -0- As of March 31, 1999, outstanding options have an exercise price of $.15 per share. The weighted average exercise price of all options outstanding is $.15 per share of common stock and the weighted average remaining contractual life is 19 years 334 days. There are 800,000 options that are exercisable with a weighted average exercise price of $.15 per share of common stock. Subsequent to March 31, 1999, the Company granted an additional 200,000 in options under the same terms detailed above. FQ-9 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 NOTE 7: MANAGEMENT SERVICES AGREEMENT The Company has entered into a management services agreement with Tri Star Financial Services, Inc ("Tri Star") to provide management of the day-to-day operations of the Company. The management services agreement requires a monthly payment not to exceed $100,000 for services rendered. This contract runs from January 1, 1999 through June 30, 1999. The individuals comprising the management team provided by Tri Star are the same individuals managing the operations of Intergold Corporation. Subsequent to March 31, 1999, the Company entered into a similar management services agreement with Investor Communications, Inc. This contract starts July 1, 1999 and is for 24 months at a cost to not exceed $75,000 per month for the first 12 months. The management team provided by Investor Communications is the same group provided by Tri Star. The sole director and officer of the Company is not an officer, director, employee or a part of the management team provided by Tri Star or Investor Communications, Inc. NOTE 8: INCOME TAXES The Company incurred an operating loss for the year ended December 31, 1998 and 1997 of $410,255, and $804,176, respectively. The Company had adopted FASB No. 109 for reporting purposes. As of December 31, 1998 and 1997, the Company had net operating loss carry forwards of $1,218,595 and $808,340, respectively, which expire between the years 2006 - 2012. The deferred tax assets resulting from these carry forwards were as follows: 1998 1997 ---- ---- Deferred Tax Asset $ 414,322 $ 274,836 Less Valuation of Net Assets (414,322) (274,836) --------- --------- Balance at End of Year $ -0- $ -0- ========= ========= NOTE 9: GOING CONCERN AND CONTINUED OPERATIONS As of March 31, 1999, the Company had not generated revenues from operations. The Company's successful financial operations and movement into an operating basis are solely contingent on the development of the lode mining claims and related profit sharing agreement. The Company expects to fund ongoing operations for the next twelve months through a combination of advances and the common stock offering described in Note 5, which has provided an additional $870,000 of funding, and subsequent offerings to commence after October 7, 1999. FQ-10 EX-3 2 EXHIBIT 3 ARTICLES OF INCORPORATION OF IMAGE PERFECT INCORPORATED KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, have this day voluntarily associated ourselves together for the purpose of forming a Corporation under and pursuant to the laws of the State of Nevada, and we do hereby certify that: ARTICLE I - NAME: The exact name of this Corporation is: Image Perfect, Incorporated ARTICLE II - RESIDENT AGENT: The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada 89121. ARTICLE III - DURATION: The Corporation shall have perpetual existence. ARTICLE IV - PURPOSES: The purpose, object and nature of the business for which this Corporation is organized are: (a) To engage in any lawful activity; (b) To carry on- such business as may be necessary, convenient, or desirable to accomplish the above purposes, and to do all other things incidental thereto which are not forbidden by law or by these Articles of Incorporation. ARTICLE V - POWERS: The powers of the Corporation shall be those powers granted by 78.060 and 78.070 of the Nevada Revised Statutes under which this corporation is formed. In addition, the Corporation shall have the following specific powers: (a) To elect or appoint officers and agents of the Corporation and to fix their compensation; (b) To act as an agent for any individual, association, partnership, corporation or other legal entity; (c) To receive, acquire, hold, exercise rights arising out of the ownership or possession thereof, sell, or otherwise dispose of, shares or other interests in, or obligations of, individuals, associations, partnerships, corporations, or governments; (d) To receive, acquire, hold, pledge, transfer, or otherwise dispose of shares of the corporation, but such shares may only be purchased, directly or indirectly, out of earned surplus; (e) To make gifts or contributions for the public welfare or for charitable, scientific or educational purposes, and in time of war, to make donations in aid of war activities. ARTICLE VI - CAPITAL STOCK: Section 1. Authorized Shares. The total number of shares which this Corporation is authorized to issue is 25,000,000 shares of Common Stock at $.00l par value per share. Section 2. Voting Rights of Shareholders. Each holder of the Common Stock shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation. Section 3. Consideration for Shares. The Common Stock shall be issued for such consideration, as shall be fixed from time to time by the Board of Directors. In the absence of fraud, the judgment of the Directors as to the value of any property for shares shall be conclusive. When shares are issued upon payment of the consideration fixed by the Board of Directors, such shares shall be taken to be fully paid stock and shall be non-assessable. The Articles shall not be amended in this particular. Section 4. pre-emptive Rights. Except as may otherwise be provided by the Board of Directors, no holder of any shares of the stock of the Corporation, shall have any preemptive right to purchase, subscribe for, or otherwise acquire any shares of stock of the Corporation of any class now or hereafter authorized, or any securities exchangeable for or convertible into such shares, or any warrants or other instruments evidencing rights or options to subscribe for, purchase or otherwise acquire such shares. Section 5. Stock Rights and Options. The Corporation shall have the power to create and issue rights, warrants, or options entitling the holders thereof to purchase from the corporation any shares of its capital stock of any class or classes, upon such terms and conditions and at such times and prices as the Board of Directors may provide, which terms and conditions shall be incorporated in an instrument or instruments evidencing such rights. In the absence of fraud, the judgment of the Directors as to the adequacy of consideration for the issuance of such rights or options and the sufficiency thereof shall be conclusive. ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation, after the amount of the subscription price has been fully paid in, shall not be assessable for any purpose, and no stock issued as fully paid up shall ever be assessable or assessed. The holders of such stock shall not be individually responsible for the debts, contracts, or liabilities of the Corporation and shall not be liable for assessments to restore impairments in the capital of the Corporation. ARTICLE VIII - DIRECTORS: For the management of the business, and for the conduct of the affairs of the Corporation, and for the future definition, limitation, and regulation of the powers of the Corporation and its directors and shareholders, it is further provided: Section 1. Size of Board. The members of the governing board of the Corporation shall be styled directors. The number of directors of the Corporation, their qualifications, terms of office, manner of election, time and place of meeting, and powers and duties shall be such as are prescribed by statute and in the by-laws of the Corporation. The name and post office address of the directors constituting the first board of directors, which shall be four (4) in number are: NAME ADDRESS ---- ------- Steven K. Sheffield 1820 O'Sage Orange Avenue Salt Lake City, UT 84104 Craig B. Jamieson 4680 5. Meadow View Court Murray, UT 84107 Rigs Morata 54 Gil Payart Street B.F. Homes I - Paranaque Metro Manila 1700 Philippines Marci Evans 6357 Vicuna Drive Las Vegas, NV 89102 Section 2. Powers of Board. In furtherance and not in limitation of the powers conferred by the laws of the State of Nevada, the Board of Directors is expressly authorized and empowered: (a) To make, alter, amend, and repeal the By-Laws subject to the power of the shareholders to alter or repeal the By-Laws made by the Board of Directors. (b) Subject to the applicable provisions of the ByLaws then in effect, to determine, from time to time, whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation, or any of them, shall be open to shareholder inspection. No shareholder shall have any right to inspect any of the accounts, books or documents of the Corporation, except as permitted by law, unless and until authorized to do so by resolution of the Board of Directors or of the Shareholders of the Corporation; (c) To issue stock of the Corporation for money, property, services rendered, labor performed, cash advanced, acquisitions for other corporations or for any other assets of value in accordance with the action of the board of directors without vote or consent of the shareholders and the judgment of the board of directors as to value received and in return therefore shall be conclusive and said stock, when issued, shall be fully-paid and non-assessable. (d) To authorize and issue, without shareholder consent, obligations of the Corporation, secured and unsecured, under such terms and conditions as the Board, in its sole discretion, may determine, and to pledge or mortgage, as security therefore, any real or personal property of the Corporation, including after-acquired property; (e) To determine whether any and, if so, what part, of the earned surplus of the Corporation shall be paid in dividends to the shareholders, and to direct and determine other use and disposition of any such earned surplus; (f) To fix, from time to time, the amount of the profits of the Corporation to be reserved as working capital or for any other lawful purpose; (g) To establish bonus, profit-sharing, stock option, or other types of incentive compensation plans for the employees, including officers and directors, of the Corporation, and to fix the amount of profits to be shared or distributed, and to determine the persons to participate in any such plans and the amount of their respective participations. (h) To designate, by resolution or resolutions passed by a majority of the whole Board, one or more committees, each consisting of two or more directors, which, to the extent permitted by law and authorized by the resolution or the By-Laws, shall have and may exercise the powers of the Board; (i) To provide for the reasonable compensation of its own members by By-Law, and to fix the terms and conditions upon which such compensation will be paid; (j) In addition to the powers and authority herein before, or by statute, expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the corporation, subject, nevertheless, to the provisions of the laws of the State of Nevada, of these Articles of Incorporation, and of the By-Laws of the Corporation. Section 3. Interested Directors. No contract or transaction between this Corporation and any of its directors, or between this Corporation and any other corporation, firm, association, or other legal entity shall be invalidated by reason of the fact that the director of the Corporation has a direct or indirect interest, pecuniary or otherwise, in such corporation, firm, association, or legal entity, or because the interested director was present at the meeting of the Board of Directors which acted upon or in reference to such contract or transaction, or because he participated in such action, provided that: (1) the interest of each such director shall have been disclosed to or known by the Board and a disinterested majority of the Board shall have nonetheless ratified and approved such contract or transaction (such interested director or directors may be counted in determining whether a quorum is present for the meeting at which such ratification or approval is given); or (2) the conditions of N.R.S. 78.140 are met. ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal liability of a director or officer of the corporation to the corporation or the Shareholders for damages for breach of fiduciary duty as a director or officer shall be limited to acts or omissions which involve intentional misconduct, fraud or a knowing violation of law. ARTICLE X - INDEMNIFICATION: Each director and each officer of the corporation may be indemnified by the corporation as follows: (a) The corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with the action, suit or proceeding, if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suite or proceeding, by judgment, order, settlement, conviction or upon a plea of nob contendere or its equivalent, does not of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (b) The corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or suit by or in the right of the corporation, to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit, if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. (c) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this Article, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorney's fees, actually and reasonably incurred by him in connection with the defense. (d) Any indemnification under subsections (a) and (b) unless ordered by a court or advanced pursuant to subsection (e), must be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (i) By the stockholders; (ii) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding; (iii)If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel in a written opinion; or (iv) If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. (e) Expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this subsection do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. (f) The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this section: (i) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the certificate or articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to subsection (b) or for the advancement of expenses made pursuant to subsection (e) may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (ii) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the State of Nevada, the shareholders and the Directors shall have power to hold their meetings, and the Directors shall have power to have an office or offices and to maintain the books of the Corporation outside the State of Nevada, at such place or places as may from time to time be designated in the By-Laws or by appropriate resolution. ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of Incorporation may be amended, altered or repealed from time to time to the extent and in the manner prescribed by the laws of the State of Nevada, and additional provisions authorized by such laws as are then in force may be added. All rights herein conferred on the directors, officers and shareholders are granted subject to this reservation. ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator signing these Articles of Incorporation is as follows: NAME POST OFFICE ADDRESS ---- ------------------- 1. Max C. Tanner 2950 East Flamingo Road, Suite G Las Vegas, Nevada 89121 IN WITNESS WHEREOF, the undersigned incorporator has executed these Articles of Incorporation this 26th day of February, 1996. /s/ Max C. Tanner ----------------- Max C. Tanner STATE OF NEVADA ) ) ss: COUNTY OF CLARK ) On February 26, 1996, personally appeared before me, a Notary Public, Max C. Tanner, who acknowledged to me that he executed the foregoing Articles of Incorporation for Image Perfect, Incorporated, a Nevada corporation. /s/ Ronald L. Drake ------------------- Notary Public NOTARY PUBLIC County of Clark-State of Nevada RONALD L. DRAKE My Appointment Expires May 5, 1999 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION FOR DYNACOM TELECOMMUNICATIONS CORPORATION Pursuant to NRS 78.385 and 78.390, the undersigned President and Secretary of Dynacom Telecommunications Corporation does hereby certify: That the following amendment to the articles of incorporation was approved by the Sole Director of said corporation by written consent in lieu of a special meeting of the Sole Director, dated October 20,1997 and by a majority of the outstanding shares entitled to vote, there being 5,614,000 shares authorized to vote and 3,823,550 shares having voted in favor of the amended articles. 1. Change of Name. Article I is hereby amended to read as follows: The exact name of the Corporation is Goldstate Corporation. /s/ Harold Gooding ------------------ Harold Gooding, President and Secretary ACKNOWLEDGMENT STATE OF WASHINGTON ) ss. COUNTY OF WHATCOM ) On this 20th day of October, 1997, personally appeared before me, a Notary Public, Harold Gooding, President and Secretary of the above-mentioned Corporation, who acknowledged that he executed the Certificate of Amendment of the Articles of Incorporation of Dynacom Telecommunications Corporation. /s/ Stephanie M. Ebert ---------------------- Notary Public (Notary Stamp on File) BY-LAWS OF IMAGE PERFECT, INCORPORATED ARTICLE I SHAREHOLDERS Section 1.01 Annual Meeting. The annual meeting of the shareholders shall be held at such date and time as shall be designated by the board of directors and stated in the notice of the meeting or in a duly-executed waiver of notice thereof. If the corporation shall fail to provide notice of the annual meeting of the shareholders as set forth above, the annual meeting of the shareholders of the corporation shall be held during the month of November or December of each year as determined by the Board of Directors, for the purpose of electing directors of the corporation to serve during the ensuing year and for the transaction of such other business as may properly come before the meeting. If the election of the directors is not held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the president shall cause the election to be held at a special meeting of the shareholders as soon thereafter as is convenient. Section 1.02 Special Meetings. Special meetings of the shareholders may be called by the president or the Board of Directors and shall be called by the president at the written request of the holders of not less than 5l% of the issued and outstanding shares of capital stock of the corporation. All business lawfully to be transacted by the shareholders may be transacted at any special meeting at any adjournment thereof. However, no business shall be acted upon at a special meeting, except that referred to in the notice calling the meeting, unless all of the outstanding capital stock of the corporation is represented either in person or by proxy. Where all of the capital stock is represented, any lawful business may be transacted and the meeting shall be valid for all purposes. Section 1.03 Place of Meetings. Any meeting of the shareholders of the corporation may be held at its principal office in the State of Nevada or such other place in or out of the United States as the Board of Directors may designate. A waiver of notice signed by the shareholders entitled to vote may designate any place for the holding of such meeting. Section 1.04 Notice of Meetings. (a) The secretary shall sign and deliver to all shareholders of record written or printed notice of any meeting at least ten (10) days, but not more than sixty (60) days, before the date of such meeting; which notice shall state the place, date and time of the meeting, the general nature of the business to be transacted, and, in the case of any meeting at which directors are to be elected, the names of nominees, if any, to be presented for election. (b) In the case of any meeting, any proper business may be presented for action, except that the following items shall be valid only if the general nature of the proposal is stated in the notice or written waiver of notice: (1) Action with respect to any contract or transaction between the corporation and one or more of its directors or another firm, association, or corporation in which one or more of its directors has a material financial interest; (2) Adoption of amendments to the Articles of Incorporation; or (3) Action with respect to the merger, consolidation, reorganization, partial or complete liquidation, or dissolution of the corporation. (c) The notice shall be personally delivered or mailed by first class mail to each shareholder of record at the last known address thereof, as the same appears on the books of the corporation, and the giving of such notice shall be deemed delivered the date the same is deposited in the United States mail, postage prepaid. If the address of any shareholder does not appear upon the books of the corporation, it will be sufficient to address any notice to such shareholder at the principal office of the corporation. (d) The written certificate of the person calling any meeting, duly sworn, setting forth the substance of the notice, the time and place the notice was mailed or personally delivered to the several shareholders, and the addresses to which the notice was mailed shall be prima facie evidence of the manner and fact of giving such notice. Section 1.05 Waiver of Notice. If all of the shareholders of the corporation shall waive notice of a meeting, no notice shall be required, and, whenever all of the shareholders shall meet in person or by proxy, such meeting shall be valid for all purposes without call or notice, and at such meeting any corporate action may be taken. Section 1.06 Determination of Shareholders of Record. (a) The Board of Directors may at any time fix a future date as a record date for the determination of the shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action. The record date so fixed shall not be more than sixty (60) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution or allotment of rights, or to exercise their rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. (b) If no record date is fixed by the Board of Directors, then (1) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which written consent is given; and (3) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Section 1.07 Quorum: Adjourned Meetings. (a) At any meeting of the shareholders, a majority of the issued and outstanding shares of the corporation represented in person or by proxy, shall constitute a quorum. (b) If less than a majority of the issued and outstanding shares are represented, a majority of shares so represented may adjourn from time to time at the meeting, until holders of the amount of stock required to constitute a quorum shall be in attendance. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted as originally called. When a shareholders' meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than ten (10) days in which event notice thereof shall be given. Section 1.08 Voting. (a) Each shareholder of record, such shareholder's duly authorized proxy or attorney-in-fact shall be entitled to one (1) vote for each share of stock standing registered in such shareholder's name on the books of the corporation on the record date. (b) Except as otherwise provided herein, all votes with respect to shares standing in the name of an individual on the record date (included pledged shares) shall be cast only by that individual or such individual's duly authorized proxy or attorney-in-fact. With respect to shares held by a representative of the estate of a deceased shareholder, guardian, conservator, custodian or trustee, votes may be cast by such holder upon proof of capacity, even though the shares do not stand in the name of such holder. In the case of shares under the control of a receiver, the receiver may cast votes carried by such shares even though the shares do not stand in the name of the receiver provided that the order of the court of competent jurisdiction which appoints the receiver contains the authority to cast votes carried by such shares. If shares stand in the name of a minor, votes may be cast only by the duly-appointed guardian of the estate of such minor if such guardian has provided the corporation with written notice and proof of such appointment. (c) With respect to shares standing in the name of a corporation on the record date, votes may be cast by such officer or agents as the by-laws of such corporation prescribe or, in the absence of an applicable by-law provision, by such person as may be appointed by resolution of the Board of Directors of such corporation. In the event no person is so appointed, such votes of the corporation may be cast by any person (including the officer making the authorization) authorized to do so by the Chairman of the Board of Directors, President or any Vice President of such corporation. (d) Notwithstanding anything to the contrary herein contained, no votes may be cast by shares owned by this corporation or its subsidiaries, if any. If shares are held by this corporation or its subsidiaries, if any, in a fiduciary capacity, no votes shall be cast with respect thereto on any matter except to the extent that the beneficial owner thereof possesses and exercises either a right to vote or to give the corporation holding the same binding instructions on how to vote. (e) With respect to shares standing in the name of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, husband and wife as community property, tenants by the entirety, voting trustees, persons entitled to vote under a shareholder voting agreement or otherwise and shares held by two or more persons (including proxy holders) having the same fiduciary relationship respect in the same shares, votes may be cast in the following manner: (1) If only one such person votes, the votes of such person binds all. (2) If more than one person casts votes, the act of the majority so voting binds all. (3) If more than one person casts votes, but the vote is evenly split on a particular matter, the votes shall be deemed cast proportionately as split. (f) Any holder of shares entitled to vote on any matter may cast a portion of the votes in favor of such matter and refrain from casting the remaining votes or cast the same against the proposal, except in the case of elections of directors. If such holder entitled to vote fails to specify the number of affirmative votes, it will be conclusively presumed that the holder is casting affirmative votes with respect to all shares held. (g) If a quorum is present, the affirmative vote of holders of a majority of the shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless a vote of greater number or voting by classes is required by the laws of the State of Nevada, the Articles of Incorporation and these By-Laws. Section 1.09 Proxies. At any meeting of shareholders, any holder of shares entitled to vote may authorize another person or persons to vote by proxy with respect to the shares held by an instrument in writing and subscribed to by the holder of such shares entitled to vote. No proxy shall be valid after the expiration of six (6) months from the date of execution thereof, unless coupled with an interest or unless otherwise specified in the proxy. In no event shall the term of a proxy exceed seven (7) years from the date of its execution. Every proxy shall continue in full force and effect until its expiration or revocation. Revocation may be effected by filing an instrument revoking the same or a duly-executed proxy bearing a later date with the secretary of the corporation. Section 1.10 Order of Business. At the annual shareholders meeting, the regular order of business shall be as follows: (1) Determination of shareholders present and existence of quorum; (2) Reading and approval of the minutes of the previous meeting or meetings; (3) Reports of the Board of Directors, the president, treasurer and secretary of the corporation, in the order named; (4) Reports of committee; (5) Election of directors; (6) Unfinished business; (7) New business; (8) Adjournment. Section 1.11 Absentees Consent to Meetings. Transactions of any meeting of the shareholders are as valid as though had at a meeting duly-held after regular call and notice if a quorum is present, either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy (and those who, although present, either object at the beginning of the meeting to the transaction of any business because the meeting has not been lawfully called or convened or expressly object at the meeting to the consideration of matters not included in the notice which are legally required to be included therein), signs a written waiver of notice and/or consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents, and approvals shall be filed with the corporate records and made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice if such objection is expressly made at the beginning. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, except as otherwise provided in Section 1.04(b) of these By-Laws. Section 1.12 Action Without Meeting. Any action which may be taken by the vote of the shareholders at a meeting may be taken without a meeting if consented to by the holders of a majority of the shares entitled to vote or such greater proportion as may be required by the laws of the State of Nevada, the Articles of Incorporation, or these ByLaws. Whenever action is taken by written consent, a meeting of shareholders needs not be called or noticed. ARTICLE II DIRECTORS Section 2.01 Number. Tenure and Qualification. Except as otherwise provided herein, the Board of Directors of the corporation shall consist of at least one (1) but no more than nine (9) persons, who shall be elected at the annual meeting of the shareholders of the corporation and who shall hold office for one (1) year or until their successors are elected and qualify. Section 2.02 Resignation. Any director may resign effective upon giving written notice to the chairman of the Board of Directors, the president, or the secretary of the corporation, unless the notice specifies a later time for effectiveness of such resignation. If the Board of Directors accepts the resignation of a director tendered to take effect at a future date, the Board or the shareholders may elect a successor to take office when the resignation becomes effective. Section 2.03 Reduction in Number. No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 2.04 Removal. (a) The Board of Directors or the shareholders of the corporation, by a majority vote, may declare vacant the office of a director who has been declared incompetent by an order of a court of competent jurisdiction or convicted of a felony. Section 2.05 Vacancies. (a) A vacancy in the Board of Directors because of death, resignation, removal, change in number of directors, or otherwise may be filled by the shareholders at any regular or special meeting or any adjourned meeting thereof or the remaining director(s) by the affirmative vote of a majority thereof. A Board of Directors consisting of less than the maximum number authorized in Section 2.01 of ARTICLE II constitutes vacancies on the Board of Directors for purposes of this paragraph and may be filled as set forth above including by the election of a majority of the remaining directors. Each successor so elected shall hold office until the next annual meeting of shareholders or until a successor shall have been duly-elected and qualified. (b) If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders shall constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent (5%) or more of the total number of shares entitled to vote may call a special meeting of shareholders to be held to elect the entire Board of Directors. The term of office of any director shall terminate upon such election of a successor. Section 2.06 Regular Meetings. Immediately following the adjournment of, and at the same place as, the annual meeting of the shareholders, the Board of Directors, including directors newly elected, shall hold its annual meeting without notice, other than this provision, to elect officers of the corporation and to transact such further business as may be necessary or appropriate. The Board of Directors may provide by resolution the place, date and hour for holding additional regular meetings. Section 2.07 Special Meetings. Special meetings of the Board of Directors may be called by the chairman and shall be called by the chairman upon the request of any two (2) directors or the president of the corporation. Section 2.08 Place of Meetings. Any meeting of the directors of the corporation may be held at its principal office in the State of Nevada, or at such other place in or out of the United States as the Board of Directors may designate. A waiver or notice signed by the directors may designate any place for the holding of such meeting. Section 2.09 Notice of Meetings. Except as otherwise provided in Section 2.06, the chairman shall deliver to all directors written or printed notice of any special meeting, at least three (3) days before the date of such meeting, by delivery of such notice personally or mailing such notice first class mail, or by telegram. If mailed, the notice shall be deemed delivered two (2) business days following the date the same is deposited in the United States mail, postage prepaid. Any director may waive notice of any meeting, and the attendance of a director at a meeting shall constitute a waiver of notice of such meeting, unless such attendance is for the express purpose of objecting to the transaction of business threat because the meeting is not properly called or convened. Section 2.10 Quorum: Adjourned Meetings. (a) A majority of the Board of Directors in office shall constitute a quorum. (b) At any meeting of the Board of Directors where a quorum is not present, a majority of those present may adjourn, from time to time, until a quorum is present, and no notice of such adjournment shall be required. At any adjourned meeting where a quorum is present, any business may be transacted which could have been transacted at the meeting originally called. Section 2.11 Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if a written consent thereto is signed by all of the members of the Board of Directors or of such committee. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors or committee. Such action by written consent shall have the same force and effect as the unanimous vote of the Board of Directors or committee. Section 2.12 Telephonic Meetings. Meetings of the Board of Directors may be held through the use of a conference telephone or similar communications equipment so long as all members participating in such meeting can hear one another at the time of such meeting. Participation in such a meeting constitutes presence in person at such meeting. Section 2.13 Board Decisions. The affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.14 Powers and Duties. (a) Except as otherwise provided in the Articles of Incorporation or the laws of the State of Nevada, the Board of Directors is invested with the complete and unrestrained authority to manage the affairs of the corporation, and is authorized to exercise for such purpose as the general agent of the corporation, its entire corporate authority in such manner as it sees fit. The Board of Directors may delegate any of its authority to manage, control or conduct the current business of the corporation to any standing or special committee or to any officer or agent and to appoint any persons to be agents of the corporation with such powers, including the power to sub-delegate, and upon such terms as may be deemed fit. (b) The Board of Directors shall present to the shareholders at annual meetings of the shareholders, and when called for by a majority vote of the shareholders at a special meeting of the shareholders, a full and clear statement of the condition of the corporation, and shall, at request, furnish each of the shareholders with a true copy thereof. (c) The Board of Directors, in its discretion, may submit any contract or act for approval or ratification at any annual meeting of the shareholders or any special meeting properly called for the purpose of considering any such contract or act, provided a quorum is present. The contract or act shall be valid and binding upon the corporation and upon all the shareholders thereof, if approved and ratified by the affirmative vote of a majority of the shareholders at such meeting. (d) In furtherance and not in limitation of the powers conferred by the laws of the State of Nevada, the Board of Directors is expressly authorized and empowered to issue stock of the Corporation for money, property, services rendered, labor performed, cash advanced, acquisitions for other corporations or for any other assets of value in accordance with the action of the Board of Directors without vote or consent of the shareholders and the judgment of the Board of Directors as to the value received and in return therefore shall be conclusive and said stock, when issued, shall be fully-paid and non-assessable. Section 2.15 Compensation. The directors shall be allowed and paid all necessary expenses incurred in attending any meetings of the Board, but shall not receive any compensation for their services as directors until such time as the corporation is able to declare and pay dividends on its capital stock. Section 2.16 Board Officers. (a) At its annual meeting, the Board of Directors shall elect, from among its members, a chairman to preside at the meetings of the Board of Directors. The Board of Directors may also elect such other board officers and for such term as it may, from time to time, determine advisable. (b) Any vacancy in any board office because of death, resignation, removal or otherwise may be filled by the Board of Directors for the unexpired portion of the term of such office. Section 2.17 Order of Business. The order of business at any meeting of the Board of Directors shall be as follows: (1) Determination of members present and existence of quorum; (2) Reading and approval of the minutes of any previous meeting or meetings; (3) Reports of officers and committeemen; (4) Election of officers; (5) Unfinished business; (6) New business; (7) Adjournment. ARTICLE III OFFICERS Section 3.01 Election. The Board of Directors, at its first meeting following the annual meeting of shareholders, shall elect a president, a secretary and a treasurer to hold office for one (1) year next coming and until their successors are elected and qualify. Any person may hold two or more offices. The Board of Directors may, from time to time, by resolution, appoint one or more vice presidents, assistant secretaries, assistant treasurers and transfer agents of the corporation as it may deem advisable; prescribe their duties; and fix their compensation. Section 3.02 Removal; Resignation. Any officer or agent elected or appointed by the Board of Directors may be removed by it whenever, in its judgment, the best interest of the corporation would be served thereby. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the resigning officer is a party. Section 3.03 Vacancies. Any vacancy in any office because of death, resignation, removal, or otherwise may be filled by the Board of Directors for the unexpired portion of the term of such office. Section 3.04 President. The president shall be the general manager and executive officer of the corporation, subject to the supervision and control of the Board of Directors, and shall direct the corporate affairs, with full power to execute all resolutions and orders of the Board of Directors not especially entrusted to some other officer of the corporation. The president shall preside at all meetings of the shareholders and shall sign the certificates of stock issued by the corporation, and shall perform such other duties as shall be prescribed by the Board of Directors. Unless otherwise ordered by the Board of Directors, the president shall have full power and authority on behalf of the corporation to attend and to act and to vote at any meetings of the shareholders of any corporation in which the corporation may hold stock and, at any such meetings, shall possess and may exercise any and all rights and powers incident to the ownership of such stock. The Board of Directors, by resolution from time to time, may confer like powers on any person or persons in place of the president to represent the corporation for these purposes. Section 3.05 Vice President. The Board of Directors may elect one or more vice presidents who shall be vested with all the powers and perform all the duties of the president whenever the president is absent or unable to act, including the signing of the certificates of stock issued by the corporation, and the vice president shall perform such other duties as shall be prescribed by the Board of Directors. Section 3.06 Secretary. The secretary shall keep the minutes of all meetings of the shareholders and the Board of Directors in books provided for that purpose. The secretary shall attend to the giving and service of all notices of the corporation, may sign with the president in the name of the corporation all contracts authorized by the Board of Directors or appropriate committee, shall have the custody of the corporate seal, shall affix the corporate seal to all certificates of stock duly issued by the corporation, shall have charge of stock certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors or appropriate committee may direct, and shall, in general perform all duties incident to the office of the secretary. All corporate books kept by the secretary shall be open for examination by any director at any reasonable time. Section 3.07 Assistant Secretary. The Board of Directors may appoint an assistant secretary who shall have such powers and perform such duties as may be prescribed for him by the secretary of the corporation or by the Board of Directors. Section 3.08 Treasurer. The treasurer shall be the chief financial officer of the corporation, subject to the supervision and control of the Board of Directors, and shall have custody of all the funds and securities of the corporation. When necessary or proper, the treasurer shall endorse on behalf of the corporation for collection checks, notes and other obligations, and shall deposit all monies to the credit of the corporation in such bank or banks or other depository as the Board of Directors may designate, and shall sign all receipts and vouchers for payments made by the corporation. Unless otherwise specified by the Board of Directors, the treasurer shall sign with the president all bills of exchange and promissory notes of the corporation, shall also have the care and custody of the stocks, bonds, certificates, vouchers, evidence of debts, securities and such other property belonging to the corporation as the Board of Directors shall designate, and shall sign all papers required by law, by these By-laws or by the Board of Directors to be signed by the treasurer. The treasurer shall enter regularly in the books of the corporation, to be kept for that purpose, full and accurate accounts of all monies received and paid on account of the corporation and whenever required by the Board of Directors, the treasurer shall render a statement of any or all accounts. The treasurer shall at all reasonable times exhibit the books of account to any directors of the corporation and shall perform all acts incident to the position of treasurer subject to the control of the Board of Directors. The treasurer shall, if required by the Board of Directors, give a bond to the corporation in such sum and with such security as shall be approved by the Board of Directors for the faithful performance of all the duties of the treasurer and for restoration to the corporation in the event of the treasurer's death, resignation, retirement, or removal from office, of all books, records, papers, vouchers, money and other property belonging to the corporation. The expense of such bond shall be borne by the corporation. Section 3.09 Assistant Treasurer. The Board of Directors may appoint an assistant treasurer who shall have such powers and perform such duties as may be prescribed by the treasurer of the corporation or by the Board of Directors, and the Board of Directors may require the assistant treasurer to give a bond to the corporation in such sum and with such security as it may approve, for the faithful performance of the duties of assistant treasurer, and for the restoration to the corporation, in the event of the assistant treasurer's death, resignation, retirement or removal from office, of all books, records, papers, vouchers, money and other property belonging to the corporation. The expense of such bond shall be borne by the corporation. ARTICLE IV CAPITAL STOCK Section 4.01 Issuance. Shares of capital stock of the corporation shall be issued in such manner and at such times and upon such conditions as shall be prescribed by the Board of Directors. Section 4.02 Certificates. Ownership in the corporation shall be evidenced by certificates for shares of stock in such form as shall be prescribed by the Board of Directors, shall be under the seal of the corporation and shall be signed by the president or the vice president and also by the secretary or an assistant secretary. Each certificate shall contain the name of the record holder, the number, designation, if any, class or series of shares represented, a statement of summary of any applicable rights, preferences, privileges, or restrictions thereon, and a statement that the shares are assessable, if applicable. All certificates shall be consecutively numbered. The name and address of the shareholder, the number of shares, and the date of issue shall be entered on the stock transfer books of the corporation. Section 4.03 Surrender: Lost or Destroyed Certificates. All certificates surrendered to the corporation, except those representing shares of treasury stock, shall be canceled and no new certificates shall be issued until the former certificate for a like number of shares shall have been canceled, except that in case of a lost, stolen, destroyed or mutilated certificate, a new one may be issued therefor. However, any shareholder applying for the issuance of a stock certificate in lieu of one alleged to have been lost, stolen, destroyed or mutilated shall, prior to the issuance of a replacement, provide the corporation with his, her or its affidavit of the facts surrounding the loss, theft, destruction or mutilation and an indemnity bond in an amount and upon such terms as the treasurer, or the Board of Directors, shall require. In no case shall the bond be in amount less than twice the current market value of the stock and it shall indemnify the corporation against any loss, damage, cost or inconvenience arising as a consequence of the issuance of a replacement certificate. Section 4.04 Replacement Certificate. When the Articles of Incorporation are amended in any way affecting the statements contained in the certificates for outstanding shares of capital stock of the corporation or it becomes desirable for any reason, including, without limitation, the merger or consolidation of the corporation with another corporation or the reorganization of the corporation, to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the Board of Directors may order any holders of outstanding certificates for shares to surrender and exchange the same for new certificates within a reasonable time to be fixed by the Board of Directors. The order may provide that a holder of any certificate(s) ordered to be surrendered shall not be entitled to vote, receive dividends or exercise any other rights of shareholders until the holder has complied with the order provided that such order operates to suspend such rights only after notice and until compliance. Section 4.05 Transfer of Shares. No transfer of stock shall be valid as against the corporation except on surrender and cancellation by the certificate therefor, accompanied by an assignment or transfer by the registered owner made either in person or under assignment. Whenever any transfer shall be expressly made for collateral security and not absolutely, the collateral nature of the transfer shall be reflected in the entry of transfer on the books of the corporation. Section 4.06 Transfer Agent. The Board of Directors may appoint one or more transfer agents and registrars of transfer and may require all certificates for shares of stock to bear the signature of such transfer agent and such registrar of transfer. Section 4.07 Stock Transfer Books. The stock transfer books shall be closed for a period of ten (10) days prior to all meetings of the shareholders and shall be closed for the payment of dividends as provided in Article V hereof and during such periods as, from time to time, may be fixed by the Board of Directors, and, during such periods, no stock shall be transferable. Section 4.08 Miscellaneous. The Board of Directors shall have the power and authority to make such rules and regulations not inconsistent herewith as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. ARTICLE V DIVIDENDS Section 5.01 Dividends may be declared, subject to the provisions of the laws of the State of Nevada and the Articles of Incorporation, by the Board of Directors at any regular or special meeting and may be paid in cash, property, shares of corporate stock, or any other medium. The Board of Directors may fix in advance a record date, as provided in Section 1.06 of these By-laws, prior to the dividend payment for the purpose of determining shareholders entitled to receive payment of any dividend. The Board of Directors may close the stock transfer books for such purpose for a period of not more than ten (10) days prior to the payment date of such dividend. ARTICLE VI OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS Section 6.01 Principal Office. The principal office of the corporation in the State of Nevada shall be the Law Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada 89121, and the corporation may have an office in any other state or territory as the Board of Directors may designate. Section 6.02 Records. The stock transfer books and a certified copy of the By-laws, Articles of Incorporation, any amendments thereto, and the minutes of the proceedings of the shareholders, the Board of Directors, and committees of the Board of Directors shall be kept at the principal office of the corporation for the inspection of all who have the right to see the same and for the transfer of stock. All other books of the corporation shall be kept at such places as may be prescribed by the Board of Directors. Section 6.03 Financial Report on Request. Any shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock may make a written request for an income statement of the corporation for the three (3) month, six (6) month, or nine (9) month period of the current fiscal year ended more than thirty (30) days prior to the date of the request and a balance sheet of the corporation as of the end of such period. In addition, if no annual report for the last fiscal year has been sent to shareholders, such shareholder or shareholders may make a request for a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. The statement shall be delivered or mailed to the person making the request within thirty (30) days thereafter. A copy of the statements shall be kept on file in the principal office of the corporation for twelve (12) months, and such copies shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to each shareholder. Upon request by any shareholder, there shall be mailed to the shareholder a copy of the last annual, semiannual or quarterly income statement which it has prepared and. a balance sheet as of the end of the period. The financial statements referred to in this Section 6.03 shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation. Section 6.04 Right of Inspection. (a) The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and committees of the Board of Directors shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours for a purpose reasonably related to such holder's interest as a shareholder or as the holder of such voting trust certificate. This right of inspection shall extend to the records of the subsidiaries, if any, of the corporation. Such inspection may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. (b) Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and/or its subsidiary corporations. Such inspection may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. Section 6.05 Corporate Seal. The Board of Directors may, by resolution, authorize a seal, and the seal may be used by causing it, or a facsimile, to be impressed or affixed or reproduced or otherwise. Except when otherwise specifically provided herein, any officer of the corporation shall have the authority to affix the seal to any document requiring it. Section 6.06 Fiscal Year. The fiscal year-end of the corporation shall be the calendar year or such other term as may be fixed by resolution of the Board of Directors. Section 6.07 Reserves. The Board of Directors may create, by resolution, out of the earned surplus of the corporation such reserves as the directors may, from time to time, in their discretion, think proper to provide for contingencies, or to equalize dividends or to repair or maintain any property of the corporation, or for such other purpose as the Board of Directors may deem beneficial to the corporation, and the directors may modify or abolish any such reserves in the manner in which they were created. ARTICLE VII INDEMNIFICATION Section 7.01 Indemnification. The corporation shall, unless prohibited by Nevada Law, indemnify any person (an "Indemnitee") who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be so involved in any threatened, pending or completed action suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, including without limitation, any action, suit or proceeding brought by or in the right of the corporation to procure a judgment in its favor (collectively, a "Proceeding") by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other entity or enterprise, against all Expenses and Liabilities actually and reasonably incurred by him in connection with such Proceeding. The right to indemnification conferred in this Article shall be presumed to have been relied upon by the directors, officers, employees and agents of the corporation and shall be enforceable as a contract right and inure to the benefit of heirs, executors and administrators of such individuals. Section 7.02 Indemnification Contracts. The Board of Directors is authorized on behalf of the corporation, to enter into, deliver and perform agreements or other arrangements to provide any Indemnitee with specific rights of indemnification in addition to the rights provided hereunder to the fullest extent permitted by Nevada Law. Such agreements or arrangements may provide (i) that the Expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding, must be paid by the corporation as they are incurred and in advance of the final disposition of any such action, suit or proceeding provided that, if required by Nevada Law at the time of such advance, the officer or director provides an undertaking to repay such amounts if it is ultimately determined by a court of competent jurisdiction that such individual is not entitled to be indemnified against such expenses, (iii) that the Indemnitee shall be presumed to be entitled to indemnification under this Article or such agreement or arrangement and the corporation shall have the burden of proof to overcome that presumption, (iii) for procedures to be followed by the corporation and the Indemnitee in making any determination of entitlement to indemnification or for appeals therefrom and (iv) for insurance or such other Financial Arrangements described in Paragraph 7.02 of this Article, all as may be deemed appropriate by the Board of Directors at the time of execution of such agreement or arrangement. Section 7.03 Insurance and Financial Arrangements. The corporation may, unless prohibited by Nevada Law, purchase and maintain insurance or make other financial arrangements ("Financial Arrangements") on behalf of any Indemnitee for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. Such other Financial Arrangements may include (i) the creation of a trust fund, (ii) the establishment of a program of self-insurance, (iii) the securing of the corporation's obligation of indemnification by granting a security interest or other lien on any assets of the corporation, or (iv) the establishment of a letter of credit, guaranty or surety. Section 7.04 Definitions. For purposes of this Article: Expenses. The word "Expenses" shall be broadly construed and, without limitation, means (i) all direct and indirect costs incurred, paid or accrued, (ii) all attorneys' fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, food and lodging expenses while traveling, duplicating costs, printing and binding costs, telephone charges, postage, delivery service, freight or other transportation fees and expenses, (iii) all other disbursements and out-of-pocket expenses, (iv) amounts paid in settlement, to the extent permitted by Nevada Law, and (v) reasonable compensation for time spent by the Indemnitee for which he is otherwise not compensated by the corporation or any third party, actually and reasonably incurred in connection with either the appearance at or investigation, defense, settlement or appeal of a Proceeding or establishing or enforcing a right to indemnification under any agreement or arrangement, this Article, the Nevada Law or otherwise; provided, however, that "Expenses" shall not include any judgments or fines or excise taxes or penalties imposed under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or other excise taxes or penalties. Liabilities. "Liabilities" means liabilities of any type whatsoever, including, but not limited to, judgments or fines, ERISA or other excise taxes and penalties, and amounts paid in settlement. Nevada Law. "Nevada Law" means Chapter 78 of the Nevada Revised Statutes as amended and in effect from time to time or any successor or other statutes of Nevada having similar import and effect. This Article. "This Article" means Paragraphs 7.01 through 7.04 of these bylaws or any portion of them. Power of Stockholders. Paragraphs 7.01 through 7.04, including this Paragraph, of these Bylaws may be amended by the stockholders only by vote of the holders of sixty-six and two-thirds percent (66 2/3%) of the entire number of shares of each class, voting separately, of the outstanding capital stock of the corporation (even though the right of any class to vote is otherwise restricted or denied); provided, however, no amendment or repeal of this Article shall adversely affect any right of any Indemnitee existing at the time such amendment or repeal becomes effective. Power of Directors. Paragraphs 7.01 through 7.04 and this Paragraph of these Bylaws may be amended or repealed by the Board of Directors only by vote of eighty percent (80%) of the total number of Directors and the holders of sixty-six and two-thirds percent (66 2/3) of the entire number of shares of each class, voting separately, of the outstanding capital stock of the corporation (even though the right of any class to vote is otherwise restricted or denied); provided, however, no amendment or repeal of this Article shall adversely affect any right of any Indemnitee existing at the time such amendment or repeal becomes effective. ARTICLE VIII BY-LAWS Section 8.01 Amendment. Amendments and changes of these By-Laws may be made at any regular or special meeting of the Board of Directors by a vote of not less than all of the entire Board, or may be made by a vote of, or a consent in writing signed by the holders of a majority of the issued and outstanding capital stock. Section 8.02 Additional By-Laws. Additional by-laws not inconsistent herewith may be adopted by the Board of Directors at any meeting of the Board of Directors at which a quorum is present by an affirmative vote of a majority of the directors present or by the unanimous consent of the Board of Directors in accordance with Section 2.11 of these By-laws. CERTIFICATION I, the undersigned, being the duly elected secretary of the Corporation, do hereby certify that the foregoing By-laws were adopted by the Board of Directors the 28th day of February, 1996. /s/ Marci Evans --------------- Marci Evans, Secretary EX-10.1 3 EXHIBIT 10.1 JOINT VENTURE AGREEMENT THIS AGREEMENT dated for reference December 10, 1997 is made BETWEEN: GOLDSTATE CORPORATION, a company duly incorporated under the laws of the State of Nevada, and having its registered office at 3926 Irongate Road, Unit D Bellingham, Washington 98226 (hereinafter called the "Purchaser) OF THE FIRST PART AND: INTERGOLD CORPORATION a company duly Incorporated under the laws of the State of Nevada and having its registered office at 5000 Birch Street, West Tower, Suite 4000 Newport Beach, California 92660 (hereinafter called the "Vendors") OF THE SECOND PART AND: INTERNATIONAL GOLD CORPORATION, a company duly incorporated under the laws of the State of Nevada and having its registered office at 5000 Birch Street, West Tower, Suite 4000 Newport Beach, California 92660 (hereinafter called the "Vendors") OF THE THIRD PART WHEREAS: A. The Vendors are the sole beneficial owners (subject to the paramount interest of the United States) of 578 (FIVE HUNDRED, SEVENTY-EIGHT) unpatented lode mining claims (hereinafter called "the Blackhawk Claims") located in Camas, Lincoln, and Gooding Counties in the State of Idaho as set out in Appendix A to this agreement. Vendors have the right to mine the said Blackhawk Claims subject to obtaining the necessary State and Federal permits as required by law. B. The Vendors have agreed to sell and the Purchaser has agreed to purchase 51% of the rights to the Blackhawk Claims for 1,000,000 restricted 144 shares in the capital of Goldstate Corporation and $100,000 (ONE HUNDRED THOUSAND DOLLARS). Share Purchase Agreement, December 10, 1997 NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of 1,000,000 restricted 144 shares in the capital of Goldstate Corporation and $100,000 (ONE HUNDRED THOUSAND DOLLARS) and other good and valuable consideration the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. PURCHASE AND SALE On the basis of the warranties and representations of the Vendors set forth in paragraph 3 and subject to the general terms of this Agreement as set forth in paragraph 2, the Purchaser agrees to buy from the Vendors and on the basis of the warranties and representations of the Purchaser set forth in paragraph 4 and subject to the general terms of this Agreement as set forth in paragraph 2, the Vendors agree to sell to the Purchaser on the Closing Date a 51% interest in 578 (FIVE HUNDRED, SEVENTY-EIGHT) 18-20 acre unpatented lode mining claims in Camas, Lincoln, and Gooding Counties in the State of Idaho as set out in Appendix A to this agreement. 