-----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, HYngBnm17ZJGq1H1WKRpA+u5ZwTc9gDi/ZTUKh2D/S5HhnrtvA8tg17Xb5WkMH4u IHoACHsDC/uv85XwQaT6zw== 0001050502-99-000744.txt : 19991018 0001050502-99-000744.hdr.sgml : 19991018 ACCESSION NUMBER: 0001050502-99-000744 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19991005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDSTATE CORP CENTRAL INDEX KEY: 0001050248 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 880354425 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G/A SEC ACT: SEC FILE NUMBER: 000-26705 FILM NUMBER: 99723212 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/A 1 FORM 10SB12G/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO 2 TO 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/A 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. . . . . . . . . . . . . . . . . . . . . . 21 Item 4. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 5. Directors, Executive Officers, Promoters and Control Persons . . . 22 Item 6. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 24 Item 7. Certain Relationships and Related Transactions . . . . . . . . . . 25 Item 8. Description of Securities. . . . . . . . . . . . . . . . . . . . . 26 PART II Item 1. Market Price and Dividends on the Registrant's Common. Equity and Other Shareholder Matters . . . . . . . . . . . . . . . 31 Item 2. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 32 Item 3. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . 32 Item 4. Recent Sales of Unregistered Securities. . . . . . . . . . . . . . 33 Item 5. Indemnification of Directors and Officers. . . . . . . . . . . . . 35 Item 6. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 37 PART III Item 1. Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . 37 Item 2. Description of Exhibits. . . . . . . . . . . . . . . . . . . . . . 37 FORM 10-SB/A 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 moderately acidic volcanic rock having 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 composed primarily of lead oxide, sodium carbonate, borax, silica, flour and other chemicals 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 Flux: In fire assay usage, flux denotes a chemical or mix of chemicals added to a charge to promote the fusing of metals Leach analysis: Measurement of the concentration of an element within a rock by a chemical leach procedure that is capable of selectively extracting the element in question. 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/A Goldstate Corporation Page 1 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, Goldstate Corporation does not yet have reserves - Ore Reserves refer to the tonnage and grade of an economically and legally extractable ore body. Goldstate Corporation 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/A Goldstate Corporation Page 2 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" to conduct a marketing and public relations business to meet the public needs for greeting cards, gift items and paper products. The business was terminated to pursue telecommunication opportunities defined in Africa which presented greater fiscal opportunities. On December 12, 1996, an amendment to the Articles of Incorporation was filed effecting a change in the corporate name to "Dynacom Telecommunications Corporation" and to finance and purchase ownership interests in telecommunication companies that installed and operated wireless telecommunication systems in Africa, the Middle East, and countries in the ex-Soviet Union. The business terminated when telecommunication licensing claims by business associates in Zaire could not be substantiated and since unstable political risks were foreseeable. No assets were generated by either Image Perfect, Incorporated or Dynacom Telecommunications Corporation, nor were any liabilities of the respective business assumed by Goldstate 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 of gold and silver in the United States. The Company owns fifty-one percent (51%) of a future profit sharing interest in profits to be realized from the exploration of 439 unpatented lode mining claims located in Lincoln and Gooding Counties, in south-central Idaho (the "Blackhawk II Property"). The Company entered into a joint venture agreement with Intergold Corporation, a Nevada corporation ("IGCO") and its wholly-owned private subsidiary, International Gold Corporation, a Nevada corporation ("INGC"), pertaining to the joint exploration of gold and silver on the Blackhawk II Property (the "Joint Venture Agreement"). Pursuant to the terms of the Joint Venture Agreement, the Company is currently conducting work programs involving exploration of the mining claims on the Blackhawk II Property in the minimum annual amount of $250,000 for each calendar year, which commenced January 1, 1998 and will continue through the year 2000. The Company is responsible solely for payment of such $250,000 obligation, and will also contribute all future capital required in the further exploration of the Blackhawk II Property. Under the terms of the Joint Venture Agreement, neither IGCO nor INGC are responsible for payment of any costs or other fiscal obligations associated with 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/A Goldstate Corporation Page 3 As of the date of this Registration Statement, the Company is in the exploratory stage and has not discovered any reserves on the Blackhawk II Property. Moreover, the Company has not made any physical improvements nor conducted any mining operations on the Blackhawk Property. The Company is in the exploration stage and has not, as of the date of this Registration Statement, 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. Annual Federal mining claim maintenance fees are approximately $43,900 and annual county fees are approximately $1,300. Pursuant to the terms of the Joint Venture Agreement, the Company is responsible solely for payment of such fees. Management of the Company intends to continue its efforts to explore, develop and detail the mineralized zones 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/A Goldstate Corporation Page 4 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. The Company intends to engage the services of its geologist, who specializes in the mapping field of work. As of the date of this Registration Statement, the Company has not entered into any contractual agreements with the geologist regarding performance of such services. See "Item 1. Description of Business - Employees and Consultants". Management currently intends to make preliminary investigations for property exploration on the claimed areas in the following areas: o Claims Maintenance o Regional Exploration of the Property o Metallurgical Process Testing for Gold and Silver Extraction o Preliminary Drill Testing o Mapping of Surface Geology and Survey Management believes that a substantial portion of funding required for preliminary property exploration investigation will be made pursuant to a series of private placement offerings commencing after October 7, 1999. Initial Stage of Exploration Plan. Exploration 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/A Goldstate Corporation Page 5 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. Management is currently addressing the commencement of a drilling program on the Blackhawk II Property. If such drilling is warranted, management intends to engage the services of a qualified assay laboratory to carry out fire assay testing and chemical leach analysis of core samples to be derived from such drilling. Management of INGC has retained AuRIC to Metallurgical Laboratories, LLC of Salt Lake City, Utah ("AuRIC") 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 on 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. All of the above mentioned reports produced by Dames & Moore were commissioned by either AuRIC or INGC, and relate to INGC's Blackhawk Property, and not the Company's Blackhawk II Property. 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/A Goldstate Corporation Page 6 The Dames & Moore reports described above refer only to the fire assay testing and chemical leach anaylsis conducted on the Blackhawk Property. As of the date of this Registration Statement, no such assay testing has been conducted on the Blackhawk II Property. The exploration of the Blackhawk II Property, however, will benefit and gain from the experience of such 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, other assay labs, 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 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 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. Estimation of Mineralized Zone. The Blackhawk II Property is 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 host gold-silver mineralization, management of the Company will then address preliminary estimates of the mineralized zone. This would include a "second stage", which would quantify the magnitude of the mineralized zone by conducting extensive drilling, assay testing, geostatistical, metallurgical recovery, and financial and economic research and development stages. A twelve-month work plan is proposed for the Blackhawk II Property with an initial budget of approximately $1,000,000, which includes the Company's obligation of $250,000 under the Joint Venture Agreement, of which substantially all is subject to financing. Management has designed this budget to fund the project on the Blackhawk II Property through preliminary exploration stage. The budget, subject to funding will cover the following major areas of activity: o Claim Maintenance o Regional Exploratory Drilling ans Assay of the Blackhawk II Property o Preliminary Environmental Study o Preliminary Consulting Reports o Site survey and Geological Mapping o Preliminary Metallurgical Study o Geological Study o Administration and Management During fiscal years 1996, 1997 and 1998, the Company has not generated any revenues from operations. The Company's financial operations and movement into an operating basis are contingent on the successful exploration of the mining claims and the continuing ability to generate capital financing. FORM 10-SB/A Goldstate Corporation Page 7 Joint Venture Agreement The Company owns fifty-one percent (51%) of a future profit sharing 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 joint exploration of gold and silver on the Blackhawk II Property (the "Joint Venture Agreement"). The Joint Venture Agreement was entered into primarily to utilize, maximize and enhance the complementary exploratory technologies of the Company and IGCO. Subsequent to the Joint Venture Agreement, INGC transferred title to the mining claims located on the Blackhawk II Property via quitclaim deed to the Company. 