2. JOINT VENTURE TERMS (a) The Purchaser further agrees to conduct a work program on the herebefore mentioned Idaho claims in the minimum amount of $250,000.00 (TWO HUNDRED AND FIFTY THOUSAND) dollars per year in each of the calendar years started January 1, 1998, January 1, 1999, and January 1, 2000. (b) The Purchaser further agrees to contribute all future capital required in the further exploration, and if required, mining operations of the said herebefore mentioned Idaho claims as is required by annual budgeted property exploration and development work programs. (c) It is the understanding of both the Purchaser and the Vendors that the Purchaser and the Vendors participate jointly in net mining profits after all expenses are deducted according to their pro-rata ownership of the claims after all invested capital by the Purchaser has been repatriated. It is further the understanding of both the Purchaser and the Vendors that the Purchaser and the Vendors agree that until all invested capital of the Purchaser is repatriated, that the joint participation in net mining profits will be 80% to the Purchaser and 20% to the Vendors. (d) The Purchaser and the Vendor warrant the ownership percentages of the Blackhawk claims by the Purchaser and the Vendor shall change where the annual calendar year work program contributions made by the Purchaser are less than the adopted minimum budget totals mutually agreed upon between parties to this agreement. If the Purchaser defaults in making an agreed contribution required Share Purchase Agreement, December 10, 1997 by the approved work program outlined in this agreement, the non-defaulting party may advance the defaulted contribution on behalf of the defaulting participant and treat the same, together with any accrued interest, as a demand loan bearing interest from the date of the advance at prime plus 3% per annum. The failure by the defaulting party to repay said loan upon demand shall be default. The Purchaser hereby grants to the Vendor a lien upon its interest in the Blackhawk claims as a security interest. The non-defaulting party may elect the transfer of the defaulting party's ownership interest as a remedy in direct proportion to the magnitude of default. The defaulting party's interest of the Blackhawk claims to be transferred shall be the defaulting party's current interest times the following calculation: (the sum of the defaulting party's work program contribution default to any annual budget date divided by all of the Vendors work program contributions since the date of this agreement to the date of the default calculation. The Purchaser acknowledges that if and when the Purchaser's working interest is reduced to less than 40% by its potential incapacity to fund the approved minimum annual work programs and budgets, the Vendor may exercise its rights to assume the operators role. (e) The Purchaser agrees to fund beyond the third year work program budget for succeeding years according to a minimum budget mutually agreed upon by the parties to this agreement at the end of December 31, 2000 commensurate with the exploration prospect results obtained from January 1, 1998 to December 31, 2000. If the Purchaser and Vendor do not obtain mutual agreement with regard to the annual minimum work program budget beyond the third year budget for succeeding years, or the Purchaser is unable to provide the desired work program budget, the Purchaser shall not be prevented from assigning this agreement and its then ownership position in the Blackhawk claims to a third party who is able to reach agreement with the Vendor regarding minimum work program budget funding, such agreement is subject to agreement of the Purchaser, but may not be reasonably withheld. 3. VENDORS REPRESENTATIONS, WARRANTIES AND COVENANTS The Vendors represent and warrant to the Purchaser as representations and warranties which are true and correct as of the date hereof that: 3.1 The Vendors are residents of Nevada for matters relating to jurisdiction of taxation. Intergold Corporation is a non-reporting public company duly incorporated under the laws of Nevada, validly existing, and is in good standing to carry on business in its intended place(s) of business. International Gold Corporation is a non-reporting private company duly incorporated under the laws of Nevada, validly existing, and is in good standing to carry on business in its intended place(s) of business. International Gold Corporation is the wholly owned subsidiary of Intergold Corporation. Share Purchase Agreement, December 10, 1997 3.2 The performance of this agreement will not be in violation of the Memorandums or Articles of the Vendors or of any agreement to which the Vendors are a party and will not give any person or company any right to terminate or cancel any agreement or any right enjoyed by the Vendors and will not result in the creation or imposition of any lien, encumbrance or restriction of any nature whatsoever in favor of a third party upon or against the assets of the Vendors. 3.3 The business of the Vendors now and until the Closing Date will be conducted and maintained in the manner which is normal to that business. 3.4 The representations, warranties, covenants and agreements by the Vendors in this agreement or any certificates or documents delivered pursuant to the provisions hereof or in connection with the transaction contemplated hereby shall be true at and as of the time of closing as though such representations and warranties were made at and as of such time. Notwithstanding any investigations or enquiries made by the Purchaser prior to the closing or the waiver of any condition by the Purchaser, the representations, warranties, covenants and agreements of the Vendors shall survive the closing date and notwithstanding the closing of the purchase and sale herein provided for, shall continue in full force and effect. 3.5 There is no basis for and there are no actions, suits, judgments, investigations or proceedings outstanding or pending or to the knowledge of the Vendors threatened against or affecting the Vendors at law or in equity or before or by any federal; provincial, state, municipal or other governmental department, commission, board, bureau or agency. 3.6 The Vendors have filed all known necessary Federal and State tax returns including, without limitation, Corporation Capital Tax returns. 4. PURCHASER REPRESENTATIONS, WARRANTIES AND COVENANTS The Purchaser represents and warrants to the Vendors as representations and warranties which are true and correct as of the date hereof that: 4.1 The Purchaser is a resident of Nevada for matters relating to jurisdiction of taxation. The Purchaser is a non-reporting public company duly incorporated under the laws of Nevada, validly existing, and is in good standing to carry on business in its intended place(s) of business. 4.2 There is no basis for and there are no actions, suits, judgments, investigations or proceedings outstanding or pending or to the knowledge of the Purchaser threatened against or affecting the Purchaser at law or in equity or before or by any federal, provincial, state, municipal or other governmental department, commission, board, bureau or agency. Share Purchase Agreement, December 10, 1997 4.3 The Purchaser holds all permits, licenses, and consents issued by any Federal, Provincial, Regional or Municipal Government or Agency thereof which are necessary or desirable in connection with the operations of the Company. 4.4 The performance of this agreement will not be in violation of the Memorandum or Articles of the Purchaser or of any agreement to which the Vendors are a party and will not give any person or company any right to terminate or cancel any agreement or any right enjoyed by the Purchaser and will not result in the creation or imposition of any lien, encumbrance or restriction of any nature whatsoever in favor of a third party upon or against the assets of the Purchaser. 4.5 The business of the Purchaser now and until the Closing Date will be conducted and maintained in the manner which is normal for that business. 4.6 The Purchaser is not aware of any adverse claim or claims which may affect title to or exclusive possession and use of the assets of the Purchaser. 4.7 The representations, warranties, covenants and agreements by the Purchaser in this Agreement or any certificates or documents delivered pursuant to the provisions hereof or in connection with the transaction contemplated hereby shall be true at and as of the time of closing as though such representations and warranties were made at and as of such time. Notwithstanding any investigations or enquiries made by the Vendors prior to closing or the waiver of any condition by the Vendors, the representations, warranties, covenants and agreements of the Purchaser shall survive the Closing Date and notwithstanding the closing of the purchase and sale herein provided for, shall continue in full force and effect. 5. GENERAL PROVISIONS 5.1 Time shall be of the essence in this Agreement. 5.2 This Agreement contains the whole agreement between the Vendors and the Purchaser in respect of the purchase and sale contemplated hereby and there are no warranties, representations, terms and conditions or collateral agreements expressed, implied or statutory, other than as expressly set forth in this Agreement. 5.3 This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 5.4 This Agreement shall be construed in accordance with the laws of the State of Nevada. All references to sums of money shall be deemed to refer to the legal tender of the United States. 6. CLOSING DATE 6.1 The closing of the Purchase & Sale contemplate by this Agreement will take place in the offices of Mr. Max Tanner at 2950 East Flamingo, Suite G, Las Vegas, Nevada 89121 on December 10, 1997. 6.2 At the closing the Vendors deliver shall deliver 1,000,000 shares of Goldstate Corporation registered in the name of the Vendors, such share certificate executed for free and unencumbered transfer to the Vendors by the Purchaser as at the date of the closing, and the Purchaser shall provide $100,000 US funds to the Vendors. Share Purchase Agreement, December 10, 1997 IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. GOLDSTATE CORPORATION By: ---------------------------------- Harold Gooding, President INTERGOLD CORPORATION By: /s/ Michael Mehrtens ---------------------------------- Michael Mehrtens INTERNATIONAL GOLD CORPORATION By: /s/ Michael Mehrtens ---------------------------------- Michael Mehrtens Share Purchase Agreement, December 10, 1997 APPENDIX A - THE BLACKHAWK CLAIMS LISTING - 578 CLAIMS - IDAHO EX-10.2 4 EXHIBIT 10.2 TECHNOLOGY SUB-LICENSE AGREEMENT THIS AGREEMENT is made this 18th day of March, 1999 BETWEEN: Geneva Resources, Inc., a Nevada corporation having an office at 219 Broadway, Suite 505 Laguna Beach, CA 92651 (hereinafter "GENEVA"); and Goldstate Corporation, a Nevada corporation having an office at 3926 Irongate Road, Unit D, Bellingham, WA 98226 (hereinafter "Sub-Licensee" or "GDSA"); 1. DEFINITIONS "AuRIC" a limited liability company duly organized in accordance with the laws of Utah, USA with its principal place of business being located at 3260 West Directors Row, Salt Lake City, Utah 84104; "GENEVA" a corporation duly incorporated in accordance with the laws of Nevada, USA, with its principal place of business being located at 219 Broadway, Suite 505 Laguna Beach, CA 92651; "Sub-Licensee" or "GDSA" Goldstate Corporation, a corporation duly incorporated in accordance with the laws of Nevada, USA, with its principal place of business being located at 5000 Birch Street, Suite 4000 West Tower, Newport Beach, CA 92660 "Technology" that technology licensed by GENEVA and developed by AuRIC which is used in the design, and operation of Precious Metals Recovery Process and Assay Process with all developments, modifications and improvements to it from time to time; "Know-how" all AuRIC's proprietary information, both technical and otherwise, including all its know-how and specifications, drawings, plans and designs, and documentation which in any way relates to the design, manufacture and operation of the Precious Metals Recovery Process and Assay Process and which it may possess at the Effective Date, or later acquire licensed by GENEVA; "Precious Metals Recovery Process" the precious metals recovery process invented and developed by AuRIC and licensed by GENEVA, and which may be applied, using the Technology and the Know-how in the commercial recovery of precious metals in the Territory; "Assay Process" the fire assay process invented and developed by AuRIC and licensed by GENEVA, and which may be applied, using the Technology and the Know-how in the determination of precious metals content in the mineralized rock in the Territory; "Services" Those services provided by AuRIC to GDSA as a Sub-Licensee of GENEVA that are additional to the Technology and Know-how relating to the Precious Metals Recovery Process and Assay Process in this agreement, such as repetitive assay work, site or Sub-Licensee specific recovery modifications, or further contracted work beyond the scope of this agreement. "Territory" the geographical acres of unpatented lode mining claims possessed or obtained through joint venture or assignment by GDSA in Lincoln, Camus, and Gooding counties in the State of Idaho in the United States of America; "Effective Date" the date on which the parties finally sign this Agreement and all named attachments; "Agreement this Agreement" the agreement recorded in this document. 2. RECORDIAL: 2.1 AuRIC shall develop and refine the Precious Metals Recovery Process and Assay Process by applying the Technology and the Know-how to the design of assay and metallurgical recovery systems relating to mineralized areas located in Lincoln, Camus, and Gooding counties in the State of Idaho. 2.2 GENEVA has acquired the sole and exclusive license to use items referred to in subsection 2.1 of this Agreement in all locations in Camas, Gooding, Blame, and Lincoln Counties in the State of Idaho, and the right to sub-license the Precious Metals Recovery Process and Assay Process and relating Technology in Camas, Gooding, Blame, and Lincoln Counties in the State of Idaho. 2.3 GDSA wishes to: 2.3.1 acquire a sub-license to utilize the Precious Metals Recovery Process and Assay Process and relating Technology and Know-how from GENEVA; 2.3.2 acquire a non-exclusive sub-license to use it in the Territory; 2.4 GENEVA is prepared to grant GDSA a non-exclusive sub-license to use the Precious Metals Recovery Process and Assay Process and relating Technology in the Territory. 2.5 GDSA agrees to maintain strict technology usage guidelines and protocols outlined by the Sub-License Agreement and issued by AuRIC or GENEVA from time to time pursuant to this Agreement to ensure proper application and following of standards set for the Precious Metals Recovery Process and Assay Process and technology developed according to directives and documentation provided. 2.6 GDSA does not obtain the right to sub-license the Precious Metals Recovery Process and Assay Process and relating Technology and Know-how in the Territory or any other location. 2.7 The parties now wish to record their agreement in the above regards, as is set out below. 3. GRANT OF SUB-LICENCE 3.1 In consideration for the payment of 1,500,000 common voting restricted shares in the capital of Goldstate Corporation to be issued in denominations of 500,000 shares to GENEVA and 1,000,000 shares to AuRIC or its designate, plus Promissory Notes payable to AuRIC and GENEVA in the amount of $250,000 each, copies of which are attached, and All shares of Goldstate Corporation pursuant to this agreement are to be issued at the Effective Date of this Agreement. The Promissory Note will be due and payable at the date that the Technology and Know-how are to be transferred from GENEVA to GDSA, after the date that the development and refinement of the Precious Metals Recovery Process and Assay Process according to BLACKHAWK ORE EXTRACTION PROCEDURES DEVELOPMENT (Level 2), and Further, other good and valuable consideration the receipt and adequacy of which is hereby acknowledged, and the mutual covenants and conditions set out in this Agreement, GENEVA hereby grants GDSA the: 3.2 non-exclusive sub-license to use the Precious Metals Recovery Process and Assay Process in the Territory. 4. TERM I TERMINATION 4.1 This Agreement shall commence on the Effective Date and subject to earlier termination in accordance with any of its provisions, shall continue for an initial fixed period of forty (40) years. Thereafter, it shall remain in effect as long as GDSA continues to operate under the sub-licenses granted to it in section 3 by actively engaging in the use of the Precious Metals Recovery Process and, or Assay Process in the Territory. 4.2 Should either party believe the other has engaged in a material breach of this Agreement, it may notify the other party accordingly in writing, setting out this nature and extent of the breach. The party asserted to be in breach shall then have a period of ninety (90) days after receiving a notification of breach to cure the breach. Should the party asserted to be in breach fail to cure the breach within the ninety (90) day period, the other party shall, subject to the provisions of sub-section 4.3, have the right to terminated this Agreement forthwith. 4.3 Should the party asserted to be in breach in terms of sub-section 4.2 be GDSA, and should GDSA fail to cure any asserted breach timeously, GENEVA shall not be entitled to cancel this agreement without first giving any third party to whom GDSA may be involved with due to joint venture or assignment pursuant to this Agreement an opportunity to cure the breach concerned within a further period of thirty (30) days. Should any such third party elect to cure the breach. GDSA shall then be deemed to have agreed to assign its rights under this Agreement to such third party should such third party wish to accept such assignment, and GENEVA shall be deemed to have consented to such assignment and to have accepted such third party as a party to this Agreement in place of GDSA. 4.4 The termination of this Agreement shall not affect any in process activity or orders which may have been placed with GDSA to process materials using the Precious Metals Recovery Process and, or, Assay Process, and which may be outstanding as at such termination date. GDSA shall be entitled to complete these orders using the Precious Metals Recovery Process and Assay Process. 4.5 Upon termination of the Agreement, or upon a deemed assignment of GDSA's rights under this Agreement to a third party, GDSA shall, save to the extent necessary to give effect to the provisions of sub-section 4.4, return to GENEVA all documents, drawings, materials, specifications and the like in any way concerned with the Technology, the Precious Metals Recovery Process and Assay Process and the Know-how which may then be in its possession or under its control. 4.6 Upon termination of this Agreement, or upon a deemed assignment of GDSA's rights under this Agreement to a third party, all rights and sub-licenses granted to GDSA shall cease, save to the extent necessary to give effect to the provisions of sub-section 4.4, but all GDSA's obligations to GENEVA or AuRIC, including payment and confidentiality obligations, shall remain in force. 5. PROVISION OF KNOW HOW, AND TECHNICAL ASSISTANCE 5.1 Within sixty (60) days of the Effective Date, AuRIC shall make the Know-how existing as at the Effective Date available to GENEVA on a confidential basis and for use solely in connection with the rights and sub-licenses granted by previous agreement. Should AuRIC acquire any additional Know-how after the Effective Date, it shall make it available to GENEVA as soon as possible after receiving it. If the additional Know-how is applicable to the sub-license granted to GDSA, GENEVA shall make it available to GDSA as soon as possible thereafter. GENEVA or its designate shall also furnish GDSA, upon reasonable request, with its recommendations and advice to the operation of the Precious Metals Recovery Process and Assay Process and its application in the Precious Metals Recovery Process and Assay Process. 5.2 In fulfillment of its obligations set out in sub-section 5.1, GENEVA or its designate shall instruct a reasonable number of employees of GDSA or their designate according to sub-section 5.3 in the application and use of the Precious Metals Recovery Process and Assay Process. GDSA shall pay for the costs of such instruction, if any. Such instruction shall be given as many times as GDSA may reasonably require, at such times and for periods and at such locations as may be mutually agreed upon. 5.3 Custodian of Technology. Prior to the completion of all tasks in all phases in the development of the Precious Metals Recovery Process and Assay Process of this Agreement, all information developed by AuRIC during each task in each phase including any and all detail relating to the Precious Metals Recovery Process and Assay Process shall be transferred in trust to Dames and Moore as subcontractor to AuRIC for the purposes of retaining a detailed backup record of developed technologies by AuRIC. The transfer of information from AuRIC to Dames and Moore shall be complete in detail and all aspects of each task in each phase, and AuRIC shall ensure that Dames and Moore fully understand all elements and aspects of any proprietary information, techniques, the Technology and the Know-how, and any other aspects required for complete understanding. 5.4 Any information made available by GENEVA to GDSA or the designate of GDSA in terms of this section 5 shall be maintained in confidence by GDSA in accordance with the provisions of the non-disclosure agreement to be executed by the parties in the form of the draft attached as "Exhibit A" simultaneously with their signature of this agreement and as a condition precedent to this Agreement. In exercising its right to sub-license the use of the Precious Metals Recovery Process and Assay Process in the Territory, GENEVA shall be entitled to make all information furnished it in terms of this section 5 available to any sub-licenses but provided that in doing so, it shall procure a written undertaking of confidentiality from such sub-licensee in the form of the draft attached as "A". 6. IMPROVEMENTS 6.1 GENEVA or its designate undertakes to keep GDSA informed of all developments, modifications and/or improvements which it may develop or become possessed of during the currency of this Agreement, and which relate to the Technology, the Know-how and, or, the Precious Metals Recovery Process and Assay Process. Any such developments, modifications and/or improvements shall fall under the sub-licenses and rights granted in terms of this Agreement. 6.2 GDSA undertakes to notify GENEVA of any developments, modifications and/or improvements which it may make or discover during the currency of this Agreement with regard to the Technology, the Know-how and /or the Precious Metals Recovery Process and Assay Process. Any such development, modification and/or improvement shall be and remain GDSA's exclusive property and as a result, GDSA shall have the right to use any such development, modifications and/or improvement free of any royalty as its owner. 6.3 Should a joint invention be made by the employees of both GDSA and GENEVA or its designate, the invention and the rights to it and any patents on it shall be owned by GENEVA or its designate, but GDSA shall have an irrevocable, royalty-free and non-exclusive license to use the invention, including the right to sub-license in the Territory. 7. INFRINGEMENT OF TECHNOLOGY 7.1 Each party undertakes to notify the other in writing as soon as possible after becoming aware of the occurrence thereof, of: 7.1.1 any infringement or threatened infringement of, or challenge to the validity of any of the intellectual property rights sub-licensed or granted in terms of this Agreement; 7.1.2 any alleged infringement, by reason of the use of the Technology, the Know-how and, or, the Precious Metals Recovery Process and Assay Process, or common law right or alleged common law right of any other person. 7.2 Upon any such notice being given, GENEVA shall, at its own cost, take all such proceedings as are in law available to it to procure the termination of such infringement or challenge. Should GENEVA fail to do so within a period reasonable in the circumstances, or should AuRIC and GENEVA mutually agree otherwise, GDSA shall be entitled to take appropriate steps, as its cost, to procure the termination of such infringement or challenge, and GENEVA agrees to assist GDSA in doing so to the best of its ability, including to make available to GDSA all relevant records, papers, information specimens and the like. 8. WARRANTIES 8.1 GENEVA warrants to GDSA that as at the Effective Date: 8.1.1 it is the owner of the rights to the Technology, the Know-how and the Precious Metals Recovery Process and Assay Process, that it has executed proper License agreements with AuRIC and confidentiality agreements with its employees, agents and contractors and these rights and agreements are in good standing. 8.1.2 the Technology and the Know-how are proprietary to it via license agreement, and it therefore has the right to grant the sub-licenses and rights set out in this Agreement to GDSA; 8.1.3 it has not granted, nor will it during the currency of this Agreement grant to any other person, directly or indirectly, any right or option to use the Technology, the Know-how and/or the Precious Metals Recovery Process and Assay Process in the GDSA Territory. 8.1.4 GENEVA hereby warrants to GDSA that there are currently no liens or encumbrances of any nature outstanding against, filed or perfected in respect of, or secured through the Technology or the Know-how, and GENEVA covenants to keep the Technology and the Know-how free from any such liens or encumbrances during the currency of this Agreement. 9. REFERRAL OF ENQUIRIES GENEVA undertakes promptly to refer to GDSA any queries directed to it regarding the use of the Precious Metals Recovery Process and Assay Process in the Territory in the Metals Recovery Process. 10. PURCHASE OF SERVICES ADDITIONAL TO THE PRECIOUS METALS RECOVERY PROCESS AND ASSAY PROCESS In order for GDSA to properly to exploit the sub-license and rights granted to it in terms of this Agreement, it requires Services in addition to the Precious Metals Recovery Process and Assay Process. GDSA hereby agrees to purchase its requirements pursuant to ongoing Services with regard to the Precious Metals Recovery Process and Assay Process from AuRIC or per the designate of AuRIC, which hereby agrees to supply them to GDSA, in accordance with and subject to the following provisions: 10.1 The prices and terms quoted by AuRIC to GDSA or any sub-Licensee heretofore for Services in addition to the Technology, Know-how, and the Precious Metals Recovery Process and Assay Process shall be negotiated specifically between AuRIC and GDSA, or between AuRIC and any sub-Licensee. 10.2 GDSA shall place all its orders for Services in addition to Precious Metals Recovery Process and Assay Process with AuRIC in writing. Upon receiving any written order for Services in addition to Precious Metals Recovery Process and Assay Process, AuRIC shall notify GDSA of the estimated time and cost that it will take to deliver the Services forming the subject matter of the order. In order to assist AuRIC in fulfilling GDSA's orders for Services, GDSA shall, with effect from the Effective Date, give AuRIC six-monthly forward estimates of its estimated Services requirements. GDSA shall not be liable to AuRIC in damages or otherwise should any estimate be inaccurate; 10.3 AuRIC undertakes to make every reasonable possible attempt to supply GDSA, with effect from the Effective Date, with such quantities of Services as GDSA may from time to time require and to have Services ordered by GDSA delivered to GDSA as expeditiously as possible; and 10.4 Save as may specifically be approved in writing by AuRIC, GDSA shall not mortgage, pledge, charge, hypothecate or otherwise encumber the Precious Metals Recovery Process and Assay Process. 10.5 Sub-Licensees granted by GENEVA shall obtain competitive quotation for Services from AuRIC or the designate of AuRIC, and AuRIC will be awarded contract for Services subject to AuRIC providing competitive industry pricing for such Services, and subject to AuRIC being able to provide the same quality, value, and timeliness of service. Sub-Licensees granted by GENEVA obtaining Services from competing providers or other companies will not be unreasonably withheld by AuRIC. 11. DOMICILIUM The parties hereby choose DOMICILIUM citandi et executandi for all purposes under this agreement at the addresses set out below, and either party may at any time change its DOMICILIUM to any other address (not being a post office box or poste restante) on not less than ten (10) days written notice to such effect to the other party; 11.1 GENEVA 219 Broadway, Suite 505, Laguna Beach, CA 92651 11.2 GDSA 3926 Irongate Road, Unit D, Bellingham, WA 98226 12. NOTICES Any notice by or to either party or to AuRIC in terms of this agreement shall be given in writing and shall be delivered by hand to a responsible person present at or sent by prepaid registered post or facsimile transmission to the DOMICILIUM chosen by the addressee in terms of this agreement and whereupon it shall be deemed to have been received when so delivered or four (4) days after being so sent. 13. NO VARIATION No variation of, or addition or agreed cancellation to this Agreement shall be of any force or effect unless it is reduced to writing and signed by or on behalf of the parties. 14. GENERAL 14.1 This Agreement, including any attachments, constitutes the entire agreement between the parties with respect to its subject matter. No agreements, guarantees or representations, whether verbal or in writing, have been concluded, issued or made, upon which either party is relying in concluding this Agreement, save to the extent set out in this Agreement. 14.2 The headings appearing in this Agreement have been used for reference purposes only and shall not affect its interpretation. 14.3 No indulgence, leniency or extension of time which a party (the "Grantor") may grant or show to the other, will in any way prejudice the Grantor or preclude the Grantor from exercising any of its rights in the future. 14.4 Each party shall pay all taxes (including sales and value-added taxes) imposed on it by the Government of any jurisdiction in which such party is doing business in respect of the sub-licenses or rights granted under this Agreement. 14.5 If any provision of this Agreement is held to be illegal or unenforceable for any reason, such provision shall be deemed severable from the remaining provisions of this Agreement and shall in no way effect or impair the validity or enforceability of the remaining provisions of this Agreement. If any provision of this Agreement conflicts with any other provision of any other agreement between the parties, including any confidentiality agreement, the provisions of this Agreement shall prevail. 14.6 Nothing contained in this Agreement shall modify or effect the provisions of the principal License Agreement between GENEVA and AuRIC. Should there be any conflict of any term or provision between such Agreements, the AuRIC/GENEVA Agreement shall be given primary definition and control. AuRIC shall remain a third party beneficiary of this Agreement. 