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 in exchange for the purchase of a future profit sharing interest in profits. In accordance with the terms of the Joint Venture Agreement, the Company is currently conducting work programs involving exploration of the mining claims on the Blackhawk II Property in the minimum annual amount of $250,000 for each calendar year, which commenced January 1, 1998 and will continue through the year 2000. The Company is responsible solely for the payment of such annual obligations. The terms of the Joint Venture Agreement further provide that the Company will be the operating partner and will be responsible solely 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. Under the terms of the Joint Venture Agreement, neither IGCO nor INGC are responsible for payment of any costs of obligations associated with 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 process, and the development process if warranted, 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/A Goldstate Corporation Page 8 Work contemplated by management to be conducted by a qualified consulting company relating to environmental compliance is "in the permitting function" where certain tasks may be undertaken. "In the permitting function" refers to preliminary investigations by management that would ultimately lead to the achievement of future required permits which includes a "BLM Notice of Operations". The BLM Notice of Operations will be required if the Company's preliminary exploration is worthy of further development. If the Notice of Operations is ultimately required, it would state and define what the Company wants to do on the claimed land site (i.e., pilot plan, mine operation, etc). Stemming from a future possible BLM Notice of Operations would be assessment and achievement of various BLM, NEPA, EPA, state, county, water, discharge requirements and relating permits. If any of these permits are ultimately required, the collection of preliminary environmental data through the Preliminary Environmental Report and subsequent detailed study of environmental data via an Environmental Impact Study will be required to study the effects on land use, water resources, biological resources, cultural resources, hazardous wastes, etc. Thus, the permitting function is the ultimate result of permit related work, with the first task being the Preliminary Environmental Report, including the other additional tasks which 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 conditions that will make it necessary for the Company to have a Preliminary Environmental Report prepared include, at a minimum, a definitive interest in the estimated quality and quantity of gold and silver content on the Blackhawk II Property determined through exploratory drilling, assay, and metallurgical recovery research. As of the date of this Registration Statement, the Company has not entered into any contractual arrangements regarding performance of such services; however, management anticipates that such services will be performed in the future by a qualified engineering firm. 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 and 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. The topics below are areas to be studied with the use of aerial photographs: 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/A Goldstate Corporation Page 9 All environmental information would be subsequently mapped, and inventory maps will be produced. The resources would then be assigned permitting or environmental sensitivity. Permitting assignment relates to designated topics that require the Company to take certain actions and/or meet certain conditions in order to qualify to obtain an actual permit pursuant to applicable jurisdictional laws in order to proceed with a possible mining operation. Environmental sensitivity assignment relates to designated topics that require the Company to take action to minimize the impact of possible mining operations, but where no actual permitting jurisdictional laws are applicable. 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 the exploration of the Blackhawk II Property. Moreover, the Company does not know if such costs will be material to its business. The Company is currently in compliance with environmental laws for the current state of its exploration 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 exploration of the Blackhawk II Property). The Company may be in a position, however, to incur such costs at each stage of exploration. For example, the Company may incur such costs relating to its preliminary drilling program planned for fall of 1999, such as refilling the drill core holes and re-planting of flora in accordance with BLM rules and regulations. Anticipation of the timing of incurring such costs in the future is dependent on the outcome of detailed assay information pertaining to the exploratory drilling program to be conducted in the fall of 1999. Moreover, future costs of compliance with environmental laws are also dependent on the nature and impact of future unknown events and the outcome of exploration not yet conducted. Competition The Company is aware of direct competition by major and independent mining companies for its planned business of exploration of gold and silver, and assumes that potential long-term competition will develop. Such potential competitors may have more experience and greater technical, financial and marketing resources than the Company to, among others, (i) increase magnitude of mineralized zones; (ii) develop new mining techniques to extract ores from uneconomic rock, and (iii) improve geophysical techniques and geochemical prospecting. Moreover, in the event reserves are located on the Blackhawk II Property, it may take several years from the initial phases of drilling until production is possible, during which time the economic feasibility of certain methods of production may change. In order to successfully compete with other mining companies, the Company may be required to make substantial expenditures relating to methods (i) establishing proven and probable reserves through drilling, (ii) determining metallurgical processes to extract the ores, and (iii) constructing mining and processing facilities. 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. Generally, any services provided to the Company pursuant to verbal commitments will be valued at less than $10,000 and include staking, drill hole survey and flagging, geological, obtainment of water for drilling, aerial photograph, volcanist work, core cutting and general labor. The following lists and describes certain services performed for the Company. See "Item 5. Directors, Executive Officers, Promoters and Control Persons". FORM 10-SB/A Goldstate Corporation Page 10 (i) Dr. Michael Mehrtens, the Chief Geologist for the Company, performs general geological 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 precious metals recovery processes to carry out assay testing and chemical leach analysis of core samples derived from any subsequent drilling on the Blackhawk II Property. Pursuant to the terms of the Sub-License Agreement, the minimum time period for access by the Company to such proprietary information is forty (40) years. Thereafter, so long as the Company continues to operate under the sub-licenses granted to it under the Sub-License Agreement by actively engaging in the use of the precious metals recovery process, the Company will continue to have access to such proprietary information. As of the date of this Registration Statement, Geneva does not perform any services on behalf of the Company other than those duties and obligations set forth in the Sub-License Agreement. (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. 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, other than the Company's Sub-license Agreement with Geneva Resources, Inc. for technology. 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 at all times. 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/A Goldstate Corporation Page 11 Lode claims and a class of mining claims. Lode claims relate to a primary ore deposit located within definite boundaries including classic veins or lodes. 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. The general standard for determination of existence of a valuable mineral deposit is whether it is economically viable to mine and extract. 