14.7 The restricted common shares in the capital of Goldstate Corporation referred to in section 3.1 of this Agreement will be included in any share registration process undertaken by GDSA if and when any such registration shall occur, subject only to any regulatory authority. 14.8 This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 14.9 This Agreement shall be binding upon or inure to the benefit of the heirs, assigns, or successors in interest of each party hereto. 14.10 Each person signing this Agreement represents that he has been fully and duly authorized to enter into this Agreement by the governing Board of each business entity. 14.11 This Agreement shall be given reasonable interpretation and applied so far as possible. 15. GOVERNING LAW This Agreement and all matters arising hereunder shall be governed by, and construed in accordance with the Laws of the State of Nevada. 16. ASSIGNMENT GDSA may transfer or assign this Agreement with the written consent of GENEVA and AuRIC, which consent may not be arbitrarily withheld. SIGNED by GENEVA at Bellingham, WA on the 18th day of March, 1999 in the presence of the undersigned witnesses: AS WITNESSES: 1. /s/ Stephanie Ebert 2. /s/ Pamela Fisleek /s/ Signature on file - Director -------------------------------- per: SIGNED by GDSA at Albuquerque, NM on the 18th day of March, 1999 in the presence of the undersigned witnesses: AS WITNESSES: 1. /s/ Joan Quinn 2. /s/ Frank Toll /s/ Harold Gooding -------------------------------- per: Harold Gooding, President EX-16 5 EXHIBIT 16 Mr. David Coffee, CPA 3651 Lindell Road, Suite H Las Vegas, NV 89103 - -------------------------------------------------------------------------------- July 6, 1999 Securities and Exchange Commission 450 - 5th Street NW Washington, DC 20549 RE: GOLDSTATE CORPORATION Dear Sirs: I agree with the statements made in Item 3 of Goldstate Corporation's filing 10-SB as reprinted from that filing below. "Item 3. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Since the inception of the Company (February 28, 1996) and to date, the Company's current principal independent accountant has not resigned or declined to stand for re-election or were dismissed. The Company's former principal independent accountant declined to stand for re-election after the Company's formative year as his policy for providing accounting services did not extend to include the Company's growing scale of transactions. Such decision to change accountants was approved by the board of Directors. There were no disagreements with the former accountant which were not resolved on any matter concerning accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Moreover, neither the Company's current principal independent accountant nor its former principal independent accountant have provided an adverse opinion or disclaimer of opinion to the Company's financial statements, nor modified their respective opinion as to uncertainty, audit scope or accounting principles. The Company's principal independent accountant from February 28, 1996 to December 31, 1996 was DAVID E. COFFEY, Certified Public Accountant of 3651 Lindell Road, Suite H, Las Vegas, NV 89103. The Company's principal independent accountant from January 1, 1997 to the current date is Johnson, Holscher & Company, P.C. of 5975 Greenwood Plaza Blvd., Suite 140, Greenwood village, CO 80111." Yours truly, /s/ David E. Coffey C.P.A. - -------------------------- David E. Coffey, CPA EX-99.1 6 VERIFICATION OF VALIDITY Exhibit 99.1 VERIFICATION OF VALIDITY OF DEVELOPED ANALYTICAL PROCEDURES BLACKHAWK PROJECT Prepared for AuRIC Metallurgical Laboratories November 30, 1998 TABLE OF CONTENTS 1.0 INTRODUCTION ..................................................... 1 1.1 Purpose ................................................ 1 1.2 Problem ................................................ 1 1.3 Scope .................................................. 1 2.0 AuRIC METALLURGICAL LABORATORIES SITE VISIT ....................... 1 2.1 AuRIC Analytical Procedure .............................. 2 2.2 Background Documents .................................... 2 2.3 Observed Procedures ..................................... 3 2.4 Sample Preparation Equipment ............................ 4 2.5 Analytical Equipment .................................... 5 3.0 CONCLUSIONS ....................................................... 5 APPENDICES i VERIFICATION of VALIDITY of DEVELOPED ANALYTICAL PROCEDURES for the BLACKHAWK PROJECT 1.0 INTRODUCTION AuRIC Metallurgical Laboratories (AuRIC), Salt Lake City, Utah has a project with International Gold Corporation to perform analyses on core samples from International Gold Corporation's precious metals property in Idaho. AuRIC selected Dames & Moore's Chief Metallurgical Engineer, Richard A. Daniele to perform an independent evaluation of the analytical procedures used by AuRIC to determine the gold and silver content of core samples from the Idaho property. 1.1 Purpose Dames & Moore was retained to provide an independent evaluation of the procedures developed and followed by AuRIC. This report, Verification of Validity of Developed Analytical Procedures for the Blackhawk Project (Report), presents the results of the Dames & Moore evaluation. 1.2 Problem The problem, as explained to Dames & Moore, is that other analytical laboratories using the standard fire assay method of gold and silver analysis were not obtaining consistent results. In addition, the results obtained were not in an acceptable range of agreement with optical mineralogy and electron microscopy work performed for International Gold Corporation by John F. W. Bowles, Mineral Science, Ltd., Chesbam, Buckingbamshire, UK. 1.3 Scope The Scope of Work performed by Dames & Moore was to visit the AuRIC facilities in Salt Lake City, evaluate AnRIC's equipment used to prepare and analyze samples for gold and silver, observe and evaluate AuRIC's analytical procedures, and prepare a report on the observations. Dames & Moore performed the facility evaluation by using their standard format for "Audit Requirements" as a guide. 2.0 AuRIC METALLURGICAL LABORATORIES SITE VISIT The AuRIC site visit is discussed in five parts as follows: o AuRIC Analytical Procedure o Background Documents o Observed Procedures o Sample Preparation Equipment o Analytical Equipment 1 2.1 AuRIC Analytical Procedure AuRIC provided Dames & Moore's, Richard A. Daniele, a Confidential copy of their analytical procedure for the Blackhawk Project samples. The procedure title is "International Gold Corporation, Blackhawk Gold-Silver Property, Lincoln County, Idaho, Fire and Chemical Assay Procedures Used by AuRIC Metallurgical Laboratories, LLC." The procedure covers both AuRIC's fire assay procedure and their chemical assay procedure. The sample preparation procedure used for each of the ore samples is described. The equipment used to prepare the sample prior to analysis is also described. The first procedure described in the document is the fire assays procedure. AuRIC is far more diligent than most laboratories in performing their fire assay. AuRIC has taken the time to develop specific fluxing mixtures for each of the 3 rock types in the Blackhawk Project. This procedure although standard at AuRIC, is not typical of the industry. AuRIC's procedure reflects their metallurgical laboratory approach to fire and chemical assaying. Their approach is to determine, to the greatest degree possible, an optimum flux for each rock type analyzed. They have also taken into account the fine gold particle size and dispersion based on the Mineral Science, Ltd. optical mineralogy and electron microscopy report. AuRIC's procedures include the standard industry procedures of crucible fusion, cupellation, parting, and precious metals analysis. The procedure also includes the preparation of the standards and the calibration of the instruments used in the analyses. The AuRIC procedures document also describes their chemical assay procedure. Chemical assays are not used as frequently as fire assaying for gold and silver. Nevertheless, the chemical assay procedure described offers a parallel method to determine the gold and silver content. This provides a checks and balance approach to the fire assay results. The procedure also describes the preparation of the standards for the instruments and the calibration of the instruments. 2.2 Background Documents A major background document reviewed for the project was the Mineral Science, Ltd. report on the optical mineralogy and electron microscopy results of several Blackhawk Project samples. This report is advantageous in planning the fire assay procedures for the gold and silver analyses. The report indicates that the gold is micron-sized gold with the majority being less than one micron in particle size. This knowledge is important in planning the sample preparation and determining the proper flux mixture for the fire assay procedure. The petrology portion of the report describes in detail the variety of minerals in the ore. The delineation of these minerals from fine grained siliceous matrix to welded tuff are advantageous in planning the flux mixture for fire assay. The other important background documents used at the AuRIC facility are "A Manual on Fire Assaying and Determination of the Noble Metals in Geological Materials", Geological Survey Bulletin 1445; "A Text Book of Fire Assaying ", 2 Edward E. Bugbee, Colorado School of Mines Press; and "Solvent Extraction in Analytical Chemistry", George H. Monison and Henry Freiser. The "Solvent Extraction in Analytical Chemistry" reference is used in the chemical assay procedure. The use of organics permits the extraction of low quantities of precious metals in a leach solution and concentrating them in an organic mixture such as Methyl Isobutyl Ketone (MIBK). Two other documents routinely used in the AuRIC laboratory are the fire assay record and the chemical assay record. An example of these two documents is included in Appendix 3. 2.3 Observed Procedures Dames & Moore visited AuRIC Metallurgical Laboratories on November 16 and 17, 1998. AuRIC provided a tour of their facilities from sample receipt through the analytical instruments used. Time was spent discussing the uniqueness of the Blackhawk Project core samples. The samples are unique in that the gold and silver are present in three distinct types of rock which are rhyolite, tuff, and ash cinder. The importance of the three rock types was discussed and the reasons for the different fluxes used in the fire assay procedure was explained. For the fire assay procedure a 15 gram sample of ore was used. This is a one half assay-ton sample. The different ingredients in the flux for each sample was weighed to the nearest tenth of a gram. Proper fluxing of the ore with litharge and other fluxing components is one of the most important aspects of fire assaying. AuRIC, unlike most laboratories, determines in greater detail a flux mixture to provide maximum precious metal recovery in the lead button. For example, Dames & Moore has had recent experience with two other laboratories that routinely perform fire assaying. One laboratory was of the opinion that their standard flux was the optimum and that they did not need to vary the flux for varying ore samples. The second laboratory was more adept in that they had a flux for acid ores and basic ores. Nevertheless, their fluxes were premixed for each category, and the detennination for acid or base was primarily made by sample color. If there were questions about the sample then an acid test was used. The sample was weighed and a ladle of flux added to the crucible with the sample. In this case the sample is weighed for an accurate weight determination, but the flux is added by volume based on experience. This difference between AuRIC and two other laboratories emphasizes the time and care used by AuRIC in their efforts to determine the optimum flux. The extra care taken by AuRIC can result in collecting more of the precious metals in the lead button than in other cases. Throughout the fire assay procedure AuRIC has, through their experience, made improvements to ensure better results. AuRIC does not use bone ash cupels in order to minimize any loss of precious metals in the more porous bone ash cupel. They have chosen to use a denser material for cupelling. Three one half assay-ton Blackhawk samples were prepared for fire assay. There was one sample each from the rhyolite, the tuft and the ash cinder. Each sample was mixed with its own flux mixture. Alter smelting the samples were poured from the crucible into a mold. The slag conditions during pouring were closely observed and variances were noted. For example, the slag from one sample appeared to have a floating material on the slag and another slag appeared 3 to have some suspended lead in the slag. After the pour material had cooled, the slag was broken away from the lead button. The color and attachment of the slag to the lead button was noted. This reflects a good slag has proper color and does not adhere tightly to the lead button. All of this information was used by AuRIC to develop the final procedure. The lead button was cleaned of any residual slag, and hammered into a cube. The lead cube was placed in a magnesite cupel for producing the dore bead. After the cupel cooled the dore was observed under a microscope. The dore was then removed from the cupel, flattened with a hammer, and weighed on a microscale. After the flattened dore was weighed, it was put into a parting solution. Once the parting was complete, the residual gold was dissolved and then analyzed. The silver weight was determined by difference. For the benefit of the Dames & Moore observer, the sample weights analyzed by chemical assay were varied. One sample was 5 grams, the second was 10 grams, and the third 15 grams. AuRIC's normal procedure is to use a 5 gram sample for chemical analysis. As the chemical analysis procedure was performed it became clear why AuRIC prefers a 5 gram sample. The quantity of solutions required for the 10 and, 15 gram samples extended the dissolution procedure several hours longer. Dames & Moore' s observation of the chemical procedure concluded that the choice of larger samples extends the time for dissolution in multiples of the sample size. It also requires larger quantities of reagents. Once the dissolution procedure is complete, the samples are washed and filtered. The filtrate then is further processed. Eventually the final solution is mixed with a solvent, in this case MIBK, to extract the gold from the leach solution into the organic. As noted earlier for other chemicals the quantity of MIBK used was three fold for the 15 gram sample as compared to the 5 gram sample. The analytical instruments were calibrated for the solution with MIBK and the gold and silver analyses performed. Observations made by AuRIC and Dames & Moore resulted in further adjustment for all the fluxes and procedures for future samples. Two items of note are that the sample grind needs to be finer. First, AuRIC will determine an appropriate grind. A typical grind used in another laboratory, as an example, is 90 percent - -150 mesh or 100 percent -100 mesh. Second, the larger the chemical assay sample, the greater the amount of gold was present in the analysis. 2.4 Sample Preparation Equipment The AuRIC fkcilities are well equipped to prepare samples not only for analyses but also for small pilot plants. The equipment used in preparing the Blackhawk Project samples for analysis include the following: o 4" X 6" Denver Jaw Crusher o 8" Stauss Roll Mill o 6" Bico Disc Pulverizer o 1/2" Sepor Riffle Splitter o Microsplitter o Acculab V-333 Electronic Scale 4 2.5 Analytical Equipment The AuRIC facility is well equipped to perform fire assay and chemical assay procedures. Some of the equipment used and observed during the site visit include the following: o Cress Electric Furnace, Model # C1228 with Watlow 942 Temperature Controller o Mettler Instrument Corp., Microgram Scale o Perkin Elmer 403 Flame Atomic Adsorption (AA) Spectrophotometer with Duterium Arc Power Supply o Perkin Elmer Zeeman 5100 Atomic Adsorption Spectrophotometer with PE HGA 600 Power Supply and Graphite Furnace o Leeman Labs, Inc. PS 1,000 ICP (Inductively Coupled Plasma). Dames & Moore observed the testing of standards on the AA Spectrophotometer for high and low range as well as the reading for each of the samples. 3.0 CONCLUSIONS Dames & Moore performed an on site audit of the AuRIC Metallurgical Laboratories facility in Salt Lake City, Utah on November 16 and 17, 1998 for verification of validity of developed analytical procedures for the Blackhawk Project. The audit included observation of facility equipment, analytical procedures and practices, and review of an optical mineralogy and x-ray microscopy report. In addition to the on site audit, Dames & Moore has carefully reviewed AuRIC's Confidential fire assay and chemical assay procedures. Dames & Moore has also drawn on other recent expenences with two other firms that perform fire assays. Based on this information Dames & Moore has drawn the following conclusions: o AuRIC Metallurgical Laboratories is well qualified to perform fire assay and chemical assay analyses for gold, silver, and other precious metals. o AuRIC's procedures follow the basic industry standards for fire assay analyses. o AuRIC' s fire assay procedures are tailored to the specific requirements of the sample. They customize the flux in the fire assay fusion step to maximize the recovery of the precious metals in the lead button. Customizing a flux for a specific sample is the exception in fire assay laboratory practice. o AuRIC's clients have a distinct advantage in that Abmet B. Altinay performs all the analytical work. This offers AuRIC's clients the advantage of Mr. Altinay's metallurgical expertise throughout the analysis procedure. This assures consistency in analytical results. 5 o AuRIC, as part of their normal analytical procedure, often runs precious metal samples by two methods, fire assay and chemical assay. When results between fire and chemical assay do not match to a reasonable degree, AuRIC investigates the reason(s) for the discrepancy and adjusts their procedures to correct any deficiencies if needed. o AuRIC has the necessary sample preparation equipment, test facilities, and analytical instrumentation to analyze an individual sample through pilot plant process control samples. 6 APPENDICES Appendix 1 Laboratory Evaluation Checksheet LABORATORY EVALUATION CHECKSREET -------------------------------- Laboratory: AuRIC Metallurgical Laboratories Date: 16 and 17 November 1998 Type of Evaluation: Observations Contract Number: N/A Contract Tide: Blackhawk Project, Consulting Services Personnel Contacted: Name Title Abmet B. Altinay General Manager Dave Lamberson Facilities Manager David Lamberson Employee Laboratory Evaluation Team: Name Title Richard Daniele Chief Metallurgical Engineer - -------------------------------------------------------------------------------- ITEM YES NO COMMENT - -------------------------------------------------------------------------------- Laboratory or Project Manager (individual responsible for overall technical effort): Name: Ahmet B. Altinay X - -------------------------------------------------------------------------------- Laboratory Supervisor: Name: Ahmet B. Altinay X Experience: 3 years minimum requirement - -------------------------------------------------------------------------------- Sample Preparation Laboratory Supervisor: Name: Dave Lamberson X Experience: 3 years minimum requirement - -------------------------------------------------------------------------------- Operator Name: Ahmet B. Altinay X Experience: 1 year minimum requirement (3 years if no degree in physical science) - -------------------------------------------------------------------------------- Spectral Intrepretation Expert: Name: Ahmet B. Altinay X Experiencc 2 years minimum requirement - -------------------------------------------------------------------------------- Extraction Concentration Expert: Name: Ahmet B. Altinay & Dave Lamberson X Experience: 1 year minimum requirement - -------------------------------------------------------------------------------- Pesticide Residue Analysis Expert: Name: N/A Experience: 2 years minimum requirement - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM YES NO COMMENT - -------------------------------------------------------------------------------- Do personnel assigned to this project have the Qualified appropriate educational background to successfully Expert accomplish the objectives of the program? X - -------------------------------------------------------------------------------- Is the organization adequately staffed to meet project commitments in a timely manner? X - -------------------------------------------------------------------------------- Was the Quality Assurance officer available during the evaluation? Name: Ahmet B. Altinay X - -------------------------------------------------------------------------------- Does the Laboratory Quality Assurance Officer Reports to report to senior management levels? X Owners - -------------------------------------------------------------------------------- Was the Project Manager available during the evaluation? X - -------------------------------------------------------------------------------- Additional Comments - ------------------- This is a small, well equipped laboratory operated by two knowledgeable people. All analytical work is performed by Ahmet B. Altinay. This assures total consistency in analytical practices. Appendix 2 Audit Requirements Audit Requirements I. STANDARD OPERATING PROCEDURES ----------------------------- A. Sample Receiving ---------------- 1. The laboratory shall designate a sample custodian responsible for receiving all samples. (Dave Lamberson) 2. The laboratory shall designate a representative to receive samples in the event that the sample custodian is not available. (Abmet B. Altinay) 3. The condition of the shipping containers and sample bottles shall be inspected upon receipt by the sample custodian or his/her representative. (Yes) 4. The conditions of the custody seals (intact/not intact) shall be inspected upon receipt by the sample custodian or his/her representative. (No custody seals on Blackhawk core at AuRic) 5. The sample custodian or his/her representative shall check for the presence or absence of the following documents accompanying the sample shipment. o Airbills (Yes) o Custody seals (Yes) o EPA custody records (Not required, N/A) o EPA traffic reports or SAS packing lists (Yes, most sample bags, but not all marked with core interval) 6. The sample custodian or his/her representative shall sign and date all forms (i.e., custody records, traffic reports or packing lists, and airbills) accompanying the samples at the time of sample receipt (Yes, if Blackhawk representative delivers there is not always a packing or transfer slip) 7. The sample custodian or his/her representative shall record and cross-reference sample tag identification numbers to the EPA traffic report numbers (if not already recorded on the chain-of-custody record(s) or packing list(s)). (N/A) 8. SMO shall be contacted to resolve discrepancies such as absent document, conflicting information, broken custody seals and unsatisfactory sample condition (i.e., leaking sample bottle). (Done by Dave Lamberson if needed) 1 9. The following information shall be documented by the sample custodian or his/her representative as samples are received and inspected: o Condition of the shipping container (Yes) o Presence or absence and condition of custody seals on shipping and/or sample containers (Yes) o Condition of the sample bottles (N/A) o Presence or absence of airbills (Yes) o Presence or absence of EPA custody records (N/A) o Presence or absence of EPA traffic reports or SAS packing lists (N/A) o Presence or absence of sample tags (Yes) o Sample tag identification numbers cross-referenced to the EPA traffic report numbers if not recorded on the chain-of-custody record(s) or packing list(s) (N/A) o Verification of agreement or non-agreement of information on shipping documents (Yes, when documents are available) o Problems or discrepancies and their resolution with SMO (Yes, by Dave Lamberson as needed) B. Sample Identification --------------------- 10. The laboratory shall have a specified method or maintaining identification of samples throughout the laboratory. (Yes: client number, AuRic billing number, and AuRic assay record number) 11. Each sample or sample preparation container shall be labeled with the Sample Management Office number of a unique laboratory identifier. (Unique for analytical: A = fire assay, C = chemical assay) o If a unique laboratory identifier is used, it shall be cross-referenced to the SMO number (Client identification number used) 2 C. Sample Security --------------- 12. The laboratory shall demonstrate that samples are maintained under custody from receipt through disposition. A sample is under custody if: o It is in your possession o It is in your view after being in your physical possession o It was in your possession and then you locked it in a secure area and sealed it to prevent tampering o It is in a secure area. (Secure areas shall be accessible only to authorized personnel) (Three person organization; security shed with double locks for chain-of-custody samples. Other samples stored in sample preparation area) 13. The laboratory shall demonstrate security of any areas identified as secure areas. (Normally, all doors locked including main entrance unless someone in entrance area.) D. Sample Tracking --------------- 14. The laboratory shall maintain records documenting all phases of sample handling from receipt to final analysis. (Yes, log sheet) 15. Laboratory documents shall include identification of all activity performed. (Yes, describes analytical mixture) 16. Pre-printed data sheets shall contain the name of the laboratory and be dated and signed by an analyst or individual at the time an activity is performed. (Yes) 17. Logbook entries shall be dated and signed by an analyst or individual at the time an activity is performed. (Samples tracked by individual sheets, not a logbook) 18. All notations in logbooks and other documents shall be recorded in ink. (Items recorded in pencil, analytical recorded by Ahment B. Atniay, distinctive handwriting) 19. Corrections to supporting documents and raw data shall be made by drawing a single line trough the error and entering the correct information. Corrections and additions to supporting documents and raw data shall be dated and 3 intialed. No information shall be obliterated or rendered unreadable. (Practice varies) 20. Instrument run logs shall be maintained so as to enable a recontstruction of the run sequence of individual instruments. (N/A) 21. Analysts' logbook entries shall be in chronological order. (Entries made in order of test: fire assay or chemical assay. Work all done left to right, industry standard) II. WRITTEN STANDARD OPERATING PROCEDURES ------------------------------------- A. Sample Receiving ---------------- 22. The laboratory shall have written SOPs describing the sample custodian's duties and responsiblities. (Do not have, volume small, analytical work follows published standards such as listed below (1)) 23. The laboratory shall have written SOPs for receiving and logging-in samples. The procedures shall ensure that the following information is documented: (Do not have written procedures, procedures followed as noted) o Condition of the shipping container (Yes) o Presence or absence and condition of custody seals on shipping and/or sample containers (Yes) o Condition of the sample bottles (N/A) o Presence or absence of airbills (Yes) o Presence or absence of EPA custody records (N/A) o Presence or absence of EPA traffic reports or SAS packing lists (N/A) o Presence or absence of sample tags (Yes) o Sample tag identification numbers cross-referenced to the EPA traffic report numbers if not recorded on the chain-of-custody record(s) or packing list(s) (N/A) o Verification of agreement or non-agreement of information on shipping documents (Yes) - --------------------- (1) A manual on Fire Assaying and Determination of the Noble Metals in Geological Materials, Geological Survey Bulletin 1445; A Textbook of Fire Assaying, Edward E. Bugbee, Colorado School of Mines Press; and Solvent Extraction in Analytical Chemistry, G.H. Morrison and H. Freiser. 4 o Problems or discrepancies and their resolution with SMO (Yes) B. Sample Identification ---------------------- 24. The laboratory shall have written SOPs for maintaining identification of EPA samples throughout the laboratory. (N/A) o If the laboratory assigns unique laboratory identifiers, written SOPs shall include a description of the method used to assign the unique laboratory identifier. o If the laboratory used prefixes or suffixes in addition to sample identification numbers, the written SOPs shall include their definitions. C. Sample Security ---------------- 25. The laboratory shall have written SOPs describing all storage areas for EPA samples in the laboratory. (N/A) 26. The laboratory shall have written SOPs describing the method by which the laboratory maintains EPA samples under custody. (N/A) 27. The laboratory shall have written SOPs describing the method by which the laboratory maintains the security of areas identified as secure areas. (Procedures not written, areas limited including secure shed for chain-of-custody samples) D. Sample Tracking --------------- 28. The laboratory shall have written SOPs for documenting all phases of sample handling from receipt to final analysis. The written SOPs shall include the following: (Do not have written, small facility, procedures followed as noted) o Examples of all laboratory documents (Yes) o Procedures for recording activities and data (Yes) o A narrative step-wise description of how documents are used to track samples (No, the form is the tracking document) 5 Appendix 3 Fire & Chemical Assay Records EX-99.2 7 DETERMINATION OF REPEATABILITY Exhibit 99.2 DAMES & MOORE A DAMES & MOORE GROUP COMPANY 633 Seventeenth Street Suite 2500 Denver, Colorado 80202-3625 303 294 9100 Tel 303 299 7901 Fax January 6, 1999 Mr. Abmet B. Altinay General Manager AuRIC Metallurgical Laboratories 3260 West Directors Row Salt Lake City, UT 84104 Subject: Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project Report Dear Mr. Altinay: Dames & Moore is pleased to submit three copies of the above titled report for your review and comment. The report presents the results of the repeatability test program conducted at your facilities December 7 through 11, 1998 by you, Dave Lamberson, and Richard A. Daniele. If you have any questions on this report, do not hesitate to contact me at 303-299-7819. Sincerely, DAMES & MOORE /s/ Richard A. Daniele - ---------------------------- Richard A. Daniele Chief Metallurgical Engineer Attachment TABLE OF CONTENTS 1.0 INTRODUCTION .................................................... 1 1.1 Purpose ....................................................... 1 1.2 Problem ....................................................... 1 1.3 Scope ......................................................... 1 2.0 REPEATABILITY PROGRAM ........................................... 2 2.1 Establish Program Protocol .................................... 2 2.2 Sample Selection .............................................. 4 2.3 Sample Preparation ............................................ 5 2.4 Fire Assay Procedure and Analyses ............................. 8 2.5 Chemical Assay Procedure and Analyses ......................... 