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 exploratory 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 and exploration programs for the Blackhawk II Property in order to quantify the magnitude of the mineralized zone, if any, and, ultimately, if warranted, 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/A Goldstate Corporation Page 12 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 exploratory 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. 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. Limited Mining Industry Experience. The officer of the Company and the administrative and managing consultant to the Company have limited experience in mining and mineral exploration and analysis. 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. Moreover, certain future contractors of the Company will have considerable experience in mining and mineral exploration and analysis upon which the Company will rely upon in the future. See "Item 1. Description of Business - Management's Discussion and Analysis". 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/A Goldstate Corporation Page 13 requirements for the further exploration and mining operation costs of the claims on the Blackhawk II Property. The Company is responsible solely for payment of these obligations under the Joint Venture Agreement and there is no assurance that the Company will continue to meet such obligations through fiscal year ending December 31, 2000. Moreover, there is no assurance that favorable contractual relations will continue with IGCO and, if so, that they will be in the best interests of the Company. Need for Additional Financing. The Company's exploration program will be designed to determine the magnitude of the minerlized zone on the Blackhawk II Property. If mineralization does exist in commercially mineable quantities, 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/A Goldstate Corporation Page 14 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 certain of 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/A Goldstate Corporation Page 15 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/A Goldstate Corporation Page 16 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 or silver 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. Results of Operation For Fiscal Year Ended December 31, 1998 compared with Fiscal Year Ended December 31, 1997 The Company's net losses for fiscal year ended 1998 were approximately $439,473 compared to a net loss of approximately $942,938 for fiscal year ended 1007. During both fiscal years 1998 and 1997, the Company recorded no income. During fiscal year 1998, the Company recorded operating expenses of $410,256 compared to $904,176 of operating expenses recorded during fiscal year 1997. Property exploration expenses decreased approximately $56,095 during fiscal year 1998 compared to fiscal year 1997. The decrease in property exploration expenses was due to payment of $43,905 to the BLM for claims maintenance fees during fiscal year 1998 compared to payments of $100,000 for reimbursement to IGCO of staking and exploration costs pursuant to the terms of the Joint Venture Agreement. Administrative expenses decreased approximately $437,825 during fiscal year 1998 compared to fiscal year 1997 primarily relating to a decrease in overhead and administrative expenses and no payment for expenses such as consultant fees, office rental, wages and salaries, telephone and fax, and travel. Approximately $300,000 was incurred as overhead and administrative expenses during fiscal year 1998, and $553,200 was paid to Tri Star Financial Services, Inc. ("Tri Star") for previous amounts owing and current services rendered including, but not limited to, financial, administrative, gold and silver metals exploration management. The consulting services and management agreement with Tri Star commenced on January 1, 1998 and terminated on June 30, 1999. FORM 10-SB/A Goldstate Corporation Page 17 Quarter Ended March 31, 1999 compared to March 31, 1998 For the three-month period ended March 31, 1999, the Company recorded a net loss of $950,884 compared to a net loss of $96,083 in the corresponding period of 1998. During the three-month period ended March 31, 1999 and March 31, 1998, the Company recorded no income. During the three-month period ended March 31, 1999, the Company recorded operating expenses of $939,158 compared to $86,387 of operating expenses recorded in the same period for 1998. The Company incurred property exploration expenses during the first quarter of 1999 of $666,852 relating to expensing the amounts paid pursuant to the Sub License Agreement as research and development and administrative expenses increased approximately $185,919 in the three-month period ended in 1999 compared to 1998. This increase was due primarily to an increase in overhead and administrative expenses resulting from the increasing scale and scope of the overall activity. Approximately $267,900 was incurred as overhead and administrative expenses during the first quarter of 1999, and $431,000 was paid to Tri Star for previous amounts owing and current services rendered including, but not limited to, financial, administrative, gold and silver metals exploration management. The consulting services and management agreement with Tri Star commenced on January 1, 1998 and terminated on June 30, 1999. The Company has entered into a similar agreement with Investor Communications International, Inc. ("ICI") for a period of two years, which commenced July 1, 1999, for such services. Quarter Ended June 30, 1999 compared to June 30, 1998 For the three-month period ended June 30, 1999, the Company recorded a net loss of $374,942 compared to $88,759 in the corresponding period of 1998. During the three-month period ended June 30, 1999 and June 30, 1998, the Company recorded no income. During the three-month period ended June 30, 1999, the Company recorded operating expenses of $362,465 compared to $84,772 of operating expenses recorded in the same period for 1998. The Company did not incur any property exploration expenses during the second quarter of either 1999 or 1998. However, administrative expenses increased approximately $277,693 in the second quarter ended June 30, 1999 compared to second quarter ended June 30, 1998. This increase was due primarily to an increase in overhead and administrative expenses resulting from the increasing scale and scope of the overall exploration and business activity. Of the $332,100 incurred as overhead and administrative expenses incurred during the second quarter of 1999, approximately $487,000 was paid to Tri Star for previous amounts owing and current services rendered including, but not limited to, financial, administrative, gold and silver metals exploration management. Liquidity and Capital Resources For fiscal year ended December 31, 1998 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 increase in current assets in fiscal year 1998 was due primarily to the valuation of its interest in the mining claims pursuant to the Joint Venture Agreement of $170,000. 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. FORM 10-SB/A Goldstate Corporation Page 18 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". Quarter Ended March 31, 1999 As of the three-month period ended March 31, 1999, the Company's total assets were $209,739. This slight increase in assets from fiscal year ended December 31, 1998 was due primarily to an increase in cash and cash equivalents. As of the three-month period ended March 31, 1999, the Company's total liabilities were $978,483. This overall increase from fiscal year ended December 31, 1998 is due primarily to the promissory notes issued by the Company to AuRIC in the amount of $250,000 and to Geneva in the amount of $250,000, pursuant to the terms and conditions of the Sublicense Agreement. Stockholders' Equity (deficit) decreased from ($386,368) for fiscal year ended December 31, 1998 to ($768,744) for the three-month period ended March 31, 1999. Quarter Ended June 30, 1999 As of the three-month period ended June 30, 1999, the Company's total assets were $170,181. This decrease in assets from fiscal year ended December 31, 1998 was due primarily to a decrease in cash and cash equivalents. As of the three-month period ended June 30, 1999, the Company's total liabilities were $913,867. This overall increase from fiscal year ended December 31, 1998 is due primarily to the promissory notes issued by the Company to AuRIC in the amount of $250,000 and to Geneva in the amount of $250,000 pursuant to the terms and conditions of the Sublicense Agreement. Based upon the twelve-month work plan proposed by management for the Blackhawk II Property discussed above in "Description of Business - Estimation of Mineralized Zone", it is anticipated that such a work plan would require approximately $1,000,000 of additional financing, designed to fund the work plan through preliminary exploration phase. Such financing would cover the following major areas in the approximate amounts as follows: $42,200 for land maintenance, $292,840 for exploration of the property, $15,000 for preliminary environmental studies, $150,000 for engineering and consulting studies, and $500,000 in administration and management. 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 ICI. The Company is charged a monthly fee by ICI for performance of services rendered on an ongoing basis commensurate with the needs and requirements of the Company for that particular month, including services related to exploration, administrative, public company operations, and maintenance. Management believes that no other material commitments for capital expenditures will be incurred by the Company over the next twelve-month period. It is anticipated that any expenditures to be incurred by the Company will be operational, including preliminary drilling and assay, metallurgical research and payment of annual maintenance claims fees to the BLM. Management anticipates that a substantial portion of the initial budget of $1,000,000 for the twelve-month work plan, which includes such expenditures, will be funded pursuant to a series of private placement offerings under Regulation D, Rule 506, commencing after October 8, 1999. FORM 10-SB/A Goldstate Corporation Page 19 The Company entered into three promissory notes due to determination by the Company that certain investor subscriptions for common stock pursuant to private placement offerings were not properly accepted by the Company. The original intent between the parties was that the investors would enter into promissory notes convertible at a later point in time as a source of funding. Such shares of common stock were mistakenly issued by the Company instead of the intended promissory notes. The promissory notes were issued to reflect the prior original intention of the parties. The first promissory note dated July 31, 1997 is (i) in the principal amount of $70,000, (ii) bears interest at the rate of eight percent (8%) per annum, (iii) payable on demand, and (iv) convertible at the option of the holder after October 8, 1999 into 350,000 shares of common stock of the Company. The second promissory note dated February 3, 1998 is (i) in the principal amount of $5,000, (ii) bears interest at the rate of eight percent (8%) per annum, (iii) payable on demand, and (iv) convertible at the option of the holder after October 8, 1999 into 25,000 shares of common stock of the Company. The third promissory note dated March 5, 1998 is (i) in the principal amount of $100,000, (ii) bears interest at the rate of eight percent (8%) per annum, (iii) payable on demand, and (iv) convertible at the option of the holder after October 8, 1999 into 500,000 shares of common stock of the Company. 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 certain investors including, but not limited to, ICI, Mr. Brent Pierce and Rising Sun Capital Corp. 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. The Company has been deemed a "going concern" by its independent auditors, Johnson, Holscher & Co., P.C. as noted in the financial statements attached hereto. There is substantial doubt, however, that the Company will be able to retain its status as a "going concern", that is assumption of the continuity of operations of the Company in the absence of evidence to the contrary. Management believes that it can maintain its status as a "going concern" based on its ability to raise funds pursuant to future private placement offerings and to obtain advances and minimizing operating expenses by not duplicating expenses or incurring needless expenses. The Company does not own any plant and/or equipment. Management does not anticipate any purchases of plant and/or significant equipment, nor does it expect any significant changes in the number of its employees. Future exploration of the Blackhawk II Property will primarily be conducted pursuant to work orders and/or contractual arrangements with the Company's geologist and AuRIC. The Company will be primarily dependent upon its contractors for use of equipment necessary for the exploration of gold and silver. Any equipment purchases by the Company will be based on results of preliminary drilling and assay, and other elements of exploration development including logistics, estimated extraction procedures, availability of labor, and price of gold. As of the date of this Registration Statement, the Company has not entered into any such contractual arrangements. The Company is in the exploratory 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 officers and contractors. Certain future contractors of the Company will have considerable experience in mining and mineral exploration and analysis. For the current level of exploration, the Company's requirements for mining experience are limited to geological work, surface sampling, exploratory drilling, site survey, metallurgical research, geological mapping, and other preliminary exploratory investigation. The Company plans to obtain the services of qualified personnel and contractors to provide the above services. It is the Company's position to utilize independent, professional, industry accredited agents, to the largest extent possible, to provide independent accreditation of exploratory data generated. The Company's management at the current date believes that they have the ability to obtain and provide the appropriate sources of mining experience commensurate with each phase of the exploration to be conducted. Certain other officers of the Company have limited experience in the mining industry; however, such officer have considerable experience in the development, management and finance of start-up companies. FORM 10-SB/A Goldstate Corporation Page 20 Many existing computer programs use only two digits to identify a year in the date field. These programs were designed without considering the impact of the upcoming change in the century. If not corrected, these computer applications and systems could fail or create erroneous results by, at, or after the year 2000. Based on the Company's investigations to date, management does not anticipate that the Company or Geneva will incur material operating expenses or be required to incur material costs to be year 2000 compliant. Moreover, management believes that the Company's and Geneva's systems are fully year 2000 compliant. There can be no assurance, however, that potential systems interruptions or the cost necessary to update software would not have some effect on the Company's business, results or operations. In addition, in the event that Geneva does not successfully and timely achieve year 2000 compliance, the Company's business or operations may be affected. Management of the Company believes, however, that any such potential systems interruptions or costs incurred to update software will not be material. 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 (3) 705,000 5% P.O. Box 2097 George Town, Grand Cayman Cayman Islands, BWI Common Stock (2) Intergold Corporation (3) 1,000,000 7% 5000 Birch Street, Suite 4000 Newport Beach, CA 92660 Common Stock AuRIC Metallurgical Laboratories (3) 1,000,000 7% 3260 West Directors Row Salt Lake City, Utah 84104 Common Stock All officers and directors -0- 0% as a group (1 person) - -------------------------------------------------------------------------------- (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 by certain officers, directors or significant contractors of the Company, none of whom currently are or after exercise of their respective options would be beneficial owners or owners of record of more than five percent (5%) of Common Stock. See "Executive Compensation - Non Qualified Stock Option Plan". (2) These are restricted shares of Common Stock. (3) Owner of record. FORM 10-SB/A Goldstate Corporation Page 21 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 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/A Goldstate Corporation Page 22 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/A Goldstate Corporation Page 23 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 and for previous services rendered that were unpaid in 1997. See "Summary Compensation Table". Pursuant to the consulting services and management agreement with Tri Star, which was dated January 1, 1998 and terminated June 30, 1999, and ICI dated July 1, 1999, respectively, services rendered or to be rendered pursuant to the terms and provisions of the respective agreements are (i) financial, such as business planning, capital and operating budgeting, bookkeeping, financial statement services, auditor liason, banking, record keeping and documentation, database records, (ii) gold and silver exploration management, such as administration of metallurgical development, metallurgical liaison, BLM liaison, engineering company liaison, drilling administration, geologist liaison, mapping, survey and catalogue, geostatistical liason, environmental research, geological reports compilation, (iii) administration, such as legal liaison, corporate minutebook maintenance, and record keeping, corporate secretarial services, printing and production, office and general duties, international business relations, corporate information distribution and public relations, and media liaison. 