11 3.0 EVALUATION OF ANALYTICAL RESULTS ................................ 13 3.1 Fire Assay Evaluation ......................................... 13 3.2 Chemical Assay Evaluation ..................................... 22 4.0 CONCLUSIONS AND RECOMMENDATIONS ................................. 24 FIGURES 1. Proposed 1998 Core Drill Program TABLES 1. Proprietary, Fire Assay Summary 2. Core ID No. 98C-9 (65' through 80') 3. Core 11) No. 98C-9 (215' through 230') 4. Core ID No. 98C-22 (165' through 1SY) 5. Core ID No. 98C-22 (360' through 375') 6. MA-2b Statistical Analysis 7. Blackhawk Core Fire Assay Statistical Analysis 8. Blackhawk Core Chemical Assay Statistical Analysis APPENDICES Appendix 1 Assay Reports Fire Assays DM-O1OA through DM-033A Chemical Assays DM-O lOG through DM-026C Appendix 2 Fire Assay Record DM-O1OA through DM-033A Appendix 3 Chemical Assay Record DM-O1OC though DM-026C Appendix 4 MA-2b: A Certified Gold Ore Reference Material i Dames & Moore DETERMINATION OF REPEATABILITY OF THE VERIFIED DEVELOPED ANALYTICAL PROCEDURES FOR THE BLACKEIAWK PROJECT 1.0 INTRODUCTION AuRIC Metallurgical Laboratories (AuRIC), Salt Lake City, Utah has a project with International Gold Corporation (IGC) to perform analyses on core samples from IGC' s precious metals property in Idaho, called the Blackhawk Project. AuRIC selected Dames & Moore and their Chief Metallurgical Engineer, Richard A. Daniele, to perform several independent evaluations of the analytical procedures used by AuRIC to determine the gold and silver content of core samples from the Blackhawk Project. Task No. 1 was a Verification of Validity of Developed Analytical Procedures for the Blackhawk Project. Task No. 2, which this report covers, was a Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project. 1.1 Purpose Dames & Moore was retained to provide an independent evaluation of repeatability of the procedures developed and followed by AuRIC. This report, Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project (Report), presents the results of the Dames & Moore evaluation of the second task. 1.2 Problem The problem, is that two or more analytical laboratories using the same standard fire assay method for gold and silver analysis on splits of the same sample, generally, do not report the same absolute value. In fact, a laboratory running the same sample in duplicate or triplicate is not likely to obtain the same identical result. The range of values obtained for the same sample is referred to as precision or repeatability. Task No. 2 was to determine AuRIC's repeatability using their verified procedure on multiple Blackhawk Project core samples. 1.3 Scope The Scope of Work performed developed and performed by Dames & Moore was as follows: o Select two drill hole cores for study o Select two samples from each cored hole for analysis o Develop, in conjunction with AuRIC, a Protocol to be followed o Participate in each step of the process from sample selection through sample analysis o Prepare a report describing the work performed and the results obtained. 1 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- 2.0 REPEATABILITY PROGRAM The Repeatability Program was established to include the following five items. o Establish Program Protocol o Sample Selection o Sample Preparation o Fire Assay Procedure and Analyses o Chemical Assay Procedure and Analyses 2.1 Establish Program Protocol As part of establishing the Protocol, Dames & Moore and AuRIC reviewed IGC's drawing, Proposed 1998 Core Drill Program -- Blackhawk Property, Idaho, Figure 1. Figure 1 showed the drill hole locations. The holes drilled in 1998 are preceded by 98C followed by the hole number. AuRIC had in their possession core from drill holes 98C-l, 98C-9, 98C-19, and 98C-22 which had not been analyzed. AuRIC in their earlier work had made approximately 12 analyses of each drill hole including 98C-8, 98C-14, 98C-16, 98C-25, and 98C-27. The drill holes were drilled from surface to a depth of 500 feet, and the core were split into 1/4 sections. AuRIC appeared to have only 1/4 sections pieces of core at their facility. AuRIC had used core from 98C-14 and 98C-16 for demonstrating their fire assay flux to Dames & Moore as part of Task No. 1. The protocol was established to include the following items. 1. The 1/4 segment core was available in five-foot increments for each drill hole mentioned above. 2. Dames & Moore choose the drill holes for the test program. 3. Dames & Moore choose the interval from each drill hole for the repeatability testing. 4. Crush the selected drill hole segments to approximately minus 1/4 inch and then split the crushed core to make a one kilogram sample. 5. Pulverize approximately one-kilogram of core sample to approximately 100 percent minus 100 mesh. 6. Split the pulverized sample to obtain a 250-gram sample for analysis. 7. Split the 250-gram sample to obtain eight samples for analysis (5 fire assay, 3 chemical assay). 2 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- 8. Conduct three fire assay samples using1/2assay ton size samples, 15 grams. 9. Conduct two fire assay samples using 1.0 assay ton size samples, 30 grams. (After the first set of fire assay samples, 98C-9, -65' through 80', the Protocol was modified to use five 1/2 assay ton samples.). 10. Use the fire assay fluxes as determined in the Task No. 1 project. AuRIC was given the perogative to adjust the flux mixture based on visual observation of the sample and/or results as the testing proceeded. 11. Conduct three chemical assays using assay ton samples, 15 grams. 12. Use an aqua regia leach chemical assay procedure to consist of an initial 100 milliliters (ml) of hydrochloric acid, 35 ml nitric acid, and an additional 50 ml of hydrochloric acid as needed. 13. Filter and wash the chemical assay mixture after dissolving the precious metals. 14. Boil the filtrate to reduce the volume, and add sufficient hydrochloric acid to volatilize the nitric acid. 15. Once all the nitric acid is volatilized, dilute the remaining filtrate with deionized water to 150 ml of volume. 16. Mix methyl isobutyl ketone (MIBK) with 150 ml of precious metal solution to extract the gold. 17. Include a sample of a standard, MA-2b: A Certified Gold Ore Reference Material, with each set of samples. 18. Prepare 1 part per million (ppm) and 5 ppm solution standards in both deionized water and in MIIBK solution for calibration of the Perkin Elmer 403 Flame Atomic Absorption Spectrometer with Deuterium Arc power supply (AAS). 19. Analyze the fire assay and chemical assay solutions on the AAS. 20. Establish a sample numbering system as follows; DM-XXXA for fire assay samples and DM-XXXC for chemical samples. Begin the numbering system with DM-OIOA and DM-0lOC for fire assay and chemical assay samples respectively. 3 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- 2.2 Sample Selection Dames & Moore (Richard A. Daniele) selected drill hole cores 98C-9 and 98C-22 for testing. Neither of these core had been analyzed previously. Core 98C-9 was selected as the northeast corner of a rectangle for which analyses were available for the other three corners. Core 98C-22 was selected as the third point of a triangle for which analyses were available for the other two points. The drill hole locations are shown on Figure 1. On December 7, 1998 at approximately noon Dames & Moore and AuRIC personnel (Team) began laying out the samples for the repeatability testing program. Selection began with core sample 98C-9, the 0- to 100- foot sack. The core was laid out on a mat on the concrete floor for visual examination. There was no core for the -5 to 10 foot range. There were core for -10, -15, -20 feet; there was no core for --25 feet; and continuous core for -30, -35, -40, -45, -50, -65, - -70, - 75, -80, -85, -90, -95, and -100 feet. Dames & Moore chose -65, -70 and - -75 foot core bags for the initial sample. All bags were sealed with wire and the wire was cut to open the bags. Each bag also contained an aluminum tag with the core sample depth imprinted on it. The aluminum tags matched the numbers written on the outside of the plastic bags holding the pieces of core. The section selected (-65 feet through 80 feet) appeared to be hard rock with good 1/4 section core pieces thought to be the rhyolite material. Although the three bags appeared visually similar, the -65-foot bag core appeared to have a little red color and a little more porosity in it. All samples were returned to the 0 to -100 sack except for the three that were chosen. The second set was chosen from drill hole 98C-9, the -200 feet to -280 feet sack. The plastic bags actually began with -205 feet. There was no -200 foot bag in this particular sack (it may be in the sack ending with 200 feet). The three samples selected from this section were -215, -220 and -225 feet. They were selected primarily because the rock was visually much poorer with a lot of broken material and fines in each bag. The selection procedure was repeated for the samples for the core from the -215 foot through - 225 foot bags. The -215 foot bag was a mixture of some good pieces of core and some very fragile broken pieces. The retained sample was a large piece of the broken (as large as existed) core and a piece of good core that was broken for retention. The -220 and -225 foot bags were treated in the same way. The -225 foot bag contained only a few pieces of solid core, certainly not any good 1/4 core; therefore, several smaller pieces were retained. The other core samples were returned to the sack. Ml bags were sealed with wire, the wire was cut on the three selected bags, and the aluminum tag information matched the bag information. Two blue dishpan size containers (pans) were selected and washed. The pans were washed, wiped dry, and then wiped with an acetone type material to ensure that there was no residual contamination from previous use. The pans were used for collecting the samples and selecting pieces of core to retain. Some core was retained from every sample bag to provide a visual example of the material analyzed. 4 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- The core from the -65, -70, and -75 were dumped individually into the pans and then several pieces of core were randomly selected for retention. The remainder in the pan, including any fines, was dumped into the other pan. The two retained pieces from the -65 foot bag included one with a red streak through it. Two pieces were retained from the -70 foot bag, and three pieces of good 1/4 section core were retained from the -75 foot bag. On Wednesday, December 9 the Team selected samples for sets three and four from core 98C- 22. The two samples selected were in white 5-gallon buckets. Core 98C-22 120 feet to 160 feet and 330 feet to 370 feet. The core range was from - -335 through -370 feet, although the bucket wasn't labeled in that manner. The Team changed the third set sample selection because the -160 foot sample appeared to have poor material; therefore, the Team selected the next 5-gallon container which ranged from -165 through 200 feet. Because of small sample size we chose a 20 foot increment in this case -165, - 170, -175 and -180 feet. The - -175 foot core looked to be the best of the four. For sample size approximately 1/3 was the -175 foot, approximately 1/3 the -180 foot, and the final 1/3 was composed of the -165 and -175 foot sections. Each bag was wired and had its own metal tag which properly matched the bag label. Selected samples for the fourth set were for -360, -365, -370 feet. All three of these five foot increments appeared to have excellent pieces of 1/4 round core. Therefore, the pieces were selected randomly from each bag for the sample. Each bag was wired and had its own metal tag which properly matched the bag label. 2.3 Sample Preparation Sample preparation includes jaw crushing, roll crushing, pulverizing and splitting. The jaw and roll crushers used were a Denver 4" X 6" jaw and an 8" Stauss roll mill. The pulverizer was a 6" Bico disc pulverizer, and the splitter was a 2 1/2" Sepor riffle. Jaw Crushing The samples were crushed initially in the jaw crusher. One of the jaw crusher faces was removed and the jaw crusher was scraped and brushed to remove any residual sample from previous work. After wire brushing the crusher, it was vacuumed inside and outside. As a final cleaning step the crusher was blown with high pressure air. The jaw crusher was inspected inside after cleaning. There was no visible particulate apparent. This procedure was repeated for every sample. The jaw crusher discharged into a 2-gallon Plexiglas type rectangular bucket. The first sample crushed was the 98C-9 -65 through -75 foot core. The crushed sample was returned to the pan. The crusher was again cleaned prior to crushing the sample 98C-9 -215 through -225 feet. The 5 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- Plexiglass bucket was also cleaned of the fine dust material adhering to it. The internals of the crusher plates were checked and visually appeared clean prior to crushing the next sample. The crushing and grinding equipment was all cleaned on December 7th after preparing all the 98C-9 samples. Equipment was opened and visually checked. Visually it appeared to be clean. There were no dust or particles to the touch. The sample 98C-22 from -165 through -180 feet was crushed. Visually the sample appeared to have two different materials. A black granular material after crushing and a fine to powdery mud appearing material. The mud appearing material may be the result of ground water passing through the area where the hole was drilled. Sample -360 through -370 feet was crushed. The jaw crusher was cleaned by the standard cleaning procedure of scraping with a wire brush, vacuuming all the particulate, and finally blowing it clean. This is the typical cleaning procedure for all the crushing and grinding equipment. Roll Crushing The next stage in sample preparation was roll crushing. The Stauss roll crusher was cleaned in the same manner as the jaw crusher prior to crushing the samples fUrther. The vacuum was applied to the rolls on the roll crusher. Visually it was obvious that dust was removed by the vacuum. The color of the rolls changed to a steel color. Clean silica sand was run through the roll crusher as an additional cleaning step in order to prevent any residual gold being left on the rolls from previous work. The silica used for cleaning the roll mill was industrial quartz 4095 which represents 95 percent retained on 40 mesh or coarser. Approximately one kilogram of silica quartz was run through the roll crusher. The cleaning procedure for the roll mill was repeated. The 98C-9 -265 to -275 foot sample was ground first. The material was run a second time through the roll mill. Visual observation indicated, as the material was poured into the roll mill, that there appeared to be some maximum 1/2" material in what appeared visually as minus 100 mesh material. The material was run through the roll the second time because there appeared to be a few pieces that were approximately 1/4". After the second rolling, there were only one or two pieces that appeared to be 1/4". The roll mill was cleaned again before the 98C-9, -65 to -75 foot sample was ground. Silica was not run through a second time as it was deemed unnecessary. This sample had two to three times the coarse material as the first sample. After the first grind it was the black looking crystals which were coarser than the gray powder. After the second run through the roll mill the gray color predominated. Visual observation indicated that the finer the material becomes the grayer the predominant color. 6 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- The core for 98C-22, -360 through -370 feet was processed through the roll mill twice. During the first pass some pieces, of a slabby nature, were about one inch long. After roll milling there were some 1/4 inch pieces, but after roll milling the second time the larger pieces seemed to be in the 1/8th range, and there were only a small quantity of those. The 98C-22 core sample -165 through - -180 feet was run through the roll mill twice. During the first pass the jaw crusher product appeared to be more granular than the previous sample. The granules were 1/4 to 1/2 inch. The roll mill product was rerun a second time. Sample --165 through --180 feet appeared to have a little more moisture in that the roll mill product produced some flakes which on touching with the hand crumbled. Splitting The next step was splitting the roll crusher product samples to obtain approximately one kilogram. A Sepor 12 slot riffle splitter was used to reduce the sample. The riffle equipment was blown clean with a high pressure air hose. The splitter sample pans were also blown with a high pressure air hose. The first two samples were weighed prior to splitting. The 98C-9 -65 to - -75 foot sample including pan weighed 4,433 grams. The 98C-9 -215 to -225 foot sample weighed 2,318 grams. The tare for the pan was 423 grams. The tare for the steel splitter pan was 909 grams. The -65 to -75 foot final sample weight was 1,038 grams(1,947 minus the 909). The -215 to -225 foot sample was split once whereas the -65 to -75 foot one was split twice to get the size into the one kilogram range. Rejects were kept in the clear plastic buckets. For splitting the two 98C-22 core samples, the splitter pans were weighed and amounted to an average of 890 grams. The first 98C-22 sample for splitting was the --165 through -180 feet. The sample was split twice. The selected sample for pulverizing was 900 grams (1,790 grams minus the tare of 890 grams). The -360 through -370 foot sample was split to approximately 1,000 grams. The weight, after two sets of splits, was 1,088 grams (1,978 minus the 890 tare). Pulverizing The pulverizer was cleaned on Saturday December 6th and clean silica was run through it. Grinding of the two samples began without any cleaning other than vacuuming and blowing. After cleaning, the pulverizer faces were adjusted to minimize spacing. The first sample ground was the 98C-9, -65 to -75 foot sample. The approximately 1 kilogram sample was run through the Bico pulverizer. A small sample was screened at 100 mesh to estimate coarseness. There was a little plus 100 mesh material. The pulverizer was tightened and the sample was rerun through the pulvenzer. After the second time through the pulverizer, the sample was split down to approximately 250 grams. The final splitting was performed in a ten slot microriffle splitter. Each half of the final split was saved. Both halves were weighed. One half was saved for the analytical work, and the other half was saved for a screen analysis. The screen test was performed with a 100 mesh and a 150 mesh screen to determine the percent minus 100 mesh. The two halves of the sample were weighed. After the tare, one weighed 223 grams and the other 239 grams. The larger sample was saved for analysis, and the smaller sample was screened 7 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- on a 100 mesh screen. On screening there were 6 grams plus 100 mesh. This calculated to approximately 97 percent minus 100 mesh (6/223 -- 17). The screen sample was saved separately from the other rejects in case additional analytical sample is needed. The pulverizer was cleaned to run the 98C-9, -265 to -275 foot sample . The pulverizer plate spacing was reduced in order to grind finer. A small sample of the pulverizer grind was checked. It appeared to be about 90 percent minus 100 mesh after one pass so a second pass was undertaken. The sample 98C-9, -265 to -275 was split. There was insufficient material to reach 250 grams; therefore, the final split was resplit again. The two final sample weights were for analysis (275 grams) and for screening (237 grams). The grind on this sample resulted in less than A gram plus 100 mesh, which equates to 99.8 percent minus 100 mesh (236.5/237). Similar grinding and splitting procedures were followed for the two samples from core 98C-22. Those two samples were from the --165 through --180 feet and --360 through --370 feet depths. Sample 98C-22, -160 through -180 feet was ground to 95 percent minus 100 mesh (95/100); and the -360 through -370 feet was ground to 98 percent minus 100 mesh (98/100). 2.4 Fire Assay Procedure and Analyses One of the most important elements in fire assaying is the planning of the flux to produce a fluid slag to minimize, to the greatest extent possible, the retention of any precious metals in the fire assay slag. Composition of the fire assay flux was determined by AuRIC in previous work. AuRIC expended considerable effort in determining appropriate flux composition for three types of Blackhawk project core materials. The core samples selected for this task appeared to be rhyolite material. Based on a rhyolilte material AuRIC selected a flux containing litharge, borax, soda ash, potash, silica, fluorspar, and flour. Because of the considerable effort expended by AuRIC in determining these flux components, the information should be considered proprietary. The proprietary information regarding fluxes was not included in Table 1, Fire Assay Summary. A summary description of the fire assay analytical process used for the repeatability test program is as follows: 1. Grind approximately 1 kilogram of sample to 95% minus 100 mesh (-106 microns) or finer and split the sample down to 250 grams. 2. In the laboratory split the ground 250 gram sample in a micro riffle splitter to about 20 to 25 grams in each splitter pan. 3. From one pan remove a 15-gram sample and put it into a crucible, take a 15-gram sample from the other pan and put into a second crucible. Make a third sample from the remainder of the two pans and put it into a third crucible. 8 Dames & Moore
Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - --------------------------------------------------------------------------------------------------------------------- PROPRIETARY INFORMATION TABLE 1 FIRE ASSAY SUMMARY - ---------------------------------------------------------------------------------------------------------------------- Wt. Of Litharage Borax Soda Ash Potash Silica Florspar Nitrate Flour Sample No. Ore (g) (g) (g) (g) (g) (g) (g) (g) (g) - ---------------------------------------------------------------------------------------------------------------------- DM-010A through 3.0 DM-012A & DM-015A - ---------------------------------------------------------------------------------------------------------------------- DM-013A & 3.9 DM-014A - ---------------------------------------------------------------------------------------------------------------------- DM-016A through 3.0 DM-033A - ---------------------------------------------------------------------------------------------------------------------- 9 Dames & Moore
Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- 4. Split the remainder of the sample down to 16 to 20 grams in each pan, and make two more 15-gram samples and place them into the fourth and fifth crucibles. 5. Clean the splitting equipment. 6. Repeat the splitting procedure on the MA-2b gold standard sample to obtain one 15-gram sample and place it into a crucible. (For the first set of tests, core 98C-9, -65' through 80', the splitting procedure for the crucible sample was not used. The sample was randomly removed from the sample bag and the gold standard jar. Because the analytical results appeared erratic, the splitting procedure was initiated for all the following samples). 7. A predetermined mix of fluxes was added in the same amount to every crucible, the crucibles were placed in an oven, and the mixture smelted. 8. When smelting was completed, the molten mass was poured into an inverted conical mold made of steel. When the sample cooled, the lead button at the point of the cone was separated from the slag on top of the lead button. Any residual slag attached to the lead button was meticulously removed. 9. The lead buttons were weighed (98C-9, -215' through 230' was not weighed due to oversight). 10. The lead buttons were placed in preheated cupels, and the cupels were placed in the oven until all the lead was fumed away. The remaining sphere in the cupel, after fuming, contained the precious metals. The sphere is called the dore. 11. The dores were weighed then placed into a porcelain "parting" (separate gold & silver) dish. 12. Nitric acid was added to dissolve the silver. (Sometimes the remaining gold particle is large enough to see and sometimes large enough to weigh. On the first test the 30-gram sample particles appeared to be large enough to weigh, but the decision was made to dissolve the gold in aqua regia for all dores). 13. After parting was complete, hydrochloric acid was added to make aqua regia and the total dore was dissolved. 14. The parting solution was diluted to 10 milliliters (ml) with deionized water for analysis 15. The atomic absorption spectrometer (AAS) was calibrated with 1 part per million (ppm) gold standard solution and 5 ppm gold standard solutions. 10 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- 16. The AAS was used to analyze the 10-milliliter samples. There were 4 to 6 readings taken with the AAS set on 100 average. The readings, depending on the range, were averaged. The AAS was recalibrated with the 1 and 5 ppm standards, and the samples run a second time as a check if there was sufficient solution. Preparing Standard The gold standard used for preparing the 1 ppm and 5 ppm standard solutions for calibrating the AAS was VWR Scientific Gold Standards VW421 1-2, May 1998, 1,000 ppm gold, CAS (Au) 7440-57-5. It was a gold chloride soslute in a hydrochloric acid solvent. The procedure to make the 1 ppm and 5 ppm solutions was the written procedure developed for the program. The procedure was meticulously followed. The MIBK 1 ppm and 5 ppm standards followed the same procedure, but they began with a 50 ppm gold MIBK solution. Comments The first set of fire assay samples (DM-O1OA through DM-015A) were scrutinized closely. For.example, the slag characteristics were carefully noted. The slag appeared to have too much borax. The slag was tough and stuck to the top of the lead button. One sample DM-013A, appeared to have some small amount of speiss on it which stuck to part of the slag when the slag was broken away from the lead button. Sample DM-012A broke cleanest of the three 1/2 ton assay slags. The slag color was relatively uniform. The standard sample (DM-O1SA) broke very well. The slag was still tough but it broke clean. When the cupels were removed from the furnace the visual appearance of the dores was good. The spread area within the cupel was small which is indicative of good slag removal in preparing the lead button for cupelling. Due to the results from 98C-9, -65 through -75 feet, it was decided that each sample would be selected by using the microsplitter. The sample bag fines were microsplit down to the 15 grams size for each sample. When 98C-9 was first begun (this includes the fire assay sample for both 98C-9 samples) it was felt that resplitting was unnecessary since the sample had been through multiple splits and ground to approximately 95 percent minus 100 mesh. Since the result of the first series (98C-9, -65 feet through -75 feet) were puzzling the Team decided to prepare each sample by using the microsplitter. 2.5 Chemical Assay Procedure and Analyses A summary description of the chemical assay analytical process used for the repeatability test program is as follows: 11 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- 1. The chemical procedure is simpler, but takes longer. It begins by adding a 15-gram sample to a 200- to 300-milliliter beaker. Three core samples and one MA-2b gold standard were run for each set of samples. 2. Initially 100 milliliters of hydrochloric acid and 35 milliliters of nitric acid to form aqua regia were added to each beaker. 3. The sample/aqua regia mixture was cooked on a hot plate. As the sample cooked and decreased in volume, an additional 50 milliliters of hydrochloric acid was added. 4. Once the volume was reduced, the sample was filtered, the beaker washed onto the filter cake, finally the filter cake was washed. All washing was done with deionized water. 5. The samples were now filtrates, and the filtrates were cooked until all the nitric acid was evaporated from the filtrate. Additional hydrochloric acid was added as needed. 6. The filtrate was diluted to 150 milliliters with de-ionized water, then 15 milliliters of methyl isobutyl ketone (MIBK, extracts gold by solvent extraction) was added to the filtrate and shaken for several minutes. 7. The MJBK solution was separated from the filtrate and analyzed by AAS similar to the procedure described in Section 2.4, items 15 and 16. 8. The AAS was calibrated using MIIBK 1 ppm and 5 ppm gold standards. 12 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- 3.0 EVALUATION OF ANALYTICAL RESULTS The purpose of the Report is to provide an independent evaluation of repeatability of the procedures developed and followed by AuRIC in their analysis of core samples from IGC's Blackhawk project. Nothing in this Report has any bearing on the accuracy or repeatability that AuRIC routinely achieves or may achieve in the future in its analyses. Repeatability or precision is the degree of reproducability of measurements under a given set of conditions. Specifically, it is a quantitative measure of the variability of a set of measurements compared to their average value. For the fire assay evaluation five samples were used to comprise the set of measurements. For the chemical assay evaluation three samples were used to comprise the set of measurements. Since the gold content of the samples analyzed for each set was unknown, a standard was required to determine the accuracy of the analyses. Accuracy is a measure of bias in a measurement system. Accuracy was evaluated by comparing the analytical difference of measurements to a reference value, the CANMET gold standard MA-2b: A Certified Gold Ore Reference Material (MA-2b). The evaluation of the analytical results are presented in two sections as follows: Fire Assay Evaluation Chemical Assay Evaluation The MA-2b reference standard is discussed in detail in the fire assay evaluation section. 3.1 Fire Assay Evaluation The Protocol (Section 2.1) set forth the fire assay requirements to consist of three 1/2 assay ton samples (15 grams) and two 1 assay ton samples (30 grams). The fir at sample prepared and analyzed was for core 98C-9 at a depth of 65 feet through 80 feet. The data for this sample is presented in Table 2. After the Table 2 results were obtained and analyzed three items of concern became apparent. 1. This core contained less than 0.01 troy ounces of gold per short ton of ore (opt). This was less gold than any previously analyzed core. 2. Second, the 1/2 assay ton samples and the 1 assay ton samples resulted in significantly different quantities of gold content. 3. The sample was randomly chosen from the sample bag. 13 Dames & Moore
Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - ------------------------------------------------------------------------------------------------------------------------------ TABLE 2 CORE ID NO. 98C-9 (65' Through 80') (1) - ------------------------------------------------------------------------------------------------------------------------------ Solution Ore content - Au (2) Sample No. Assay Method Sample Size (g) Button Wt (g) Dore Wt (mg) Au (ppm) ppm opt - ------------------------------------------------------------------------------------------------------------------------------ DM-010A Fire Assay 15 32.5 0.142 0.3 0.2 0.006 - ------------------------------------------------------------------------------------------------------------------------------ DM-011A Fire Assay 15 31.8 0.137 0.3 0.2 0.006 - ------------------------------------------------------------------------------------------------------------------------------ DM-012A Fire Assay 15 34.7 0.167 0.44 0.3 0.009 - ------------------------------------------------------------------------------------------------------------------------------ DM-013A Fire Assay 30 44.4 0.255 0.10 0.03 0.001 - ------------------------------------------------------------------------------------------------------------------------------ DM-014A Fire Assay 30 43.7 0.241 0.18 0.06 0.002 - ------------------------------------------------------------------------------------------------------------------------------ DM-015A(3) Fire Assay 15 -- 0.223 3.82 2.54 0.074 - ------------------------------------------------------------------------------------------------------------------------------ DM-010C Chemical 15 NA(5) NA 1.1(6) 1.1 0.032 - ------------------------------------------------------------------------------------------------------------------------------ DM-011C Chemical 15 NA NA 2.2 2.2 0.074 - ------------------------------------------------------------------------------------------------------------------------------ DM-012C Chemical 15 NA NA 14.2 14.2 0.414 - ------------------------------------------------------------------------------------------------------------------------------ DM-014C(3,4) Chemical 15 NA NA 20.0 20.0 0.583 - ------------------------------------------------------------------------------------------------------------------------------
Notes (1) Sample Bage -65', -70', -75' (2) ppm = parts per milliion = micrograms per gram (ug/g); opt = troy ounces per short ton; ug/g divided by 34.28 = opt Sample calculation: (Graphic omitted) (3) Canadian Certified Reference Materials, Gold Ore MA-2b, 0.069 opt, 2.39 ug/g (4) It was decided to run chemical samples in triplicate after sample numbers were assigned. There was no sample for DM-013C (5) NA = not applicable (6) 15 milliters of MIBK are used to extract the Au from the leach solution; therefore, with a 15 gram feed sample, the Atomic Absorption spectrometer reading is the same as the ore ppm. 14 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- As a result of these three items, the Team decided that using both 1/2 assay ton and 1 assay ton samples added an unnecessary variable and each sample must be selected by using the micro splitter. Therefore, all the following sets of samples were based on 'A assay ton or 15 grams, and were obtained by splitting the entire sample down to 20 to 25 grams. The data for the other three core samples which were run, 98C-9, at a depth of - -215 through --230 feet; 98C-22, -165 feet through -185 feet, and 98C-22, -360 feet through -375 feet are summarized in Tables 3, 4, and S respectively. These Tables also contain the chemical assay information. Support data for the fire assay work is contained in Appendix 1, Assay Reports and Appendix 2, Fire Assay Record. The five identical samples for each core increment established the data for determining repeatability. To know whether the gold values were accurate it was necessary to run a known gold standard. The CANMET gold standard MA-2b: A Certified Gold Ore Reference Material, was chosen. The MA-2b information is contained in Appendix 4. One standard sample was run with each set of fire assay samples. The four standard samples provided an opportunity to evaluate AuRIC's repeatability of the MA-2b standard. The statistical analysis was provided for Dames & Moore by Quantitative Decisions to provide expert input. Nevertheless, there are practical limitations to the statistical analysis which is a rigid mathematical approach. At the same time the statistical analysis pointed out areas where repeatability could be improved. These two items are discussed in more detail in accuracy and repeatability below. Accuracy The accuracy of the AuRIC analyses reported in Tables 2 through 5 is reflected in the results for the reference material, MA-2b. Each measurement was performed on a 15-gram sample. Table 6, MA-2b Statistical Analysis reproduces the MA-2b results along with a statistical summary. A significant item to note is that the analysis compares data from five controlled samples from 14 laboratories with four AuRIC MA-2b samples that were run at different times and under different conditions. The mean ore result for AuRIC is 2.44 ppm (0.07 1 opt). CANMET "recommends" a value of 2.39 +/- 0.05 ppm as the true standard concentration. The AuRIC mean is within the range of the recommended value. This is an indication that the AuRIC measurements on the average are accurate. Among the 15 sets of data (one laboratory did 2 sets of 5) two laboratories were below the recommended range, six were above the range, and seven (46.7%) were within the range. The statistical analysis looks at the entire set of data and not how individual laboratories performed compared to the assigned true value. 15 Dames & Moore
Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - ------------------------------------------------------------------------------------------------------------------------------ TABLE 3 CORE ID NO. 98C-9 (215' Through 230') (1) - ------------------------------------------------------------------------------------------------------------------------------ Solution Ore content - Au (2) Sample No. Assay Method Sample Size (g) Button Wt (g) Dore Wt (mg) Au (ppm) ppm opt - ------------------------------------------------------------------------------------------------------------------------------ DM-016A Fire Assay 15 -- 0.149 0.1 0.07 0.002 - ------------------------------------------------------------------------------------------------------------------------------ DM-017A Fire Assay 15 -- 0.149 0.2 0.13 0.004 - ------------------------------------------------------------------------------------------------------------------------------ DM-018A Fire Assay 15 -- 0.149 0.1 0.07 0.002 - ------------------------------------------------------------------------------------------------------------------------------ DM-019A Fire Assay 15 -- 0.150 0.2 0.13 0.004 - ------------------------------------------------------------------------------------------------------------------------------ DM-020A Fire Assay 15 -- 0.157 0.24 0.16 0.005 - ------------------------------------------------------------------------------------------------------------------------------ DM-021A(3) Fire Assay 15 -- 0.217 3.35 2.23 0.065 - ------------------------------------------------------------------------------------------------------------------------------ DM-015C Chemical 15 NA(4) NA 0 (5) 0 0 - ------------------------------------------------------------------------------------------------------------------------------ DM-016C Chemical 15 NA NA 2.2 2.3 0.067 - ------------------------------------------------------------------------------------------------------------------------------ DM-017C Chemical 15 NA NA 1.7 1.7 0.050 - ------------------------------------------------------------------------------------------------------------------------------ DM-018C(3) Chemical 15 NA NA 7.2 7.2 0.210 - ------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Sample bags -215', -220', -225' (2) ppm = parts per million = micrograms per gram (ug/g); opt = troy ounces per short ton; ug/g divided by 34.28 = opt Sample calculation: (Graphic omitted) (3) Canadian Certified Reference Materials, Gold Ore MA-2b, 0.069 opt, 2.39 ug/g, 0.069 opt (4) NA = not applicable (5) 15 milliters of MIBK are used to extract the gold from the leach solution; therefore, with a 15 gram feed sample, the Atomic Absorption Spectrophotometer reading is the same as the ore ppm. 16 Dames & Moore
Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - ------------------------------------------------------------------------------------------------------------------------------ TABLE 4 CORE ID NO. 98C-22 (165' Through 185') (1) - ------------------------------------------------------------------------------------------------------------------------------ Solution Ore content - Au (2) Sample No. Assay Method Sample Size (g) Button Wt (g) Dore Wt (mg) Au (ppm) ppm opt - ------------------------------------------------------------------------------------------------------------------------------ DM-022A Fire Assay 15 35.0 0.134 4.3 2.87 0.084 - ------------------------------------------------------------------------------------------------------------------------------ DM-023A Fire Assay 15 34.1 0.146 5.2 3.47 0.101 - ------------------------------------------------------------------------------------------------------------------------------ DM-024A Fire Assay 15 33.9 0.156 6.1 4.07 0.119 - ------------------------------------------------------------------------------------------------------------------------------ DM-025A Fire Assay 15 34.9 0.156 4.7 3.13 0.091 - ------------------------------------------------------------------------------------------------------------------------------ DM-026A Fire Assay 15 35.6 0.136 5.1 3.40 0.099 - ------------------------------------------------------------------------------------------------------------------------------ DM-027A(3) Fire Assay 15 35.2 0.200 3.5 2.33 0.068 - ------------------------------------------------------------------------------------------------------------------------------ DM-019C Chemical 15 NA(4) NA 3.0(5) 3.0 0.088 - ------------------------------------------------------------------------------------------------------------------------------ DM-020C Chemical 15 NA NA 3.2 3.2 0.093 - ------------------------------------------------------------------------------------------------------------------------------ DM-021C Chemical 15 NA NA 2.8 2.8 0.082 - ------------------------------------------------------------------------------------------------------------------------------ DM-022C(3) Chemical 15 NA NA 3.4 3.4 0.099 - ------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Sample bags -165', -170', -175', -180', core insufficient from -165' and 170' (2) ppm = parts per million = micrograms per gram (ug/g); opt = troy ounces per short ton; ug/g divided by 34.28 = opt Sample calculation: (Graphic omitted) (3) Canadian Certified Reference Materials, Gold Ore MA-2b, 0.069 opt, 2.39 ug/g, 0.069 opt (4) NA = not applicable (5) 15 milliters of MIBK are used to extract the gold from the leach solution; therefore, with a 15 gram feed sample, the Atomic Absorption Spectrophotometer reading is the same as the ore ppm. 17 Dames & Moore
Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - ------------------------------------------------------------------------------------------------------------------------------ TABLE 5 CORE ID NO. 98C-22 (360' Through 375') (1) - ------------------------------------------------------------------------------------------------------------------------------ Solution Ore content - Au (2) Sample No. Assay Method Sample Size (g) Button Wt (g) Dore Wt (mg) Au (ppm) ppm opt - ------------------------------------------------------------------------------------------------------------------------------ DM-028A Fire Assay 15 35.1 0.144 4.7 3.13 0.091 - ------------------------------------------------------------------------------------------------------------------------------ DM-029A Fire Assay 15 34.1 0.142 5.0 3.33 0.097 - ------------------------------------------------------------------------------------------------------------------------------ DM-030A Fire Assay 15 35.0 0.140 5.3 3.53 0.103 - ------------------------------------------------------------------------------------------------------------------------------ DM-031A Fire Assay 15 35.6 0.144 5.2 3.47 0.101 - ------------------------------------------------------------------------------------------------------------------------------ DM-032A Fire Assay 15 32.2(4) 0.130 4.7 3.13 0.091 - ------------------------------------------------------------------------------------------------------------------------------ DM-033A(3) Fire Assay 15 35.0 0.197 4.0 2.67 0.078 - ------------------------------------------------------------------------------------------------------------------------------ DM-023C Chemical 15 NA(5) NA 3.5(6) 3.5 0.102 - ------------------------------------------------------------------------------------------------------------------------------ DM-024C Chemical 15 NA NA 2.9 2.9 0.085 - ------------------------------------------------------------------------------------------------------------------------------ DM-025C Chemical 15 NA NA 3.2 3.2 0.093 - ------------------------------------------------------------------------------------------------------------------------------ DM-026C(3) Chemical 15 NA NA 3.2 3.2 0.093 - ------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Sample bags -360', -365', -370' (2) ppm = parts per million = micrograms per gram (ug/g); opt = troy ounces per short ton; ug/g divided by 34.28 = opt Sample calculation: (Graphic omitted) (3) Canadian Certified Reference Materials, Gold Ore MA-2b, 0.069 opt, 2.39 ug/g, 0.069 opt (4) A duplicate amount of NA2CO3 or K2CO3 was added to this sample by mistake (5) NA = not applicable (6) 15 milliters of MIBK are used to extract the gold from the leach solution; therefore, with a 15 gram feed sample, the Atomic Absorption Spectrophotometer reading is the same as the ore ppm. 18 Dames& Moore
Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------------------------------------- TABLE 6 MA-2b STATISTICAL ANALYSIS - -------------------------------------------------------------------------------------------------------------- Solution Ore Ore Sample Dore Dore/mg (ppm) ppm) (opt) - -------------------------------------------------------------------------------------------------------------- DM-015A 0.223 14.9 3.82 2.55 0.0743 DM-021A 0.217 14.5 3.35 2.23 0.0651 DM-027A 0.200 13.3 3.50 2.33 0.0681 DM-033A 0.197 13.1 4.0 2.67 0.0778 N 4 4 4 4 4 Mean 0.209 14.0 3.668 2.445 0.0713 S.D. 0.013 0.847 0.296 0.197 0.0058 S.D./Mean 6.07% 6.07% 8.07% 8.07% 8.07% S.F 0.006 0.424 0.148 0.099 0.003 T 4.177 4.177 4.177 4.177 4.177 LCL (mean) 0.183 12.180 3.050 2.033 0.059 UCL (mean) 0.23 6 15.720 4.285 2.857 0.083
Notes: N is the number of results, Mean is their avenge, S.D. is their standard deviation estimate, S.E. is their standard error, t is the 97.5 percentage point of the Student T distribution with N-i degrees of freedom, and LCL and UCL are lower and upper confidence limits for the mean, respectively. The column headed "dore/mg" computes the dore weight per milligram of original sample (dore weights divided by 15,000 milligrams). All other columns of data are reproduced from Tables 2 through 5. Repeatability The variation in the four AuRIC reference measurements is relatively high. Their standard deviation is 0.197 ppm (about 8% of the total concentration). By comparison, the results reported by 14 laboratories using the same technique: Fire Assay-Atomic Absorption Spectroscopy (FA-AAS) a typical standard deviation (estimated usually from five results) is 0.055 ppm (about 2% of the total concentration), with the largest standard at 0.173 ppm (about 7% of the total). Eleven of the 14 laboratories achieved a standard deviation less than 0.10 ppm (about 4% of the total). The AuRIC standard deviation is higher than any reported by the 14 laboratories including CANMET. However, standard deviations estimated from a small number of measurements (4) can vary enormously by chance alone. Although AuRIC's performance in measuring the reference material was less repeatable than most other laboratories (8% versus 4%), it is difficult to say exactly how precise AuRIC' s performance really was on the MA-2b sample because there are so few data. In addition, AuRIC was not running the standard for repeatability, but as a check on accuracy and to insure that contamination was not entering the analytical procedure. This objective was met. 19 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- Blackhawk Core Tables 2 through 5 supply the additional data relevant to assessing the repeatability of AiROC s results on the core samples. Four different sections of core, each 15 to 20 feet long, were repeatedly ground, sieved, and split to produce a homogeneous material. Samples of this material, typically 15 grams in weight, were analyzed by FA-AAS. For each core, five samples were analyzed by FA-AAS. Variation in the results for each core will be due to four major causes: 1. Variation in actual gold content (and other physical properties) from sample to sample. 2. Variation in the results of the fire-assay pre-concentration (% minus 100 mesh) step leading to production of a dore. 3. Variation in the physical and analytical separation of gold from the dore, leading to production of a standard 10 milliliter liquid solution. 4. Analytical variation ("random error") in the atomic absorption finishing step. The standard deviations of the FA-AAS results for each core estimate the total variation contributed by all causes. Therefore, these standard deviations will tend to overestimate the variation contributed by the last three steps, which constitute the FA-AAS technique. Table 7, Blackhawk Core Fire Assay Statistical Analysis, summarizes the data from Tables 2 through 5. The summaries show the average measurements of the dore weights normalized by original sample weight, (dore weight divided by 15,000 milligrams) and their standard deviations. The dore standard deviations estimate variation due to causes 1 and 2 above. The summaries show the average analytical results and their standard deviations. The analytical standard deviations estimate variation due to all causes, and are therefore expected to be larger than the dore standard deviations (as a proportion of the average). Although the statistical analysis for core 98C-9 is presented in Table 7, there are valid reasons why this data should not be used in judging the repeatability performance of AuRIC. The reasons include the following: 1. Since the gold concentration was so unexpectedly low (first time), a good proportion of the standard deviation value may be due to rounding the atomic absorption spectrometer solution reading to a single significant digit. 2. As evidenced by the increase from 2.3% to 3 8.2% relative standard deviation in the core 98C-22, -215 to 230 foot section, analytical variation can be relatively much larger at small concentrations. 3. Sample--65 to 80 feet had both 15 (3) and 30 (2) gram samples in the set of five. 20 Dames & Moore
Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- TABLE 7 BLACKHAWK CORE FIRE ASSAY STATISTICAL ANALYSIS Core ID No. Depth Statistic Value S.D./Mean ------------------------------ 98C-9 65'-80' Count of Ore (ppm) 5 Average of Ore (ppm) 0.157 S.D. of Ore (ppm) 0.108 68.9% Average of Dore/mg 9.253 S.D. of Dore/mg 1.189 12.8% ------------------------------ 215'-230' Count of Ore (ppm) 5 Average of Ore (ppm) 0.112 S.D. of Ore (ppm) 0.043 38.2% Average of Dore/mg 10.053 S.D. of Dore/mg 0.233 2.3% ------------------------------ 98C-22 165'-185' Count of Ore (ppm) 5 Average of Ore (ppm) 3.387 S.D. of Ore (ppm) 0.448 13.2% Average of Dorelmg 9.707 S.D. of Dore/mg 0.702 7.2% ------------------------------- 360'-375' Count of Ore (ppm) 5 Average of Ore (ppm) 3.320 S.D. of Ore (ppm) 0.185 5.6% Average of Dore/mg 9.333 S.D. of Dore/mg 0.389 4.2% -------------------------------
4. The samples were randomly selected from the sample bag and not selected by using the micro splitter. The AAS solution readings of 0.1 to 0.5 ppm are significantly below the lower limit used for calibration, 1.0 ppm. Even though the instrument calibration curve is a straight line from 0 to 15 ppm, these low values, especially since they were single digit readings, could contribute to the variance. This is likely since the standard deviation for the normalized dore weights for both 98C-9 samples were much lower when compared to the standard deviations of the ore (12.8% vs. 68.9%, and 2.3% vs. 38.2%). If this were a scientific study, AuRIC has the capability to use its Perkin Elmer Zeeman 5100 AAS to read parts per billion (0.245 instead of 0.2). However, from a practical economic standpoint of gold content, the analyses would have just been repeated. 21 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- Therefore, the results for hole 98C-22 may be better predictors of the repeatability achieved. The relative standard deviations of 13.2% and 5.6% are comparable to the 8.1% achieved for the four reference measurements (Table 6). The relative standard deviations of 7.2% and 4.2% for the normalized dore weights are comparable to the relative standard deviation of 6.1% achieved for the four reference measurements (Table 6) and the normalized dore weights for core 98C-9. Compared to the variation in concentrations from one core to another (which is an order of magnitude), these relative standard deviations are extremely small, so the repeatability is excellent. Although the relative standard deviations achieved in the controlled MA-2b tests were somewhat better (1% to 7% range with 78.5% of FA-AAS labs at 4%), ranges of standard deviations for other reputable laboratories for typical precious metal analyses are generally in the five to 10 percent range. Note that significant variation is introduced between weighing the dore and producing an analytical result. There are two possible reasons. First, the gold content of the dores may vary. Second, the chemical dissolution and subsequent measurement by AAS introduce analytical variation The dissolution/measurement variance suggests that more precision in measuring and reporting the solution concentrations can contribute materially to improving the repeatability. For example, record five or six 100 average AAS readings to as many decimal places as provided and average those readings. 3.2 Chemical Assay Evaluation As planned in the Protocol, the core samples were run in triplicate for each test set by chemical assay techniques, along with one standard sample. The chemical assay data for each core section tested are also contained in Tables 2, 3, 4, and 5 as discussed in Section 3.1. Additional support data for the chemical assay evaluation is contained in Appendix, 1 Assay Reports, and Appendix 3, Chemical Assay Record. Table 8, Blackhawk Core Chemical Assay Statistical Analysis, contains a summary similar to Table 7 using the chemical results reported in Tables 2 through 5. For the chemical method each measurement was repeated three times along with the standard. The results for hole 98C-9 are highly variable and are not used for the same reasons discussed in Section 3.1. The results for 98C-22 show relative standard deviations of 8.3% and 7.7%, comparable to the repeatability achieved by FA-AAS. The gold values for the two 98C-22 sets were slightly lower in the chemical assay procedure compared to fire assay. The MA-2b standard sample also had a level of repeatability; however, the results were approximately 40 percent higher than the standard value. This causes some concern. As was the case for fire assay, the MA-2b standard samples were run for other reasons as discussed in Section 3.1. The MA-2b: Certified Gold Ore Reference Material Report indicated that those laboratories that used a chemical assay approach also had the biggest variance in results. The 22 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- TABLE 8 BLACKHAWK CORE CHEMICAL ASSAY STATISTICAL ANALYSIS Core ID No. Depth Statistic Value S.D./Mean ----------------------- 98C-9 65'-80' Count of Ore (ppm) 4 Average of Ore (ppm) 9.325 S.D. of Ore (ppm) 9.206 98.7% ----------------------- 215'-230' Count of Ore (ppm) 4 Average of Ore (ppm) 2.775 S.D. of Ore (ppm) 3.097 111.6% ----------------------- 165'-185' Count of Ore (ppm) 4 Average of Ore (ppm) 3.100 S.D. of Ore (ppm) 0.258 8.3% ----------------------- 360'-375' Count of Ore (ppm) 4 Average of Ore (ppm) 3.200 S.D. of Ore (ppm) 0.245 7.7% ----------------------- MA-2b information indicates that both the highest and lowest values for the standard were obtained by the chemical assay method. The AuRIC results on the CANMET standard indicate that further work may be necessary to develop a more effective chemical extraction procedure for the standard. It would appear that either the aqua regia approach alone may not be effective enough or the three separate standard runs under different conditions influenced the results, or a combination of both. A rerun to establish improved repeatability on the MA-2b standard should be considered. 23 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- 4.0 CONCLUSIONS AND RECOMMENDATIONS Dames & Moore participated in a series of fire assay and chemical assay tests at the AuRIC Metallurgical Laboratories facility in Salt Lake City, Utah on December 7 through 11, 1998. The purpose was to determine the repeatability of the developed analytical procedures for the Blackhawk Project. The extent of participation including decisions on sample selection is described in Section 1.3, Scope. Dames & Moore drew on its recent experience in auditing AuRIC for Verification of Validity of Developed Analytical Procedures for the Blackhawk Project. Based on this information Dames & Moore has drawn the following conclusions: o Compared to the variation in concentrations from one core to another (which is an order of magnitude), the relative standard deviations were small; therefore, the repeatability was good. o AuRIC's mean ore result on a CANMET standard run with each set of samples was within the recommended value range. This indicates that the AuRIC measurements, on the average, were accurate. o The initial decisions to analyze three V2 assay ton (15 grams) and two 1 assay ton (30 grams) samples, and not to micro split each sample was not a good one. A change to five V2 assay ton samples and to select every sample by micro splitting was instituted after the first core 98C-9 samples were analyzed. o Samples with less than 0.5 parts per million (ppm) gold in the solution (less 033 ppm, = C 0.01 opt ore) were reported for repeatability, but not considered in the repeatability evaluation. The chemical dissolution and subsequent measurement by the atomic absorption spectrometer (AAS) appeared to introduce significant statistical variation as the result of AAS solution readings being a single significant digit. o The results for hole 98C-22 were better predictors of the repeatability achieved. The relative standard deviations of 13.2 percent and 5.6 percent for the fire assay and 8.3 percent and 7.7 percent for chemical assay on core 98C-22 were good. o The variation introduced between weighing the dore and producing an analytical result likely occurs because more variables enter the procedure with each additional step. o A realistic acceptable standard deviation for routine fire assay and chemical assay analyses needs to be established. Now that the repeatabilty test work has been completed and the data statistically analyzed several recommendations are presented as follows: 24 Dames & Moore Determination of Repeatability of the Verified Developed Analytical Procedures for the Blackhawk Project - -------------------------------------------------------------------------------- o Establish a realistic acceptable standard deviation for routine fire assay and chemical assay analyses. Using the standard deviations obtained in determining gold standards may be too stringent a specification for routine work. o Grind all Blackhawk core samples to 100 percent minus 150 mesh. This is based on the MA- 2b standard being 100 percent minus 200 mesh and smaller standard deviations on the Blackhawk core with the finer grinds. o Micro split all sample material for sample selection. o Perform a controlled chemical assay repeatability test on the MA-2b standard with five replicate samples to demonstrate AuRIC's ability to meet the repeatability established by the laboratories in the standard development program. o Since core 98C-9 was eliminated, consider performing another repeatability test on four core with five replicate samples. o Send the MA-2b standard and a Blackhawk core sample to one or two laboratories as unknowns for which umpire level analyses are needed. Compare those results to AuRIC's and the MA-2b report. o For future core analyses, select a depth range such as -100 to -200 feet, analyze those core in five foot increments, and provide the data to the geologic mine modeler. Have the modeler do a preliminary model and obtain his recommendation on needed accuracy and repeatability. 25 Dames & Moore EX-99.3 8 RECONNAISSANCE SITE VISIT Exhibit 99.3 Reconnaissance Site Visit and Surface Sampling The Blackhawk Project Lincoln County, Idaho Project Report Prepared for International Gold Corporation January 21, 1999 41961-001-034 TABLE OF CONTENTS 1.0 INTRODUCTION ................................................. 1 1.1 Purpose ................................................ 1 1.2 Problem ................................................ 1 1.3 Scope .................................................. 1 2.0 SITE RECONNAISSANCE AND SURFACE SAMPLING ..................... 2 2.1 Background Geology ...................................... 2 2.2 Blackhawk Project Site Visit ............................ 3 2.3 Surface Sample Selection ................................ 5 2.4 Introduction to Permit Requirements ..................... 5 3.0 SAMPLE PREPARATION ANT) ANALYSIS ............................. 6 3.1 Sample Preparation ...................................... 6 3.2 Fire Assay Procedures ................................... 7 3.3 Analytical Procedures ................................... 8 3.4 Laboratory Equipment .................................... 10 4.0 CONCLUSIONS .................................................. 11 TABLES 3-1 Surface Rock Sample Analyses ................................. 7 3-2 Surface Rock Sample Size ..................................... 7 3-3 Sample Screen Analysis ....................................... 9 PHOTOGRAPHS 2-1 Hole at Discovery Site 2-2 IGC Claim Marker 2-3 D&M and IGC Checking an Outcrop 2-4 Site of Surface Rock Sample #1 2-5 General View of Terrain - Core Hole 98C-22 2-6 General View of Terrain 2-7 Collecting Surface Rock Sample 2-8 Surface Rock Sample #2 Site Near Core Hole 98C-1 3-1 Cleaning the Pulverizer 3-2 Feeding the Pulverizer 3-3 Splitting 3-4 Flux and Sample in Crucible 3-5 Crucibles Ready for Furnace 3-6 Cress Electric Furnace i PHOTOGRAPHS (Continued) 3-7 Pouring Smelted Sample 3-8 Poured Samples, Note Unsmelted Material in Samples 41A and 42A 3-9 Micro Balance for Weighing Dores 3-10 Parting Dishes on Hot Plate 3-11 Diluting Parting Solutions to 100 Milliliters 3-12 Perkin Elmer Zeeman 5700 AA With Graphite Furnace 3-13 Automatic Dilution 3-14 Sample Selection 3-15 CRT Visual Readouts APPENDICES Appendix A Edwarde R. May, Development Geologist Report Appendix B Fire Assay record Appendix C Assay Reports ii RECONNAISSANCE SITE VISIT AND SURFACE SAMPLING, THE BLACKHAWK PROJECT, LINCOLN COUNTY, IDAHO 1.0 INTRODUCTION International Gold Corporation (IGC), Bellingham, WA has a precious metals prospect in Lincoln County, ID. IGC selected Dames & Moore to perform a reconnaissance site visit and an independent evaluation of site surface samples at the Blackhawk Project Site (Blackhawk). Dames & Moore selected and sampled four locations on the on January 19, 1999. 