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/A Goldstate Corporation Page 24 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. As of the date of this Registration Statement, options have been granted in the aggregate of 1,000,000 shares to the following individuals. All options granted are exercisable by the respective individual from the date of grant through the date of expiration. - -------------------------------------------------------------------------------- Number of Date of Grant Exercise Price Date of Shares Granted Expiration - -------------------------------------------------------------------------------- Gino Cicci 200,000 15-Jun-99 $0.15 March 1, 2019 Grant Atkins 300,000 15-Mar-99 $0.15 March 1, 2019 Brent Pierce 300,000 15-Mar-99 $0.15 March 1, 2019 Harold Gooding 100,000 15-Mar-99 $0.15 March 1, 2019 Marcus Johnson 100,000 15-Mar-99 $0.19 March 1, 2019 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 pertaining to the joint exploration of gold and silver on the Blackhawk II Property (the "Joint Venture Agreement"). Pursuant to the terms of the Joint Venture Agreement, the Company paid $100,000 FORM 10-SB/A Goldstate Corporation Page 25 and issued 1,000,000 shares of its restricted common stock to IGCO in exchange for the purchase of a future profit sharing interest. The terms of the Joint Venture Agreement further provide that the Company will be the operating partner and be responsible solely for providing funding for all 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/A Goldstate Corporation Page 26 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/A Goldstate Corporation Page 27 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/A Goldstate Corporation Page 28 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/A Goldstate Corporation Page 29 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/A Goldstate Corporation Page 30 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 bid 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 $0.25 June 30, 1998 $0.70 $0.35 September 30, 1998 $0.38 $0.15 December 31, 1998 $0.23 $0.14 Fiscal Year 1997 March 31, 1997 $2.85 $1.31 June 30, 1997 $1.37 $0.37 September 30, 1997 $0.49 $0.21 December 31, 1997 $0.72 $0.23 - -------------------------------------------- The 14,131,300 shares of Common Stock outstanding as of the date of this Registration Statement were held by approximately 23 holders of record worldwide, including 10 holders of record in the United States. FORM 10-SB/A Goldstate Corporation Page 31 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 First American Stock Transfer, 610 East Bell Road, Suite 2-155 PMB, Phoenix, Arizona 85022-2393, telephone number (602) 485-1346. 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) to December 31, 1996, the Company had a former accountant. Since January 1, 1997 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/A Goldstate Corporation Page 32 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/A Goldstate Corporation Page 33 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 into 500,000 shares of the Company's restricted Common Stock at the option of Geneva at the rate of $0.20 per share. Pursuant to the terms of the convertible promissory note, Geneva may elect to convert the promissory note after October 8, 1999. There are no conditions that will prevent or trigger the conversion of the promissory note by Geneva into shares of Common Stock nor is there any expiration date. 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/A Goldstate Corporation Page 34 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/A Goldstate Corporation Page 35 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/A Goldstate Corporation Page 36 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/A Goldstate Corporation Page 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 10.3 Consulting Services and Management Agreement between Investor Communications International, Inc. and the Company dated July 1, 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 BLM Claims Listing - -------------------------------------------------------------------------------- FORM 10-SB/A Goldstate Corporation Page 38 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: October 5, 1999 FORM 10-SB/A Goldstate Corporation Page 39 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-11 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 provides a reasonable basis for our opinion. In our opinion, 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 1 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 1. The financial statements do not include any adjustments that might result if management's plan is unsuccessful. Greenwood Village, Colorado July 6, 1999 F-1
GOLDSTATE CORPORATION (An Exploration Stage Company) Balance Sheets December 31, December 31, 1998 1997 ---- ---- ASSETS Cash and cash equivalents $ 877 $ 916 Interest in unpatented mining claims 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 (An Exploration Stage Company) Statements of Operations Inception Year Ended December 31, (February 28,1997 -------------------------- to 1998 1997 December 31, 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) =========== =========== =========== Earnings (Loss) per Share - Basic $ (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 (An Exploration Stage Company) Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents Inception Year Ended December 31, (February 28,1997 -------------------------- to 1998 1997 December 31, 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 received 496,181 440,045 936,226 Advances repaid (698,200) 0 (698,200) 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 (An Exploration 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 $.004 per share) 3,038,000 3,038 9,342 0 12,380 Less offering costs 0 0 (7,173) 0 (7,173) Stock Split 6,076,000 0 0 0 0 Net income (loss), February 28, 1996 (inception) to December 31, 1996 0 0 0 (4,164) (4,164) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1996 (Unaudited) 9,114,000 3,038 2,169 (4,164) 1,043 Shares redeemed (5,500,200) (1,650) 1,650 0 0 Issuance of common stock SEC Reg D-504 for cash ($.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 an exploration 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 original maturities of three months or less. 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. Earnings Per Share ------------------ As of December 31, 1998, there were no convertible stock issues or warrants outstanding that would generate a per share dilution, therefore the Company has only disclosed basic earnings per share information on the Statement of Operations. F-6 GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 - -------------------------------------------------------------------------------- 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. 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, after October 7, 1999, 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, after October 7, 1999, 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. F-7 GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 - -------------------------------------------------------------------------------- NOTE 3: STOCKHOLDERS' EQUTY (continued) 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 received 1,000,000 restricted shares of common stock in the Company in exchange for the sale of a future profit sharing interest. The Company will be responsible to provide all funding and will be the operating partner. The Company will initially retain 80% of the profits resulting from the agreement. After the Company is repaid all of its invested capital, the profit distribution will be 51% to the Company and 49% to Intergold Corporation. There are 439 unpatented lode-mining claims that form the subject of this arrangement known as Blackhawk II. These claims were transferred from Intergold Corporation to the Company via quit claim deed on June 10, 1999. As of December 31, 1998 there were no jointly controlled assets pursuant to the agreement and no profits had been generated. As the lode mining claims are developed, the equity method will be utilized to account for the joint venture agreement with Intergold Corporation. The Company will have majority accounting control over the development of the claims. 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. F-8 GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 - -------------------------------------------------------------------------------- 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: 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. NOTE 8: SUBSEQUENT EVENTS Technology Sub-License Agreement -------------------------------- In March of 1999, the Company entered into a definitive sub-license agreement with Geneva Resources, Inc. ("Geneva"), to utilize assay and metallurgical technology, know-how, and rights to technological processes developed for the Blackhawk mineralization by Auric Metallurgical Laboratories, Inc. ("Auric"). This sub-license is for non-exclusive use in the Company's claim area in the State of Idaho for a period not less than 40 years. Pursuant to this agreement, the Company will issue 500,000 F-9 GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 - -------------------------------------------------------------------------------- NOTE 8: SUBSEQUENT EVENTS (continued) 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 after October 7, 1999. 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 was to generate $870,000 of additional operating funds to continue the exploration, development and expansion 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. 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. F-10 GOLDSTATE CORPORATION Notes to Financial Statements December 31, 1998 and 1997 - -------------------------------------------------------------------------------- NOTE 9: 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. It was the Company's intent to issue promissory notes that would be convertible at a later date into the Company's common stock. The Company mistakenly issued the common stock related to the failed subscription agreements instead of the intended convertible promissory notes. The Company and the various parties involved in the failed subscriptions desired to reflect their original intention and subsequently issued the promissory notes. 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. 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-11 GOLDSTATE CORPORATION (An Exploration Stage Company) FINANCIAL STATEMENTS (Unaudited) MARCH 31, 1999 TABLE OF CONTENTS ----------------- Page ---- Balance Sheet F-13 Statements of Operations F-14 Statements of Cash Flows F-15 Notes to Financial Statements F-16 - F-22 F-12 GOLDSTATE CORPORATION (An Exploration Stage Company) Balance Sheets March 31, 1999 ---- ASSETS CURRENT ASSETS Cash and cash equivalents $ 39,469 OTHER ASSETS Interest in unpatented mining claims 170,000 Goodwill 270 ----------- Total Assets $ 209,739 =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable - trade $ 50,000 Advances payable 77,426 Directors fees payable 19,500 Notes payable 752,755 Accrued interest payable 78,802 ----------- Total Liabilities 978,483 ----------- 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 (2,337,459) ----------- Total Stockholders' Equity (Deficit) (768,744) ----------- Total Liabilities and Stockholders' Equity $ 209,739 =========== See accompanying summary of accounting policies and notes to financial statements. F-13
GOLDSTATE CORPORATION (An Exploration Stage Company) Statements of Operations Inception For the 3 Months Ended March 31, (February 28,1997 --------------------------------- to 1999 1998 March 31, 1999) ---- ---- --------------- REVENUES Other income $ 0 $ 0 $ 1,026 ----------- ----------- ----------- Total Revenues 0 0 1,026 ----------- ----------- ----------- OPERATING EXPENSES PROPERTY EXPLORATION EXPENSES Research and development 666,852 0 666,852 Claims maintenance fees and staking costs 0 0 143,905 ----------- ----------- ----------- Total Property Exploration Expenses 666,852 0 810,757 ----------- ----------- ----------- 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 939,158 86,387 2,258,780 ----------- ----------- ----------- Income (Loss) from Operations (939,158) (86,387) (2,257,754) OTHER INCOME (EXPENSES) Interest Income 0 0 1 Interest Expense (11,726) (9,696) (79,706) ----------- ----------- ----------- Net (Loss) $ (950,884) $ (96,083) $(2,337,459) =========== =========== =========== Earnings (Loss) per Share - Basic $ (0.097) $ (0.013) $ (0.337) =========== =========== =========== 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. F-14
GOLDSTATE CORPORATION (An Exploration Stage Company) Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents Inception For the 3 Months Ended March 31, (February 28,1997 -------------------------------- to 1999 1998 March 31, 1999) ---- ---- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (950,884) $ (96,083) $(2,337,459) 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 (957,893) (94,584) (2,267,869) ----------- ----------- ----------- 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 667,491 459,310 1,501,945 Offering costs 0 0 (7,173) Advances received 270,400 220,300 1,206,626 Advances repaid (431,000) (500,000) (1,129,200) Interest recognized through discount adjustment 903 903 Notes payable issued for technology 500,000 500,000 Discount on technology notes payable for imputed interest (23,148) (23,148) Accrued interest payable 10,822 9,697 78,802 Proceeds from notes payable 0 105,000 175,000 ----------- ----------- ----------- Net Cash Flows Provided by Financing Activities 996,485 295,296 2,307,698 ----------- ----------- ----------- 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. The Company accrued interest on notes payable of $10,822 and $9,696 for the periods ended March 31, 1999 and 1998, respectively. The Company has not paid any accrued interest. The Company has also recognized an additional $903 of imputed interest during 1999. See accompanying summary of accounting policies and notes to financial statements. F-15
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 an exploration 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 original maturities of three months or less. 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. Earnings Per Share ------------------ As of March 31, 1999, there were 800,000 options exercisable to purchase common stock and notes payable that can be converted into 1,375,000 shares of common stock. As these options and convertible notes payable would have an antidilutive effect on the presentation of loss per share, a diluted loss per share calculation is not presented. F-16 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 - -------------------------------------------------------------------------------- NOTE 2: TECHNOLOGY SUBLICENSE AGREEMENT In March of 1999, the Company entered into a definitive sub-license agreement with Geneva Resources, Inc. ("Geneva"), to utilize assay and metallurgical technology, know-how, and rights to technological processes developed for the Blackhawk mineralization by Auric Metallurgical Laboratories, Inc. ("Auric"). This sub-license is for non-exclusive use in the Company's claim area in the State of Idaho for a period not less than 40 years. 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. As these notes bear interest below market value, the Company has used an imputed interest rate of 8%. The imputed value of these notes at issuance was $238,426 to each company. 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, after October 7, 1999. As of March 31, 1999 the promissory notes and common stock have been issued to the various parties, however, the related technology has not been transferred. These promissory notes become due and payable upon the transfer of the technology. Transfer of the technology will occur after completion of pilot scale testing. The technology is scheduled for transfer during 1999. The Company has expensed the amounts paid pursuant to the agreement as research and development expense. 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 received 1,000,000 restricted shares of common stock in the Company in exchange for the sale of a future profit sharing interest. The Company will be responsible to provide all funding and will be the operating partner. The Company will initially retain 80% of the profits F-17 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 - -------------------------------------------------------------------------------- resulting from the agreement. After the Company is repaid all of its invested capital, the profit distribution will be 51% to the Company and 49% to Intergold Corporation. There are 439 unpatented lode-mining claims that form the subject of this arrangement known as Blackhawk II. These claims were transferred from Intergold Corporation to the Company via quit claim deed on June 10, 1999. As of March 31, 1999 there were no jointly controlled assets pursuant to the agreement. 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. As the lode mining claims are developed, the equity method of accounting will be utilized to account for the joint venture agreement with Intergold Corporation. The Company will have majority accounting control over the development of the claims. As of March 31, 1999, no profit had been generated by the development of the claims. The sole director and officer of Goldstate Corporation is also a director of Intergold Corporation. 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 ========= F-18 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 - -------------------------------------------------------------------------------- NOTE 4: ADVANCES AND NOTES PAYABLE (continued) 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. 100,000 Geneva Resources, Inc. 250,000 Discount for imputed interest on Geneva Resources, Inc. (11,123) AuRIC Metallurgical Laboratories, LLC 250,000 Discount for imputed interest on AuRIC Labs (11,122) --------- $ 752,755 ========= Accrued Interest Payable to March 31, 1999 from Advances and Notes Payable was $78,800. The Company has recognized $903 of imputed interest during the period ending March 31, 1999. 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, after October 7, 1999, 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 after October 7, 1999. 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). F-19 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 - -------------------------------------------------------------------------------- NOTE 4: ADVANCES AND NOTES PAYABLE (continued) 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. These notes have been discounted to bear an imputed interest rate of 8%. 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. F-20 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 - -------------------------------------------------------------------------------- NOTE 5: STOCKHOLDERS' EQUITY (continued) 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. 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- F-21 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements March 31, 1999 - -------------------------------------------------------------------------------- NOTE 6: EMPLOYEE STOCK OPTION PLAN (continued) 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. 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 twelve 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- ========= ========= F-22 GOLDSTATE CORPORATION (An Exploration Stage Company) FINANCIAL STATEMENTS (Unaudited) JUNE 30, 1999 TABLE OF CONTENTS ----------------- Page ---- Balance Sheet F-24 Statements of Operations F-25 Statements of Cash Flows F-26 Notes to Financial Statements F-27 - F-33 F-23 GOLDSTATE CORPORATION (An Exploration Stage Company) Balance Sheets June 30, 1999 ---- ASSETS CURRENT ASSETS Cash and cash equivalents $ 181 OTHER ASSETS Interest in unpatented mining claims 170,000 ----------- Total Assets $ 170,181 =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable - trade $ 54,309 Advances and accrued interest payable 79,554 Directors fees payable 21,000 Notes payable 759,004 ----------- Total Liabilities 913,867 ----------- STOCKHOLDERS' EQUITY Preferred stock, $.001 par value; authorized 25,000,000 shares; issued and outstanding 0 shares at June 30, 1999 0 Common stock $.0003 par value; authorized 75,000,000 shares; issued and outstanding 14,131,300 at June 30, 1999 4,543 Paid - in capital 1,964,172 Accumulated deficit through development stage (2,712,401) ----------- Total Stockholders' Equity (Deficit) (743,686) ----------- Total Liabilities and Stockholders' Equity $ 170,181 =========== See accompanying summary of accounting policies and notes to financial statements. F-24