1.1 Purpose Dames & Moore was retained by IGC to provide professional guidance on both geologic mapping of Blackhawk and on potential permit requirements. In addition, Dames & Moore was to provide an independent evaluation of surface samples to be collected by Dames & Moore. The surface samples were to be treated in a "Chain of Custody" mode and analyzed by fire assay procedures at AuRIC Metallurgical Laboratories (AuRIC) in Salt Lake City, UT. This report, Reconnaissance Site Visit and Surface Sampling, The Blackhawk Project, Lincoln County, Idaho (Report), presents the results of the Dames & Moore work. 1.2 Problem The problem, as explained to Dames & Moore, is that IGC needed the assistance of a professional engineering and environmental firm to work with them in properly evaluating and developing their Blackhawk precious metals prospect. IGC also needed independent surface sampling and analyses of the surface samples. 1.3 Scope The Scope of Work performed by Dames & Moore was to perform a reconnaissance site visit to Blackhawk, to provide professional guidance and support on surface mapping and permitting, and to obtain independently selected surface samples for precious metals analyses. The surface samples were to be treated in a "Chain of Custody" mode by Dames & Moore from the time of sample collection through the fire assay/graphite furnace atomic absorption spectrophotometer (FAIGFAA) analytical procedure. 1 2.0 SITE RECONNAISSANCE AND SURFACE SAMPLING The Dames & Moore site reconnaissance and surface sampling is discussed in four parts as follows: o Background Geology o Blackhawk Project Site Visit o Surface Sample Selection o Introduction to Permit Requirements The Blackhawk Project Site (Blackhawk) and core storage shed visits took place on Tuesday, January 19, 1999. The site visits followed an orientation meeting presented the evening of January 18th. Participants in the site and core storage visits included the Dames & Moore (D&M) and the International Gold Corporation Team (IGC), collectively the "Team". Dames & Moore personnel included Richard A. Daniele, Chief Metallurgical Engineer and Edwarde R. May, Development Geologist (Denver), James E. Jensen, Environmental PlanningfNEPA Compliance Project Manager (Boise), and Steven J. Sibbick, Senior Geochemist (Vancouver). IGC personnel included Marcus M. Johnson, Project Manager and Michael B. Mehrtens, Consulting Geologist. 2.1 Background Geology Michael B. Mehrtens, MBM Consultants, Inc., the geologist for IGC, presented a background geology history to Dames & Moore personnel on January 18, 1999. Dean Eskridge discovered the Blackhawk prospect area in 1991. Mr. Eskridge was an amateur prospector and assayer. His self-assayed samples showed the presence of gold in sufficient quantities to be of interest to him. During the period from 1991 until July 1994 several people looked at the prospect. In July 1994, MBM Consultants, Inc. was retained to do an evaluation of the project site area. Michael B. Mehrtens' results were of sufficient interest that in July 1995 he drilled 10 vertical reverse circulation holes to test the prospect. During the period from May 9, 1996 through April 4, 1997, Mineral Sciences Ltd., Chesham, Buckinghamshire, England prepared three reports based on samples from Blackhawk. The reports covered the mineralogical examination and electron probe study of samples of gold containing materials from Blackhawk. The three reports provided petrographic information about the rock matrix at the site. The studies indicated that the rocks contained olivine phenocrysts in addition to sanidine, quartz, augite with accessory titaniferous magnetite, ilmenite, appatite and zircon. The reports indicated that gold primarily occurs in one micron or smaller sized grains with an upper range of gold grains from 5 to 20 microns. Minute, rare grains or blebs of pyrite and chalcopyrite were noted associated with the ilmenite. In September 1997 Bateman Engineering Company was retained to carry out a due diligence examination of Blackhawk. Two HQ sized core holes were drilled to depths of 507 and 203 feet respectively. They were designated 97C-8 and 97C-9. The holes were 2 located to act as twins to the 11995 reverse circulation - December 1997 Intergold Corporation, the parent of IGC, began active involvement with Blackhawk. In August 1998 Dr. Edward Deal, a volcanologist, spent several days in the field examining the Moonstone rhyolite to assist in clarifying the mode of deposition of the volcanic sequence. In September 1998 Intrasearch flew the area to obtain aerial photographs at a scale of 1 inch equal to 1,000 feet (1":1,000'). This was done to provide the basis for regional geological mapping. During the period of September and October 1998 nine HQ sized core holes were drilled at wide, approximately 800 foot, spacings. The core holes were drilled vertical to a depth of 500 feet. The core was cut by diamond saw and quarter core in five foot sections was delivered to AuRIC Metallurgical Laboratories (AuRIC) in Salt Lake City, UT. As a result of Mr. Mehrtens' geologic evaluation of the surface and the core, he was able to provide additional background geology information. At this time, his best opinion is that there are three levels of rhyolite which are stacked on each other as horizontal beds. All the rhyolites, approximately 500 feet thick, appear to fill an existing caldera. The source of the caldera is not currently known; however, it is thought that the rhyolite is probably from multiple vents. One core, 98C-8, had large boulders of granite present. Core 98C-27 showed ferritite and the Moonstone rhyolite. The Mineral Science, Ltd. reports indicated that some gold was encapsulated in ilmenite crystals. The rocks studied were high in barium, strontium, and zirconium. This may indicate that the source of the rock is from the deep mantle. The connection with the olivine phenocrysts however is not clear. The black coarse grained material observed in the core is possibly ilmenite. Some core were observed to contain blood red hematite. The background information on the site geology provided the Team with a brief history of the site and insight into the complexity of this unusual precious metals matrix. 2.2 Blackhawk Project Site Visit Tuesday morning January 19, 1999 the first stop for the Team was the core storage shed. It is located behind the Shilo Inn in a storage area in Twin Falls, ID. The IGC core is in unit No. 361. There was insufficient light to see the core so the Team headed to Blackhawk, approximately 34 miles north of Twin Falls and 10 miles north of Shoshone on US Highway 93, and west of the highway. The first stop was at the discovery out crop, Photograph No. 2-I. This location is the area where a reverse circulation hole was drilled in 1995, 95M-6. The white post in Photograph No. 2-2 is a claim marker. Photograph No. 2-3 is a picture was of the Team sampling an out crop on the ridge of a little depression over the rise from the discovery location. From this location, Michael B. Mehrtens was able to point out the flag at his hole Moonstone M4. 3 The Team traveled down into the depression towards core HUlL core area that Dames & Moore took its first surface rock sample (RS 1) shown on Photograph No. 2-4. This was the area in which Michael B. Mehrtens had taken his sample Moonstone Ml. The Team walked south from Ml toward core hole 98C-22. There was some surface water running in the little valley that was crossed. Whether the surface water flow was normal flow, from earlier rain, or melting snow was not clear. The Team encountered some difficulty finding core hole 98C-22. Photograph No. 2-6 is a picture of the terrain in the area. At core hole 98C-22 the lava flow to the east may be a different flow. It was at a higher level and appeared to be above the flow that was sampled as RS 1. Photograph No. 2-7 is a picture of the typical surface rock sample collection. On the route to core hole 98C-16, the Team walked up a road and around an outcrop to the northwest. This outcrop was one of the few massive outcrops that we saw. At 98C- 16 the survey stake was marked moon 2255. Michael B. Mehrtens indicated that this hole showed two flows on the core. From the discovery area, the Team traveled to the northwest to the site of core hole 98C- 1 (Photograph No. 2-8). The third surface rock sample, RS 3 was taken here. The Team then drove to the area of core holes 98C-8 and 98C-9. An attempt to drive to the top of the steep hill to the south failed, and the Team walked to the top of the hill. The fourth and final surface rock sample was taken from the bluff on the west of the gap at the top of the hill. From the top of the hill, the Team walked to the southeast to core hole 98C-27. This core hole was one of the most southeasterly holes. It is on top of the mesa south of the RS 4 channel sample location. An article by Leeman does not discuss the presence of any olivine in the lava rock; however, the lava rock in this area does contain olivine according to Michael B. Mehrtens. On the road back to US Highway 93, there was a fenced area. Apparently someone dumped hazardous waste in a lava crevice, the BLM has fenced the area and posted harzardous waming signs. The Team returned to the core shed in Twin Falls to examine the core. Core hole 98C-l was examined along with the AuRIC Assay Report dated January 18, 1999. Gold analyses for core hole 98C-l ranged from a low of 0.057 troy ounces per short ton (opt) at the minus 25 foot elevation to a high of 0.253 opt at the minus 250 elevation. The geologists studied the core and discussed their various observations including the transition zones, apparent density, layers of soil or clay material, and porosity. 4 2.3 Surface Sample Selection Dames & Moore independently selected the locations for all the surface rock samples. Dames & Moore obtained its first surface rock sample (RS 1) by chipping a channel vertically approximately 1 meter down the face of an outcrop near core hole 98C-16. Appendix A, Edwarde R. May, Development Geologist Report, covers in detail the surface rock sample selection and handling. After returning to the discovery area, the Team took the second surface rock sample, RS 2 at the discovery outcrop. RS 2 was taken starting at the bottom of the outcrop and working up the outcrop (Plate 1, Surface Rock Sample RS 1, Appendix A). The length of the channel sample was about 1.1 meters. The core hole in the area was the 97M5-6. Surface rock sample RS 3 was taken from an outcrop northwest of 98C- 1. The approximate location of the outcrop is seen over the bed of the truck in Photograph No. 2-8. The fourth and final surface rock sample, RS 4, was taken at the top of the hill south of core holes 98C-8 and 98C-9. The channel sample length was approximately 2 1/2 meters from the low point to the high point. Dames & Moore is confident that, based on its random selection of the four surface rock sample locations, the outcrops sampled were not salted or artificially impregnated with precious metals. 2.4 Introduction to Permit Requirements Preliminary discussions were held regarding the permit requirements for Blackhawk. IGC has done an excellent job to date with the BLM and land claims. Dames & Moore discussed some of the issues required for proceeding. Various items discussed included the following: o Land Uses o Water Resources o Biological Resources o Cultural Resources o Hazardous Materials Sites and Issues o Develop Strategy for Permits and Authorizations o Socioeconomic Economic Considerations o Native Peoples Issues o Public Involvement. 5 3.0 SAMPLE PREPARATION AND ANALYSES Dames & Moore maintained possession of the surface rock samples from the time that they were collected at the Blackhawk Project Site (Blackhawk) through sample preparation and analyses. The samples were prepared and analyzed in the AuRIC Metallurgical Laboratories (AuRIC) facilities in Salt Lake City, UT. The Dames & Moore Sample Preparation and Analyses section is discussed in four parts as follows: o Sample Preparation o Fire Assay Procedures o Analytical Procedures o Laboratory Equipment The four surface rock samples are identified for the sample preparation as RS I, RS 2, RS 3, and RS 4. For the analyses a duplicate was run for each sample along with duplicates of a Canadian Certified Reference Material, Gold Ore MA-2b. For the analytical portion of the analyses the surface rock samples were identified as follows: 1. RS l1,RS 11A, the duplicates as RS 12, RS 12A (sample RS 1) 2. RS 21, RS 21A, the duplicates as RS 22, RS 22A (sample RS 2) 3. RS 31, RS 31A, the duplicates as RS 32, RS 32A (sample RS 3) 4. RS 41, RS 41A, the duplicates as RS 42, RS 42A (sample RS 4); 3.1 Sample Preparation Sample preparation includes jaw crushing, roll crushing, pulverizing and splitting (Photograph Nos. 3-1, 3-2, & 3-3). The samples were crushed initially in thejaw crusher. The jaw crusher was scraped and brushed to remove any residual sample from previous work. Clean silica sand was run through the jaw crusher. The silica used for cleaning the jaw crusher was from an unopened bag of Unimin Industrial Quartz 4095 which represents 95 percent retained on 40 mesh or coarser. Approximately one kilogram of silica quartz was run through the crusher. After wire brushing the crusher, it was vacuumed inside and outside. As a final cleaning step the crusher was blown with high pressure air. The jaw crusher was inspected inside after cleaning. There was no visible particulate apparent. This procedure was repeated for each of the four surface rock samples. The second stage in sample preparation was roll crushing. The jaw crusher cleaning procedure was repeated for roll crushing. The third stage in sample preparation was sample splitting. The weights of the surface rock samples, after drying, are shown in Table 3-1, Surface Rock Sample Size. 6 Table 3-1. Surface Rock Sample Size - -------------------------------------------------------------------------------- Sample Weight (grams) - -------------------------------------------------------------------------------- RS 1 1441 RS 2 1792 RS 3 1141 RS 4 2071 - -------------------------------------------------------------------------------- Splitting the roll crusher product samples was used to obtain approximately one kilogram of sample for pulverizing. A Sepor 12 slot riffle splitter was used to reduce the sample size . The riffle equipment and splitter pans were blown clean with a high pressure air hose after each use. The fourth stage in sample preparation was pulverizing and splitting. Pulverizing was to reduce the sample particle size to approximately 90 percent minus 150 mesh by running each sample through the pulverizer twice. The splitting was to reduce the pulverized sample to approximately 100 grams for screen analysis and fire assaying. The jaw crusher cleaning procedure was repeated for pulverizing including running the silica through the pulverizer. After an analytical problem, Dames & Moore decided to repeat the fire assay and analytical procedure. The remaining sample material from each individual sample was combined and each combined sample was pulverized for a third time. The results from pulverizing a third time gave finer material as shown in Table 3-2, Sample Screen Analysis. Table 3-2. Sample Screen Analysis - -------------------------------------------------------------------------------- Sample Net Weight +150 Mesh -150 Mesh Percent No. (grams) (grams) (grams) -150 Mesh - -------------------------------------------------------------------------------- RS 1A 50.0 4.0 46.0 92.0 RS 2A 50.0 3.0 47.0 94.0 RS 3A 50.0 0.9 49.1 98.2 RS 4A 50.0 0.2 49.8 99.6 - -------------------------------------------------------------------------------- 3.2 Fire Assay Procedures One of the most important elements in fire assaying is the planning of the flux to produce a fluid slag to minimize, to the greatest extent possible, the retention of any precious metals in the fire assay slag. Composition of the fire assay flux was determined by AuRIC in previous work. 7 The surface rock samples appeared to be rhyolite material. Based on a rhyolite rock, AuRIC selected a flux containing litharge, borax, soda ash, potash, silica, fluorspar, and flour (Photograph Nos. 3-4 & 3-5). A summary description of the fire assay procedure used for the surface rock samples is as follows: 1. In the laboratory split the ground sample in a micro riffle splitter to about 20 grams in each splitter pan. 2. From one pan remove a 15-gram sample and put it into a crucible, take a 15-gram sample from the other pan and put into a second crucible. 3. Clean the splitting equipment. 4. Repeat the splitting procedure on the MA-2b gold standard sample to obtain two 15- gram samples and place them into crucibles. 5. A predetermined mix of fluxes was added in the same amount to every crucible, the sample and fluxes were thoroughly mixed, the crucibles were placed in a furnace for approximately one hour (Photograph No. 3-6). The one hour time period began after the temperature reached 1000 0C (1832 degrees F), and the mixture smelted. 6. When smelting was completed, the molten mass was poured into an inverted conical mold made of steel. When the sample cooled, the lead button at the point of the cone was separated from the slag on top of the lead button. Any residual slag attached to the lead button was meticulously removed (Photograph Nos. 3-7 & 3-8). 7. The lead buttons were weighed. 8. The lead buttons were placed in preheated cupels, and the cupels were placed in the oven until all the lead was fumed away. The remaining sphere in the cupel, after fuming, contained the precious metals. The sphere is called the dore. 9. The dores were weighed on a micro balance then placed into a porcelain "parting" (separate gold & silver) dish (Photograph Nos. 3-9 & 3-10) The data on the sample size and weights is included on the Fire Assay Record, Appendix B. Because of the considerable effort expended by AuRIC in determining these flux components, the flux information is considered proprietary and was not included on the Fire Assay Record. 3.3 Analytical Procedures The analytical process begins with the parting step and generally consists of the following: 8 1. Nitric acid was added to dissolve the silver, parting. 2. After parting was complete, hydrochloric acid was added to make aqua regia and the total dore was dissolved. (Sometimes the remaining gold particle is large enough to see and sometimes large enough to weigh; nevertheless, the procedure used was to dissolve the gold in aqua regia for all dores). 3. The parting solutions initially were diluted to 10 milliliters (ml) with deionized water for analysis for the initial sample runs, and to 100 ml for the repeat runs (Photograph No. 3-l1). 4. A graphite furnace atomic absorption spectrometer (GFAA) was used for the solution analyses (Photograph Nos. 3-12, 3-13, 3-14, & 3-15). 5. The GFAA was used to analyze a 2-milliliter (ml) sample drawn from the I 0-mI samples initially, and drawn from the 100 ml samples for the repeats. The GFAA has the capability to automatically dilute a 2 ml sample to a ratio of 40:1. Some of the initial samples (RS 11, RS 12, RS 21, RS 22, RS 31, RS 32, RS 41, RS 42) were still too high. The 40:1 dilution system did not reduce the solution concentration sufficiently to fall within the GFAA measuring range. After experiencing difficulties with the automatic dilution system on the GFAA, the entire analytical process was repeated to ensure accuracy. The repeat samples (RS I lA, RS 12A, RS 21A, RS 22A, RS 31A, RS 32A, RS 41A, RS 42A) were diluted to 100 ml each after parting. The results of the repeat analyses are shown in Table 3-3, Surface Rock Sample Analyses. The AuRIC Assay Report is included as Appendix C. As part of the Chain of Custody effort, extra flux was prepared when the surface rock samples were prepared for fire assay. The extra flux was sent as a to another independent laboratory for analysis (Appendix C). The flux was sent as an unknown source sample that might have gold present. The independent laboratory did not find any gold (less 0.02 ppm Au). The absence of gold in the flux confirmed that the gold source was the surface rock samples. Table 3-3. Surface Rock Sample Analyses (troy ounces per short ton) - -------------------------------------------------------------------------------- Sample No. Gold Silver - -------------------------------------------------------------------------------- RS 11A 0.009 0.307 RS 12A 0.009 0.299 RS 21A 0.006 0.282 RS 22A 0.006 0.286 RS 31A 0.008 0.300 RS 32A 0.008 0.304 RS 41A 0.004 0.322 RS 42A 0.003 0.313 - -------------------------------------------------------------------------------- 9 3.4 Laboratory Equipment The AuRIC facilities are well equipped to prepare and analyze precious metal containing samples. The equipment used in preparing and analyzing the Blackhawk rock surface samples include the following: o 4" X 6" Denver Jaw Crusher o 8" Stauss Roll Mill o 6" Bico Disc Pulverizer o 1/2" Sepor Riffle Splitter o Microsplitter o Acculab V-333 Electronic Scale o Cress Electric Furnace, Model #C1228 with Watlow 942 Temperature Controller o Mettler Instrument Corp., Microgram Scale o Perkin Elmer Zeeman 5100 Atomic Absorption Spectrophotometer with PE HGA 600 Power Supply and Graphite Furnace (GFAA). 10 4.0 CONCLUSIONS Dames & Moore was retained by International Gold Corporation (IGC) to perform a reconnaissance site visit to the Blackhawk Project Site to provide professional guidance and support on surface mapping and permitting, and to obtain independently selected surface samples for precious metals analyses. The surface samples were treated in a "Chain of Custody" mode by Dames & Moore from the time of sample collection through the fire assay/graphite furnace atomic absorption spectrometer (FA/GFAA) analytical procedure. Based on this work Dames & Moore has drawn the following conclusions: o IGC has followed and continues to follow a careful third party independent evaluation of its Blackhawk gold prospect in Lincoln County, ID. o IGC has been effective in dealing with the Bureau of Land Management (BLM) in bringing the project to its current status. o Dames & Moore is confident that, based on its random selection of the four surface rock sample locations, the outcrops sampled were not salted or artificially impregnated with precious metals. o The four Dames & Moore independently selected and analyzed surface rock samples show the presence of gold and silver. o The surface gold concentrations (0.003 to 0.009 troy ounces per short ton, opt) are highly anomalous. It is highly unusual to have gold and silver (0.282 to 0.351 opt) values of this concentration in unaltered flow rocks. o The four Dames & Moore surface rock samples were more than an order of magnitude higher in gold than the surface sample(s) obtained by an Idaho state Geologist. o Dames & Moore confirmed, in another independent laboratory, that the flux used in the fire assay procedure did not contain any gold (less 0.02 parts per million Au). o The use of a graphite furnace atomic absorption spectrometer with automatic dilution, duplicate sample averaging, values measured in the parts per billion range, and rechecking with duplicate solution samples gave Dames & Moore with high confidence in the results. o The anomalous gold and silver values in the surface rock samples provide further confirmation of Dames & Moore's previous independent third party work on core samples that showed levels of gold ranging from 0.003 to 0.099 opt, 98C-9 and 98C- 22 respectively. 11 APPENDIX A Edwarde H. May 6375 5. Xavier Court Littleton, CO 80123 January 31, 1999 Mr. Richard A. Daniele Chief Metallurgical Engineer Dames & Moore 633 17t Street Suite 2500 Denver, CO 08202-3625 Dear Dick: Re: Surface Rock Samples, Blackhawk Gold Project- Chain of Custody. A site inspection trip was made to the Blackhawk property on Tuesday January l9t 1999. The tour group consisted of Marcus Johnson, International Gold Corporation's (IGC) Project Manager, Michael Mehrtens, past President and now consultant to IGC, Richard Daniele, Dames & Moore's (D&M) Denver Office, James Jensen, D&M's Boise Office, Steve Sibbek, D&M's Vancouver Office, and myself One of the trip's purposes, other than site familiarity, was to collect surface rock samples to check whether project outcrops in the area of mineralization are anomalous in gold. Results from four channel samples indicate that the outcrops are highly anomalous in gold and silver. 1.0 INTRODUCTION. The Blackhawk Property lies in the SE corner of the Moonstone Rhyolite, which is a part of the Magic Reservoir eruptive complex. This complex occurs in south-central Idaho approximately 50 miles north of Twin Falls (Figure 1). Dean Eskridge discovered gold in 1991 who was not only an amateur prospector but also operated an assay laboratory in Twin Falls. A number of junior companies have worked the property up to 1997 when IGC acquired the property through silver. Gold Mineralization has been recognized by Surface Electron Microscope (SEM) scanning to be homogeneously distributed throughout an olivine, illmenite-rich rhyolite or dacite. Gold grain size is generally 1 to 5 microns with the largest grain recognized todate of 21 microns. At least three near horizontal rhyolite lava flows have been identified from drill core logging. Analyzes of rock samples has been plagued by poor repeatability of gold results. In 1998 IGC realizes that it could not proceed with property evaluation until a reliable, repeatable, and industry proven analytical technique had been adapted and developed for the Moonstone rock chemistry. IGC retained the services of AuRIC, controlled by Tonto Drilling and Dynatec, to research fire assay procedures. Slight modification to standard fire assaying flux has been successfully developed by AuRIC under the direction of D&M. 2.0 SAMPLE COLLECTION. Four surface samples were collected over a strike distance of 6000 feet in a NW-SE and 750 feet in a NE- SW direction (Figure 2). The sample pattern parallels the drilling used to identify gold mineralization. Samples were collected using channels that were approximately 1 .5 inches ") wide by 1.0" deep and were oriented parallel to the flow true thickness. Table 1.0 shows the samples lengths and weights. - -------------------------------------------------------------------------------- Table I International Gold Corporation Surface Rock Samples, Blackhawk Gold Property, Lincoln County, Idaho. - -------------------------------------------------------------------------------- Sample No Sample Length Sample Weight Sample Description - -------------------------------------------------------------------------------- RS 1 90 1199 Laminated Rhyolite RS 2 110 1471 Vitrophyric Rhyolite RS 3 140 899 Massive Rhyolite RS 4 250 1750 Laminated Rhyolite - -------------------------------------------------------------------------------- All samples were wealdy weathered with slight discoloration due to hematite staining and minor clay alteration. The samples were all slightly oxidized, black to dark brown in color with numerous phenocrysts and small xenoblasts. Plate 1 shows a photograph taken at each sample site. There was wide spread outcroppings at all sample sites covering at least 75% of each area. No evidence of outcrop tampering nor salting could be seen. 3.0 CHAIN OF CUSTODY The four samples remained in the possession of Richard Daniele and myself from collection through to graphite furnace analysis. I watched sample preparation while Mr. Daniele watched the fluxing and fire assaying procedure. 4.0 SAMPLE PREPARATION. Each piece of equipment was carefully wire brushed, and air blown and a new bag of industrial silica sand used in the jaw, and roll crushers and pulverizer. The sample preparation equipment has been for the past month dedicated to the Blackhawk core samples so that if there were any contamination it would have had to come from property samples. Each sample was split into two as a check on the fire assaying technique. The samples were renumbered in thelaboratorysothatRS 1 isnowRS 11 and its splits RS 11A. 5.0 SAMPLE RESULTS. Anomalously high gold and silver values were collected from all four samples as shown on Table 2 - -------------------------------------------------------------------------------- Table 2 International Gold Corporation Surface Sample Precious Metal Results, Blackhawk Gold Project, Lincoln County, Idaho - -------------------------------------------------------------------------------- Sample No Precious Metal Values -------------------------------------------- Gold (opt) Silver (opt) - -------------------------------------------------------------------------------- RS llA 0.009 0.307 RS 12A 0.009 0.299 RS 21A 0.006 0.282 RS 22A 0.006 0.286 RS 3lA 0.008 0.300 RS 32A 0.004 0.304 RS 4lA 0.004 0.322 RS 42A 0.003 0.313 - -------------------------------------------------------------------------------- Ml samples are anomalous in precious metal values. Sample RS 2 was collected at the discovery outcrop. RS 4 was collected at the east end of the drilled area and appears to confirm results from drill hole 98C-9 that gold mineralization is weakening is this direction. Similarly, RS 3 that was collected on the west end agrees with the results gathered in drill hole 98C-l that precious metal values remain strong in this direction. Values upto 300ppb, as collected by the Dames & Moore surface samples, would be considered anomalous in most parts of the World. Precious metal values as high as these collected in unaltered rhyo-dacite flow rocks in south-central Idaho have to be considered as highly unusual and future work must proceed cautiously in order to verify and confirm ore grade mineraliztion intersected over a wide area in the drill holes (Figure 2). 