GOLDSTATE CORPORATION (An Exploration Stage Company) Statements of Operations Inception (February 28, For the 3 Months Ended June 30, For the 6 Months Ended June 30, 1996) to ------------------------------- ------------------------------- June 30, 1999 1998 1999 1998 1999 ---- ---- ---- ---- ---- REVENUES Other income $ 0 $ 0 $ 0 $ 0 $ 1,026 ------------ ------------ ------------ ------------ ------------ Total Revenues 0 0 0 0 1,026 ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES PROPERTY EXPLORATION EXPENSES Research and Development - Sublicense Agreement 0 0 666,852 0 666,852 Claims maintenance fees and staking costs 0 0 0 0 143,905 ------------ ------------ ------------ ------------ ------------ Total Property Exploration Expenses 0 0 666,852 0 810,757 ------------ ------------ ------------ ------------ ------------ ADMINISTRATIVE EXPENSES Overhead and Administration 332,100 75,000 600,000 150,000 1,380,000 Legal and accounting 27,795 174 30,580 5,878 122,470 Directors fees 1,500 1,500 3,000 3,000 21,000 Internet design and access 0 719 0 3,461 5,172 Printing and stationary 0 3,741 0 3,741 4,260 Transfer agent 385 1,196 435 1,298 2,548 News wire services 100 1,805 100 1,805 4,100 Courier and postage 567 558 597 853 10,225 Reports/information/subscripitions 0 0 0 925 33,330 Bank charges 18 79 59 103 426 Office supplies 0 0 0 95 6,010 Consultants 0 0 0 0 88,190 Office rent 0 0 0 0 42,033 Telephone and fax 0 0 0 0 35,556 Wages and salaries 0 0 0 0 22,444 Travel 0 0 0 0 16,731 Auto 0 0 0 0 7,259 Promotion 0 0 0 0 7,165 Miscellaneous 0 0 0 0 1,410 Computer supplies 0 0 0 0 159 ------------ ------------ ------------ ------------ ------------ Total Administrative Expenses 362,465 84,772 634,771 171,159 1,810,488 ------------ ------------ ------------ ------------ ------------ Total Operating Expenses 362,465 84,772 1,301,623 171,159 2,621,245 ------------ ------------ ------------ ------------ ------------ Income (Loss) from Operations (362,465) (84,772) (1,301,623) (171,159) (2,620,219) OTHER INCOME (EXPENSES) Interest Income 0 0 0 0 1 Interest Expense (12,477) (3,987) (24,203) (13,683) (92,183) ------------ ------------ ------------ ------------ ------------ Net (Loss) $ (374,942) $ (88,759) $ (1,325,826) $ (184,842) $ (2,712,401) ============ ============ ============ ============ ============ Earnings (Loss) Per Share - Basic $ (0.027) $ (0.010) $ (0.115) $ (0.024) $ (0.362) ============ ============ ============ ============ ============ Weighted Average Number of Common Shares Outstanding 13,999,432 8,738,800 11,493,662 7,750,402 7,494,061 ============ ============ ============ ============ ============ See accompanying summary of accounting policies and notes to financial statements. F-25
GOLDSTATE CORPORATION (An Exploration Stage Company) Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents Inception (February 28, For the 3 Months Ended June 30, For the 6 Months Ended June 30, 1996) to ----------------------------- ------------------------------- June 30, 1999 1998 1999 1998 1999 ---- ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (374,942) $ (88,759) $(1,325,826) $ (184,842) $(2,712,401) Adjustments to reconcile net (loss) to cash used by operating activities Amortization and depreciation 0 0 0 0 90 Changes in Assets and Liabilities Accounts payable 4,309 1 (4,200) 0 54,309 Director fees payable 1,500 1,500 3,000 3,000 21,000 ----------- ----------- ----------- ----------- ----------- Net Cash Flows Used for Operating Activities (369,133) (87,258) (1,327,026) (181,842) (2,637,002) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Equipment (purchases) dispositions 0 0 0 (90) Organization costs 270 0 270 0 0 ----------- ----------- ----------- ----------- ----------- Net Cash Flows Provided (Used) for Investing Activities 270 0 270 0 (90) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Sale (redemption) of common stock 600 0 1,617 989 4,543 Additional paid-in capital 399,400 1 966,891 459,311 1,801,345 Offering costs 0 0 0 0 (7,173) Advances received 334,100 75,000 604,500 295,300 1,540,726 Advances repaid (417,000) (192,319) (848,000) (692,319) (1,546,200) Interest recognized through discount adjustment 6,249 7,152 7,152 Notes payable issued for technology 0 500,000 500,000 Discount on technology notes payable for imputed interest 0 (23,148) (23,148) Accrued interest payable 6,226 3,986 17,048 13,683 85,028 Proceeds from notes payable 0 0 100,000 105,000 275,000 ----------- ----------- ----------- ----------- ----------- Net Cash Flows Provided by Financing Activities 329,575 (113,332) 1,326,060 181,964 2,637,273 ----------- ----------- ----------- ----------- ----------- Net increase in cash (39,288) (200,590) (696) 122 181 Cash and cash equivalents - Beginning of period 39,469 201,628 877 916 0 ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents - End of period $ 181 $ 1,038 $ 181 $ 1,038 $ 181 =========== =========== =========== =========== =========== 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. The Company accrued interest on notes payable of $17,048 and $13,683 for the six month periods ended June 30, 1999 and 1998, respectively. The Company has not paid any accrued interest. The Company has also recognized an additional $7,153 of imputed interest during 1999. See accompanying summary of accounting policies and notes to financial statements. F-26
GOLDSTATE CORPORATION Notes to Unaudited Financial Statements June 30, 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 an exploration 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 original maturities of three months or less. Going Concern and Continued Operations -------------------------------------- As of June 30, 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. Earnings Per Share ------------------ As of June 30, 1999, there were 1,000,000 options exercisable to purchase common stock and notes payable that can be converted in to 1,375,000 shares of common stock. As these options and convertible notes payable would have an antidilutive effect on the presentation of loss per share, a diluted loss per share calculation is not presented. F-27 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements June 30, 1999 - -------------------------------------------------------------------------------- NOTE 2: TECHNOLOGY SUB-LICENSE AGREEMENT In March of 1999, the Company entered into a definitive sub-license agreement with Geneva Resources, Inc. ("Geneva"), to utilize assay and metallurgical technology, know-how, and rights to technological processes developed for the Blackhawk mineralization by Auric Metallurgical Laboratories, Inc. ("Auric"). This sub-license is for non-exclusive use in the Company's claim area in the State of Idaho for a period not less than 40 years. 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. As these notes bear interest below market value, the Company has used an imputed interest rate of 8%. The imputed value of these notes at issuance was $238,426 to each company. 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 after October 7, 1999. As of June 30, 1999 the promissory notes and common stock have been issued to the various parties, however, the related technology has not been transferred. These promissory notes become due and payable upon the transfer of the technology. Transfer of the technology will occur after completion of pilot scale testing. The technology is scheduled for transfer during 1999. The Company has expensed the amounts paid pursuant to the agreement as research and development expense. 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 received 1,000,000 restricted shares of common stock in the Company in exchange for the sale of a future profit sharing interest. The Company will be responsible to provide all funding and will be the operating partner. The Company will initially retain 80% of the profits resulting from the agreement. After the Company is repaid all of its F-28 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements June 30, 1999 - -------------------------------------------------------------------------------- invested capital, the profit distribution will be 51% to the Company and 49% to Intergold Corporation. There are 439 unpatented lode-mining claims that form the subject of this arrangement known as Blackhawk II. These claims were transferred from Intergold Corporation to the Company via quit claim deed on June 10, 1999. As of June 30, 1999 there were no jointly controlled assets pursuant to the agreement. 