6.0 CONCLUSIONS. The Blackhawk project site contains extensive outcroppings of rhyo-dacite flows that cover approximately 75% of the visited project site surface. Results from the four channel samples shows that the drilled area, consisting of about 6000 feet NW-SE and 750 feet in a NE-SW direction, is highly anomalous in gold and silver values. Gold values ran from 0.003 ounces per ton (opt) to 0.009 opt whereas silver ran from 0.282opt to O.322opt. It is highly unusual to have precious metal values this high in unaltered flow rocks. These values do, however, confirm previous drilling results that potentially ore grade mineralization could underlie these outcrops. In addition, surface outcrop sampling by IGC staff has indicated even higher surface values near one tenth of an ounce in the same outcrops sampled for this report. The Dames & Moore samples were approximately one tenth of previously collected IGC material but were considerably higher than results generated from samples collected by the Idaho state geologist. Her results averaged l2ppb versus upto 330 ppb for the Dames & Moore data or about 30 times lower. All parties collected precious metal values for it must be kept in mind that even 12 ppb is anomalous for this kind a rock environment. The Dames & Moore surface samples were kept under tight security from collection through to final analyze so that the possibility of salting must be considered extremely remote. It is also worthy to note that the four channel samples were collected within one inch of the surface, which means that rock chip sampling could be a useful and inexpensive exploration tool in identifying areas overlying interesting precious metal values. The lowest surface values (RS 4) were collected at the east end of the drilled area and close to hole 98C-9 that was a waste hole, whereas, RS 3 confirmed drill hole results that interesting precious metal values remain open to the northwest. The rhyo-dacite flows are highly unusual rocks both in whole rock composition as well as precious metal metal content. While the four surface samples have confirmed the presence of anomalous precious metal values considerable more verification work needs to continue to detennine whether ore grade mineralization does indeed occur at depth. Yours very truly. /s/ Edwarde R. May Edwarde P. May Consulting Mining Geologist. EX-99.4 9 EXHIBIT 99.4 EXHIBIT 99.4 DAMES & MOORE - ----------------------------- A DAMES & MO0RE GROUP COMPANY 633 Seventeenth Street Suite 2500 Denver, Colorado 80202 (303) 294-9100 VERIFICATION of VALIDITY of DEVELOPED EXTRACTION METHODS for the BLACKHAWK PROJECT 41689-002-158 APRIL 7, 1999 DAMES & MOORE A DAMES & MOORE GROUP COMPANY 633 Seventeenth Street, Suite 2500 Denver, Colorado 80202-3625 303 294 9100 Tel 303 299-7901 Fax April 8, 1999 Mr. Ahmet B. Altinay General Manager AuRIC Metallurgical Laboratories 3260 West Directors Row Salt Lake City, UT 84104 Subject: Verification of Validity of Developed Extraction Methods for the Blackhawk Project Report, Project No. 41689-002-158 Dear Mr. Altinay: Dames & Moore is pleased to submit 13 copies of the above titled report to you. The report presents the results of the verification of validity test program conducted at your facilities March 22 through 26, 1999 by you, Dave Lamberson, and Richard A. Daniele. The report distribution is as follows: o AuRIC: Three o IGC: Ten, one of which will be given to Michael B. Mebrtens today If you have any questions on Verification of Validity of Developed Extraction Methods Report, do not hesitate to contact me at 303-299-7819. I am also enclosing in this transmittal one copy for you and one for Mr. Johnson of the G. J. (Jim) Jansen petrography report. Sincerely, DAMES & MOORE /s/ Richard A. Daniele Richard A. Daniele Chief Metallurgical Engineer cc: Marcus M. Johnson Gaiy R. Krieger Enclosures TABLE OF CONTENTS 1.0 INTRODUCTION ...................................................... 1 1.1 Purpose ........................................................ 1 1.2 Problem ........................................................ 1 1.3 Scope .......................................................... 1 2.0 EXTRACTION METHODS PROGRAM ........................................ 2 2.1 AuRIC' s Extraction Development Work ........................... 2 2.2 Sample Preparation Equipment and Analytical Equipment .......... 2 2.3 Sample Selection ............................................... 3 2.4 Sample Preparation and Extraction Tests ........................ 4 2.5 Extraction Method Results ...................................... 9 3.0 CONCLUSIONS ....................................................... 13 PHOTOGRAPHS 1. Cress Electric Furnace, Model # C1228 with Watlow 942 Temperature Controller 2. Mettler instrument Corp., Microgram Scale 3. Instmment Laboratories Model 351, Flame AA Spectrophotometer with Deuterium Arc Background Corrector 4. Work Benches with Ventilated Hoods and Magnetically Stirred Hot Plates 5. Work Benches with Ventilated Hoods and Magnetically Stirred Hot Plates 6. Fire Assay Buttons and Slag 7. Verification Test Samples. 8. Sample 98C-14 #1, Process 2 Gold Colored Dore 9. Sample 98C-14 #1, Process 3 Gold Colored Dare FIGURES 1. AuRIC Metallurgical Laboratories General Extraction Methods Flowsheet TABLES 1. Extraction Sample Grind 2. Extraction Composite Samples Fire Assay Analyses 3. Extraction Composite Process Results 4. Extraction Data Comparisons APPENDICES Appendix A Chain of Custody Core Information Appendix B March 30, 1999 Assay Report Vaification Of Validity Of Developed Extraction Methods For The Blackhawk Project i 1.0 INTRODUCTION AuRIC Metallurgical Laboratories (AuRIC), Salt Lake City, Utah has a project with International Gold Corporation (IOC) to develop extraction methods to recover gold and silver from corp samples from IGC's precious metals property in Idaho, called the Blackhawk Project. AuRIC selected Dames & Moore and their Chief Metallurgical Engineer, Richard A. Daniele, to perform an independent evaluation of the extraction methods developed by AuRIC to recover the precious metals contained in core samples from the Blackhawk Project. 1.1 Purpose Dames & Moore was retained to provide an independent evaluation of the extraction methods developed and followed by AuRIC. This report, Verification of Validity of Developed Extraction Methods for the Blackhawk Project (Report), presents the results of the Dames & Moore independent evaluation. 1.2 Problem The potential extraction problem, based on the optical mineralogy and electron microscopy work performed for IGC by John F. W. Bowles, Mineral Science, Ltd., Chesham, Buckinghamshire, UK, is that the gold is micron-sized gold with the majority being less than one micron in particle size. qold particles in the micron and sub micron size ranges are not amenable to gravity extraction methods; therefore, chemical extraction methods are required. Another potential extraction problem is the amount of grinding necessary to expose the chemical leaching agent to the gold particle. 1.3 Scope The Scope of Work performed by Dames & Moore was to visit the AuRIC facilities in Salt Lake City to accomplish the following activities. o Review the definitive hydrometallurgical extraction procedures developed by AuRIC o Select samples for verification of the developed extraction methods o Participate in preparing, extracting, and analyzing the samples for gold and silver o Observe and evaluate AuRIC's developed extraction methods o Prepare a report on the observations and results of the verification. Verfication Of Validity Of Developed Extraction Methods For The Blackhawk Project 1 2.0 EXTRACTION METHODS PROGRAM The Exiraction Methods Program included a combination of preliminary work performed by AuRIC and participatory and evaluation work performed by Dames & Moore. The program is presented in five sections as follows: 1. AuRIC' s Extraction Development Work 2. Sample Preparation Equipment and Analytical Equipment 3. Sample Selection 4. Sample Preparation and Extraction Tests 5. Extraction Method Results 2.1 AuRIC's Extraction Development Work The most important part of the verification of validity of developed extraction methods program was all of the development work completed by AuRIC to arrive at three workable extraction processes for evaluation. The considerable time, effort, and creativity to reach the point for verification of developed extraction methods should not be overlooked. Although most metallurgical laboratories, including AuRIC, would choose a cyanide leach (Process 1) approach initially, it was AuRIC's ability to look beyond standard approaches that led to Process 2 and Process 3. This point should not be forgotten in light of the considerable difficulty in fire assaying and extraction associated with the history of the Blackhawk material. To put the AuRIC effort in perspective an analogy might be helpful. Henry Bessemer, when he invented his revolutionary process for steel, was quoted as saying, "This is all very simple now that it has been accomplished." 2.2 Sample Preparation Equipment and Analytical Equipment The AuRIC facilities are well equipped not only to prepare and to analyze samples, but also to conduct bench and pilot scale metallurgical development. The equipment used to prepare and analyze the Blackhawk Project verification samples included the following: o 4" X 6" Denver Jaw Crusher o 8" Stauss Roll Mill o 6" Bico Disc Pulverize o 6" Tumbler (blender) o 1/2" Sepor Riffle Splitte o Microsplitter o Acculab V-333 Electronic Scale o Cross Electric Furnace, Model # C 1228 with Watlow 942 Temperature Controller (Photograph No. 1) o Mettler Instrument Corp., Microgram Scale (Photograph No. 2) o Perkin Elmer Zeeman 5100 Atomic Adsorption Spectrophotometer with PE HGA 600 Power Supply and Graphite Furnace Verification Of Validity Of Developed Extradion Methods For The Blackhawk Project 2 o Instrument Laboratories Model 351, Flame AA Spectrophotometer with Deuterium Arc Background Corrector (Photograph No.3) o Work Benches with Ventilated Hoods and Magnetically Stirred Hot Plates (Photograph Nos. 4 &5). 2.3 Sample Selection Dames & Moore independently determined the sample selection criteria in the following manner: o Two samples from analyzed core for which Dames & Moore knew the analyses o One sample from analyzed core for which Dames & Moore did not know the analysis o Two samples from unanalyzed core for which neither Dames & Moore nor AuRIC knew the analyses. o A sample size to consist of four 5-foot increments and five 5-foot increments if more sample was needed o An arbitrary selection of the depths for each core hole sample. The core holes selected for verification testing were 98C-14, 98C-27, 98C-1, 97M-9, and 98C-19. Core Hole 98C-14 Core hole 98C-14 was selected for two reasons. First, AuRIC had done some preliminary extraction work on this core. Second, this core was known to have higher grade (0.099 to 0.121 OPT(1) gold) in the 290-foot through the 310-foot depth range. For simplicity, the terminology used to designate the depth range was set as minus (-) the deeper part of the range. For example, the four 5-foot increments of core used for 98C-14 were designated as -295', -300', -305', and - -310'. Note 1: OPT = troy ounces per short of sample. Core Hole 98C-27 Core hole 98C-27 was selected only because the analyses were known to AuRIC and Dames & Moore, The depth selected, -120', -125', -130', -135', and -140' was to have a sample in the 100-foot depth range. Five 5-foot increments were required to have enough sample for testing. Core Hole 98C-1 Core hole 98C-1 was selected for two reasons. First, AuRIC had analyzed the full core length. Second, Dames & Moore had not seen any of the analyses. The depth selected, -190', -195', - 200', and -205' was to have a sample in the 200-foot depth range. Core Hole 97M-9 Core hole 97M-9 was selected for two reasons. First, it was "Chain of Custody" core that was sent to AuRIC in sealed coolers by Dames & Moore. It had not been analyzed previously and Verfication Of Validity Of Developed Extraction Methods For The Blackhawk Project 3 had not been inspected since arriving at AuRIC. The depth selected was based on beginning with the surface and choosing 5-foot increments. The first recovered increment was 8 to 10 feet. In order to have enough sample for testing, four additional increments were chosen, -15', -20', -25', and -30'. All eight Chain of Custody coolers were sealed when Dames & Moore opened them. The Chain of Custody papers were inside the coolers. Each cooler cover was marked with the range of core in the cooler for future reference, and each cooler was resealed. Appendix A, Chain of Custody Core Information, provides the information on which core segments are in which cooler. Core Hole 98C-19 Core hole 98C-19 was selected for one reason, it had not yet been analyzed. The depth selected was based on beginning with the surface and choosing four 5-foot increments, -5', -10', -15', and -20'. 2.4 Sample Preparation and Extraction Tests This section is presented in two parts: Sample Preparation and Extraction Tests. Sample Preparation The sample preparation procedure varied depending on the amount of sample available. If core were used as the starting point the material for the sample was selected and processed in 5-foot increm4nts. About 1500 to 2000 grams (98C-14) and 500 to 1500 grams (97M-9) were processed through the 4" X 6" Denver jaw crusher once and the 8" Stauss roll crusher twice. The 5-foot increment samples were then split with the 1/2" Sepor riffle splitter to about 400 to 500 grams. The 400 to 500 grams from each 5-foot increment sample was pulverized, by putting the samples through the 6" Bico disc pulverizer twice. Once the 5-foot increment samples were pulverized, all increments for each core hole were recombined, placed in a 6" tumbler, and mixed for about an hour. After the sample was mixed, it was split in the 1/2" Sepor splitter down to about 500 grams. The 500-gram sample was further split with a microsplitter down to about 110 to 120 grams in each splitter pan. A 100-gram portion from each pan was weighed for a chemical leach test sample. If there was sufficient sample remaining in the two pans to provide 15 grams for fire assay, the fire assay sample was weighed. The unused portion of the 500 grams was recombined and split again to obtain the third 100-gram sample for chemical testing. The other pan from the micro splitter was split down to about 20 grams for the 1 5-gram fire assay sample if needed. For 98C-14 and 97M-9 pulverized samples were taken for each 5-foot increment and screened at 100 mesh and 150 mesh to determine particle size. For core samples 98C-1, 98C-19, and 98C-27 the sample material was obtained from the pulverized (once) 5-foot increment sample bags prepared for fire assaying. Using material that was already pulverized shortened the sample preparation time considerably. All the pulverized material in each sample bag selected by core hole and 5-foot increment was poured from the Verification Of Validity Of Developed Extraction Methods For The Blackhawk Project 4 individual bags into the 6" tumbler. After mixing for an hour, the material was split with the microsplitter to obtain the three 100-gram chemical test samples and one 15-gram fire assay sample. The splitting and weighing procedure was the same as described earlier in this section for 98C-14 and 97M-9. For sample 98C-19 a 10-gram sample was obtained from each 5-foot increment sample bag and combined for a screen analysis. For samples 98C-1 and 98C-27 a 50-gram sample was obtained from the tumbler after mixing. Table 1, Extraction Sample Grind, presents the particle size data. The table shows two items clearly. First, putting the sample through the pulverizer twice (98C-14 & 97M-9) significantly reduces the quantity of plus 150-mesh material in a sample. Second, putting the sample through the pulverizer only once can result in a wide range of plus 150-mesh material depending on the core characteristics. The plus 150-mesh material ranged from 15.8 to 49.2 percent for core material pulverized only once. Extraction Tests An item in the sample selection procedure was to choose two samples about which no analytical information was known. in order to establish a basis of comparison for the precious metals content (gold & silver), a composite sample for each core hole tested was prepared and fire assayed. Previous work by AuRIC established an effective flux mixture for fire assaying the Blackhawk Project core samples. The effectiveness of the separation of the lead button and slag can be seen in Photograph No. 6, Fire Assay Buttons and Slag. Table 2, Extraction Composite Samples Fre Assay Analyses, presents the fire assay results for gold. Appendix B, March 30, 1999 Assay Report, contains both the gold and silver analyses. Table also contains a calculated average value of the gold based on the 5-foot increment fire analyse previously performed on core holes 98C-14, 98C-1, and 98C-27. Prior to initiating the verification of validity of developed extraction methods program, AuRIC had developed three workable processes referred to as Process 1, Process 2, and Process 3. As part of the verification effort AuRIC provided a demonstration on Monday, March 22, 1999 of the three processes to be evaluated. The purpose of the demonstration was to familiarize Dames & Moore with the complete cycle of the three processes including the Chiddey Method for gold and silver precipitation from solution. The demonstration sample was 98C-14, #1. The Chiddey Method was developed by Alfred Chiddey as a suitable method to assay gold and silver in cyanide solutions. The process works equally well in strong, weak, poor quality, or pure solutions. The basic process uses lead acetate and zinc powder to produce a lead, gold, and silver precipitate on the zinc. Concentrated hydrochloric acid is added to consume any free zinc. Verification Of Validity Of Developed Extraction Methods For The Blackhawk Project 5
TABLE 1 EXTRACTION SAMPLE GRIND (grams) - ------------------------------------------------------------------------------------------------------------ 100 MESH 150 MESH ---------------------------------- ---------------------------------------- WEIGHT TOTAL SAMPLE NO. TOTAL WEIGHT % PLUS % MINUS WEIGHT WEIGHT % PLUS % MINUS - ------------------------------------------------------------------------------------------------------------ 98C-14#1 50.0 13.9 27.8 72.2 7.0 20.9 41.8 58.2 98C-14#2 141.2 1.1(1) 0.8 99.2 7.5 8.6 6.1 93.9 97M-9 46.9 0.1(1) 0.2 99.8 0.4 0.5 1.1 98.9 98C-19 40.0 6.1 15.2 84.8 5.8 11.9 19.8 70.2 98C-1 50.0 1.7 3.4 96.6 6.2 7.9 15.8 84.2 98C-27 50.0 17.6 35.2 64.8 7.0 24.6 49.2 50.8 - ------------------------------------------------------------------------------------------------------------ Note 1: These two samples were run through the Bico Disc Pulverizer twice, all other samples were run once. TABLE 2 EXTACTION COMPOSITE SAMPLES FIRE ASSAY ANALYSES - ----------------------------------------------------------------------------------------------------------------------- SAMPLE SIZE DORE WT SOLUTION COMPOSITE CALCULATED (1) AuRIC ID NO. COMPOSITE SOURCE (g) (mg) Au(ppm) Au OPT Au OPT (2) - ----------------------------------------------------------------------------------------------------------------------- 1541A 98C-14 (-295' thru -310) 15.0 0.084 1.80 0.035 0.062 1542A 97M-9 (-10' thru -30') 15.0 0.099 2.88 0.056 NA (3) 1543A 98C-19 (5' thru -20') 15.0 0.143 6.58 0.128 NA 1544A 98C-1 (-190' thru -205') 15.0 0.089 2.62 0.051 0.026 1545A 98C-27 (-120' thru -140') 15.0 0.076 2.98 0.058 0.100 - -----------------------------------------------------------------------------------------------------------------------
Note: 1 Holes 98C-14, 98C-1, and 98C-27 have been analyzed in 5-foot increments. The values are the numberical average for those increments. 2 OPT = troy ounces per short ton sample. 3 NA = Not availabe, not yet analyzed. Verification Of Validity Of Developed Extraction Methods For The Blackhawk Project 6 The Chiddey Method can be used to recover gold and silver from non-cyanide solutions as well, but the ease of separating the precipitate will vary with the solution composition. The use of the Chiddey Method provides a way of checking the results of the extraction process solution analyses. The verification of validity of developed extraction methods program was planned to test five different core samples by three different processes. As a base approach, Process 1 was established by AuRIC as a standard cyanide leach. Processes 2 and 3 were developed by AuRIC as processes with the potential to improve on the gold and silver extraction when compared to the cyanide method. Figure 1, AuRIC Metallurgical Laboratories General Extraction Methods Flowsheet, provides a summary description of the overall approach to the program. The three processes were run simultaneously in 500-milliliter beakers with 100 grams of sample and 100 to 200 milliliters of leach reagent. One test with all three samples reacting is shown in Photograph No. 7, Verification Test Samples. The leaching tests were run for one hour for Processes 1 and 3, and two hours for Process 2, a two-stage process. As shown on Figure 1, after leaching, the slurry (mixture of solids and solutions) was filtered. The filtrate (clean solution) was removed and the solids were washed with deionized water. This generated a second filtrate with a lower concentration of gold and silver. The solutions were analyzed separately on the Instrument Laboratories Model 351, Flame AA Spectrophotometer. (Note: For the Flame AA to read gold values, the gold must be present as an ion. The Flame AA will not read colloidal or sub-micron gold.) After the Flame AA analyses were completed for each set of core samples, the appropriate solutions were combined. For example, the initial filtrate (concentrate or pregnant filtrate) and the wash filtrate were combined. The combined solutions were then treated by the Chiddey Method to precipitate and recover the gold and silver. The lead mass or dispersed solids, depending on the leach reagents, were filtered. The solids from the filtration were either formed into a cube and wrapped in lead foil, or placed in a scorifying dish with fluxes. In either case, the sample was placed in the furnace to produce a dore. In the scorifying example, a lead button was produced and then the dore. The dotes for Process 2 and Process 3, core 98C-14 #1, were a surprise in that they were brilliant gold in color and weighed over one milligram apiece. The Process 2 dore viewed through the AuRIC 40X microscope is shown in Photograph No. 8, Sample 98C-14 #1, Process 2 Gold Colored Dore, and the Process 3 dore is shown in Photograph No. 9, Sample 98C-14 #1, Process 3 Gold Colored Dore. Because these initial Chiddey Method dores were gold colored, it was decided to treat all the Chiddey Method dores by gravimetric parting. The dores were placed in a porce1ain parting dish with nitric acid to dissolve the silver. The gold and silver troy ounces per ton sample (OPT) were calculated using the dore weights before and after parting. Verification Of Validity Of Developed Extraction Methods For The Blackhawk Project 7 AuRIC METALLURGICAN LABORATORIES GENERAL EXTRACTION METHODS FLOWSHEET FIGURE 1 (Graphic Omitted) 8 2.5 Extraction Method Results Nineteen verification of validity of developed extraction methods tests were conducted. There were six sets of tests with each testing all three processes, Process 1, Process 2, and Process 3. There was also a repeat Process 2 test for sample 98C-14 #2. The AuRIC Identification Number (ID Nob) for each test was consecutive from 0800C through 0818C. Table 3, Extraction Composite Process Results, summarizes the significant data for each test. Core 98C-14 samples were tested twice. The first set of tests were for demonstrating the three processes (98C-14 #1). The second set (98C-14 #2) provided a repeat with a completely different sample (Section 2.4), and included a repeat of Process 2. Process 2 is a two-stage process. It was repeated on 98C-14 #2 because considerable difficulty was encountered in filtering the slurry from the first stage. As a result of the poor filtering, the solids washing was not effective, and leaching reagent was present apparently when the second stage was initiated. The repeat test indicated about three-quarters the amount of gold in the leaching portion, but about 2.5 times as much gold in the Chiddey Method. Although there was some difficulty filtering in tests 0803C through 0809C due to the fineness of the samples (98C-l4 #2, 93.9% & 97M-9, 98.9% -150 m), there was no clear indication that the fineness of the grind had a significant impact on the extractions. An analysis of the calculated gold concentrations in Table 3 comparing the Process 1 with the Process 3 gold values versus grind indicates a range of values. For example, Process 1 is only 22 percent (0803C) and 38 percent (0807C) of the gold OPT when compared to Process 3 samples, 0805C & 0809C respectively. Ratios of comparison for the other sample sets ranged from 46 percent at a grind of 49.2 percent minus 150 mesh (0816C/0818C) to 72 percent at a grind of 29.8 percent minus 150 mesh (O8 IOC/0812C). Process 1, the sodium cyanide leach, was the least effective compared to Processes 2 and 3. Nevertheless, Table 4, Extraction Data Comparisons, verifies that the AuRIC developed extraction methods do extract the gold and silver from the Blackhawk Project core. Table 4 presents the gold OPT values for all the tests including calculated 5-foot core increments, composite fire assay values, Flame AA values calculated to OPT, and Chiddey Method values from gravimetric parting for each process. In light of the considerable difficulty in fire assaying and extraction associated with the history of the Blackhawk Project core material, the three extraction methods put forward by AuRIC are a clear positive accomplishment for recovering the gold and silver in the material. The data in Table 4, when compared to the composite fire assay values for each sample set, provides a relative comparison on the extraction effectiveness of each process. Clearly, Process 1 is the least effective; however, for sample 98C-27, the coarsest of all grinds, there is an indicated recovery of 93 percent. One extended leach time test for Process I was conducted. Samples were taken at three hours and six hours. The results indicated that the gold concentration in solution decreased with time (1 H = 0.89 PPM, 3 H 0.53 PPM, 6.5 H 0.31 PPM Au). Verification Of Validity Of Developed Extraction Methods For The Blackhawk Project 9
TABLE 3 EXTRACTION COMPOSITE PROCESS RESULTS (100g sample for each test) - --------------------------------------------------------------------------------------------------------------- SOLUTION DATA CHIDDEY DATA AuRIC PROCESS VOLUME AA VALUE CALCULATED DORE WT GRAVIMETRIC ID NO. COMPOSITE SOURCE NO. (ml) Au (ppm) Au OPT (1) (mg) Au OPT - ------ ------------------------ ------- ------ -------------------- ------------------------- 0800C 98C-14 1 200 0.36 0.021 0.040 0.011 0801C 98C-14 2 425 5.70 (2) 0.707 2.285 0.628 0802C 98C-14 3 200 7.40 0.432 1.435 0.394 0803C 98C-14 (-295' thru -310') 1 204 0.89 0.053 0.087 0.003 0804C 98C-14 (-295' thru -310') 2 623 0.54 0.098 0.063 0.008 0805C 98C-14 (-295' thru -310') 3 298 2.76 0.240 0.558 0.145 0806C 98C-14 (-295' thru -310') 2 468 0.51 0.070 0.091(2) 0.021 0807C 97M-9 (-10' thru -30') 1 336 0.30 0.030 LOST 0808C 97M-9 (-10' thru -30') 2 695 0.98 0.199 0.567 0.139 0809C 97M-9 (-10' thru -30') 3 371 0.73 0.079 0.100 0.029 0810C 97C-19 (-5' thru -20') 1 321 0.44 0.042 0.216 0.038 0811C 98C-19 (-5' thru -20') 2 440 0.61 0.079 0.239 0.070 0812C 98C-19 (-5' thru -20') 3 310 0.65 0.058 0.206 0.053 0813C 98C-1 (-190' thru -205') 1 339 0.44 0.044 0.156 0.039 0814C 98C-1 (-190' thru -205') 2 649 0.49 0.092 0.284 0.072 0815C 98C-1 (-190' thru -205') 3 254 1.11 0.082 0.288 0.079 0816C 98C-27 (-120' thru -140') 1 318 0.58 0.054 0.240 0.051 0817C 98C-27 (-120' thru -140') 2 609 0.84 0.149 0.506 0.120 0818C 98C-27 (-120' thru -140') 3 255 1.56 0.116 0.455 0.113 - --------------------------------------------------------------------------------------------------------------- Note 1 OPT = troy ounces per short ton sample. 2 When a process has multiple washings or stages, average readings are used in the table for simplicity. Verification Of Validity Of Developed Extraction Methods For The Blackhawk Project 10 TABLE 4 EXTRACTION DATA COMPARISONS (Gold in troy ounces/per short ton sample) - ----------------------------------------------------------------------------------------------------------------------------------- SAMPLE 5' INCREMENT COMPOSITE PROCESS 1 PROCESS 2 PROCESS 3 SOURCE CALCULATED (1) FIRE ASSAY SOLUTION CHIDDEY (2) SOLUTION CHIDDDEY SOLUTION CHIDDEY - ------ ----------------------------- ------------------------ ---------------------- ---------------------- 98C-14#1 0.062 0.035 0.021 0.011 0.707 0.628 0.432 0.394 98C-14#2 0.062 0.035 0.053 0.003 0.098 0.008 0.240 0.145 98C-14#2 0.062 0.035 -- (3) -- 0.070 0.021 97M-9 NA (4) 0.056 0.030 -- (5) 0.199 0.139 0.079 0.029 98C-19 NA 0.128 0.042 0.038 0.079 0.070 0.058 0.053 98C-1 0.026 0.051 0.044 0.092 0.092 0.072 0.082 0.079 98C-27 0.100 0.058 0.054 0.051 0.149 0.120 0.116 0.113 - -----------------------------------------------------------------------------------------------------------------------------------
Note 1 Holes 98C-14, 98C-1, and 98C-27 have been analyzed in 5-foot increments. The values are the numerical average for those increments. 2 Chiddey is a precipitation reaction performed in the process solution, recovered values should not exceed solution values. 3 Repeat of Process 2 only 4 NA = Not available not yet analyzed 5 Dore bead lost Vertification Of Validity Of Developed Extraction Methods For The Blackhawk Project 11 The test results clearly indicate that Process 2 is the most effective process for the samples tested, and Process 3 closely follows Process 2 in its apparent effectiveness. Process 2 is more complicated when compared to the other two processes because it is a two-stage process. However, the apparent recoveries have the potential to offset the complexity. Process 2 has generated more unanswered questions than Process 1 or Process 3. The major unanswered question at this time is why is the first stage of leaching so effective. It is a question, not a problem. Process 3 is a straightforward leaching process, although innovative when compared to typical US gold industry standard practices. It also has the potential to be environmentally friendly. Although the verification testwork at this stage of test development, 100-gram beaker tests, has been successful, it is too early to make conclusions on recovery and potential costs. The test results ake only indicative and extremely positive. Further testwork at a larger scale is necessary to make firm conclusions on recovery and potential costs. Verification Of Validity Of Developed Extraction Methods For The Blackhawk Project 12 PHOTOGRAPHS 1. Cress Electric Furnace, Model # C1228 with Watlow 942 Temperature Controleler 2. Mettler Instrument Corp., Microgram Scale 3. Instrument Laboratories Model 351, Flame AA Spectrophotometer with Deuterium Arc Background Corrector 4. Work Benches with Ventilated Hoods and Magnetically Stirred Hot Plates 5. Work Benches with Ventilated Hoods and Magnetically Stirred Hot Plates 6. Fire Assay Buttons and Slag 7. Verification Test Samples. 8. Sample 98C-14 #1, Process 2 Gold Colored Dore 9. Sample 98C-14 #1, Process 3 Gold Colored Dore Photograph No. 1 - Cress Electric Furnaces [Graphic Omitted] Photograph No. 2 - Mettler Microgram Scale [Graphic Omitted] Photograph No. 3 - Instrument Laboratories Flame AA [Graphic Omitted] Photograph No. 4 - Ventilated Work Bench [Graphic Omitted] Photograph No. 5 - Ventilated Work Bench [Graphic Omitted] Photograph No. 6 - Fire Assay Buttons and Slag [Graphic Omitted] Photograph No. 7 - Verification Test Samples [Graphic Omitted] Photograph No. 8 - Sample 98C-14 #1, Process 2 Gold Colored Dore [Graphic Omitted] Photograph No. 9 - Sample 98C-14 #1, Process 3 Gold Colored Dore [Graphic Omitted] EX-99.5 10 EXHIBIT 99.5 UNITED STATES DEPARTMENT OF THE INTERIOR Bureau of Land Management Idaho State Office 1387 South Vinneli Way Boise, ID 83709 Tel: (208) 373-3890 Fax: (208)373-3899 GOLDSTATE CORPORATION --------------------- Claim Names BLM Numbers - ----------- ----------- Blackhawk # 685 through Blackhawk # 712 IMC l8O8l9 through 180846 Blackhawk # 728 through Blackhawk # 740 IMC 180847 through 180859 Blackhawk # 750 through Blackhawk # 762 IMC 180860 through 180872 Blackhawk # 772 through Blackhawk # 837 IMC 180873 through 180938 Blackhawk # 840 through Blackhawk # 936 IMC 180939 through 181035 Blackhawk # 946 through Blackhawk # 985 IMC 181036 through 181075 Blackhawk # 990 through Blackhawk # 1008 IMC 181076 through 181094 Blackhawk # 1012 through Blackhawk # 1016 IMC 181095 through 181099 Blackhawk # 1081 through Blackhawk # 1086 IMC 181100 through 181105 Blackhawk # 1104 through Blackhawk # 1109 IMC l8ll06 through 181111 Blackhawk # 1127 through Blackhawk # 1132 IMC 181112 through 181117 Blackhawk # 1150 through Blackhawk # 1184 IMC 181118 through 181152 Blackhawk # 838 through Blackhawk # 839 IMC 181153 through 181154 Blackhawk # 607 through Blackhawk # 684 IMC 181962 through 182039 Blackhawk # 1185 through Blackhawk # 1209 IMC 182040 through 182064 -----END PRIVACY-ENHANCED MESSAGE-----