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. As the lode mining claims are developed, the equity method of accounting will be utilized to account for the joint venture agreement with Intergold Corporation. The Company will have majority accounting control over the development of the claims. As of June 30, 1999, no profit had been generated by the development of the claims. The sole director and officer of Goldstate Corporation is also a director of Intergold Corporation. NOTE 4: ADVANCES AND NOTES PAYABLE Advances are comprised of the following: Advances -------- The Company at June 30, 1999 had advances, payable on demand, bearing 10% simple interest, to the following affiliated company: Amerocan Marketing, Inc. $ 2,500 Tri-Star Financial Services, Inc. 26 Investor Communications International. Inc. (8,000) ------- $(5,474) ======= F-29 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements June 30, 1999 - -------------------------------------------------------------------------------- NOTE 4: ADVANCES AND NOTES PAYABLE (continued) Notes Payable ------------- The Company had Notes Payable at June 30, 1999 as follows: Brent Pierce $ 75,000 Rising Sun Capital Corporation 100,000 Geneva Resources, Inc. 100,000 Geneva Resources, Inc. 250,000 Discount for imputed interest on Geneva Resources, Inc. (7,998) AuRIC Metallurgical Laboratories, LLC 250,000 Discount for imputed interest on AuRIC Labs (7,998) --------- $ 759,004 ========= Accrued Interest Payable to June 30, 1999 from Advances and Notes Payable was $85,028. 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, after October 7, 1999, 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). F-30 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements June 30, 1999 - -------------------------------------------------------------------------------- NOTE 4: ADVANCES AND NOTES PAYABLE (continued) 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. These notes have been discounted to bear an imputed interest rate of 8%. 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 4,350,000 shares of common stock at $.0003 par value for $870,000. 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. F-31 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements June 30, 1999 - -------------------------------------------------------------------------------- NOTE 5: STOCKHOLDERS' EQUITY (continued) 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 June 30, 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 six month period ending June 30, 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 1,000,000 options with an exercise price of $.15 per share of common stock. Selected information regarding the options as of June 30, 1999 and 1998 are as follows: June 30, 1999 June 30, 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 1,000,000 $.15/share -0- -0- Exercisable at End of Period 1,000,000 $.15/share -0- -0- Options Granted 1,000,000 $.15/share -0- -0- Options Exercised -0- -0- -0- -0- Options Forfeited -0- -0- -0- -0- Options Expired -0- -0- -0- -0- F-32 GOLDSTATE CORPORATION Notes to Unaudited Financial Statements June 30, 1999 - -------------------------------------------------------------------------------- NOTE 6: EMPLOYEE STOCK OPTION PLAN (continued) As of June 30, 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 242 days. There are 1,000,000 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. 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. The Company entered into a similar management services agreement with Investor Communications, Inc. during the second quarter. This contract starts July 1, 1999 and is for 24 months at a cost to not exceed $75,000 per month for the first twelve 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- ========= ========= F-33 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-10.3 5 EXHIBIT 10.3 THIS CONSULTING SERVICES and MANAGEMENT AGREEMENT is made effective the 1st day of July, 1999 BETWEEN: INVESTOR COMMUNICATIONS INTERNATIONAL, INC. having an office located at 3926 Irongate Road, Unit D Bellingham, Washington 98226 (hereinafter called " Investor Comm") OF THE FIRST PART AND: GOLDSTATE CORPORATION having an office located at 2950 East Flamingo, Suite G Las Vegas, NV 89121 (hereinafter called " Goldstate") OF THE SECOND PART WHEREAS: A. Goldstate is engaged in the business of precious metals exploration and development. B. By the consensus of the officer of Goldstate, Investor Comm was engaged to provide a wide range of administrative, financial, marketing, international services, and other services with respect to the ongoing and full time operation of Goldstate as of the date of this agreement. NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises and mutual covenants and agreements herein contained, and other good and valuable consideration the receipt and adequacy of which is hereby acknowledged, Goldstate hereby grants Investor Comm as the parties hereto covenant and agree each with the other as follows: ARTICLE I - Duties and Devotion of Time (a) Investor Comm shall provide Goldstate with specific financial, administrative, marketing, promotional, and international services. Investor Comm shall have the obligation, and duties to conduct business related acts on behalf of Goldstate as directed by the officer and director of Goldstate, such services as are customarily done or deemed necessary for the full and complete operation of Goldstate; such services shall include but are not limited to the following: o International Business Relations o Press Release and Public Disclosure o International Business Strategy o Corporate Information Distribution o Investor Relations o Corporate ID and Public Relations 1 o Media Liaison o Legal Liaison o Shareholder Liaison o Corporate Minute Book Maintenance o Business Planning o Corporate Record Keeping o Capital Budgeting o Corporate Secretarial o Operating Budgeting o Secretarial Services o Bookkeeping o Office and General Duties o Financial Statement Generation o Printing and Production o Financial Services - General o Internet Maintenance and Content o Annual Report Creation and Production o Transfer Agent Liaison o Auditor Liaison o General Administration o Banking o Funding Services o Record Keeping and Documentation o Private Offering Structuring - General o Database Records o Travel for above items as required (b) Investor Comm shall provide for the full and complete functioning of business services as outlined in ARTICLE I, item (a) (hereinafter "the Consulting Services") above relating to the business of Goldstate and its ability to provide for its ongoing development and growth commensurate with that required in the circumstances, such requirement to be determined by ongoing circumstances. Investor Comm shall provide for all acts and duties as are reasonable necessary for the efficient and proper operation and development of Goldstate operations but, without limiting the generality of the foregoing, shall include all matters related directly or indirectly to the general functioning business operations of Goldstate. (c) Goldstate agrees that Investor Comm may have or acquire business, financial, or consulting services interests in other companies or properties and agrees that Investor Comm may devote reasonable time to such other outside companies and affairs so long as these duties do not affect Investor Comm's ability to perform its duties under this Agreement in accordance with the requirement in each area of the Consulting Services to be provided. ARTICLE II - Remuneration and Term (a) Investor Comm shall provide the Consulting Services to Goldstate as set out herein in consideration for which Goldstate shall pay Investor Comm an amount not greater than the average of $75,000 US funds per calendar month during the term of this Agreement. The fees charged by Investor Comm to Goldstate shall be based on work conducted and variable levels of work required in any month. The maximum monthly fee charged to Goldstate by Investor Comm for the calendar year following that evidenced by the effective date of this Agreement will be renegotiated no later than May 31, 2000. (b) The effective date of this Agreement shall be July 1,1999 and the Agreement shall continue for a term of 24 months from such date. 2 (c) In conducting its duties under this Agreement, Investor Comm shall report to the Goldstate Board of Directors or appointed officer or agents as directed by Goldstate. ARTICLE III - Reimbursement for Expenses Goldstate shall bear all expenses where the costs incurred are for the sole and exclusive benefit of Goldstate. Goldstate shall provide reimbursement expenses incurred by Investor Comm where Investor Comm incurs expenses that are for the sole and exclusive benefit of Goldstate. ARTICLE IV - Termination of Agreement Notwithstanding any other provision contained herein, it is understood and agreed between the parties hereto that either party may terminate this Agreement with or without cause and for any reason whatsoever by providing twelve (12) months written notice to the other party. ARTICLE V - Indemnity Goldstate shall indemnify Investor Comm, its directors, officers and agents and hold them harmless from any claims, expenses and damages arising out of this Agreement. ARTICLE VI - Entire Agreement This Agreement represents the entire agreement between the parties and supersedes any and all prior agreements and understandings, whether written or oral, between the parties. ARTICLE VII - Applicable Law This Agreement shall be construed under and governed by the laws of the State of Nevada. ARTICLE VIII - Enurement The provisions of this Agreement shall ensure to the benefit of and binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 3 Agreed at Bellingham, Washington, this 1st day of July, 1999. IN WITNESS WHEREOF the parties hereto executed this Agreement as of the day and year first above written. GOLDSTATE CORPORATION Harold Gooding -------------- Name /s/ Harold Gooding ------------------ Signature Secretary, Director ------------------- Title INVESTOR COMMUNICATIONS INTERNATIONAL, INC. Marcus Johnson -------------- Name /s/ Marcus Johnson ------------------ Signature President --------- Title EX-16 6 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 7 EXHIBIT 99.1 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-----