-----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, CawUxZNq9+t23fGbUALdEA4OuNrSpIR1KjZXMq2a/cmTBOsnNurGq2TryVoAeLV1 ejjhXEtcsbhcb3Y4yOkw8A== 0001108890-02-000142.txt : 20020415 0001108890-02-000142.hdr.sgml : 20020415 ACCESSION NUMBER: 0001108890-02-000142 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 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: 10KSB40 SEC ACT: 1934 Act SEC FILE NUMBER: 000-26705 FILM NUMBER: 02597639 BUSINESS ADDRESS: STREET 1: 3305 SPRING MOUNTAIN RD STREET 2: STE 60 CITY: LAS VEGAS STATE: NV ZIP: 89012 BUSINESS PHONE: 8882285526 MAIL ADDRESS: STREET 1: 3305 SPRING MOUNTAIN RD STREET 2: STE 60 CITY: LAS VEGAS STATE: NV ZIP: 89012 10KSB40 1 goldstate10ksb123101.txt DATED 12-31-01 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB40 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------- ------- Commission file number 0-26705 GOLDSTATE CORPORATION --------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) NEVADA 88-0354425 ------------------------------ ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 3305 Spring Mountain Road, Suite 60 Las Vegas, Nevada 89102 -------------------------------------- (Address of Principal Executive Offices) (604) 915-9520 ------------------------- (Issuer's telephone number) N/A -------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Check here if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this Form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State the issuer's revenues for its more recent fiscal year (ending December 31, 2001): $ -0-. State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of January 31, 2002: $280,922.57. (Takes into account the reverse stock split which was effective on February 13, 2001). State the number of shares outstanding of each of the issuer's classes of common equity, as of the most practicable date: Class Outstanding as of March 25, 2002 Common Stock, $.0003 par value 10,747,261 PART I ITEM 1. DESCRIPTION OF BUSINESS History of Business Development Goldstate Corporation, which currently trades on the OTC Bulletin Board under the symbol "GDSS" (referred to in this Form 10-KSB as the "Company"), was primarily engaged in the business of exploration of gold and precious metals in the United States. In 1996, the Company was incorporated under the laws of the State of Nevada under the name Image Perfect Incorporated to conduct a marketing and public relations business involving greeting cards, gift items and paper products. On December 12, 1996, the corporate name was changed to Dynacom Telecommunications Corporation and the business focus was redirected to the finance and purchase of ownership interests in telecommunication companies that installed and operated wireless telecommunication systems in Africa, the Middle East, and countries in the former Soviet Union. During late 1997, control and management changed, the corporate name was changed to Goldstate Corporation, and the primary business focus was redirected to the exploration of gold and precious metals in the United States. During fiscal year ended December 31, 2000, management subsequently changed and the primary business focus of the Company has been redirected towards undertaking research relating to prospective new business endeavors and acquisitions. As of the date of this Annual Report, there has been no income realized from the business operations of the Company and the Company has ceased any and all gold exploration activities. The research by current management of prospective new business endeavors may result in the Company entering into business operations that are not in the minerals exploration field. Blackhawk II Property and Settlement of Litigation The Company previously held possessory title to 439 contiguous unpatented lode mining claims located in Lincoln and Gooding Counties, in south-central Idaho (the "Blackhawk II Property"). Pursuant to a joint venture agreement with Intergold Corporation, a Nevada corporation ("IGCO") and its wholly-owned subsidiary International Gold Corporation, a Nevada corporation ("INGC") dated March 17, 1999 (the "Joint Venture Agreement"), the Company owned a fifty-one 2 percent (51%) of a future profit sharing interest in profits to be realized from the exploration of the 439 unpatented lode mining claims on the Blackhawk II Property. As of the date of this Annual Report, neither the Company nor INGC hold title to such mining claims. INGC, on behalf of IGCO, and AuRIC Metallurgical Laboratories, LLC, of Salt Lake City, Utah ("AuRIC") had entered into an Agreement for Services dated March 18, 1999 (the "Agreement for Services") whereby AuRIC agreed to perform certain services, including the development of proprietary technology and know-how relating to fire and chemical assay analysis techniques and metallurgical ore extraction procedures developed specifically for the exploration of properties of IGCO. INGC, on behalf of IGCO, had also retained the services of Dames & Moore, an internationally recognized engineering and consulting firm ("Dames & Moore") to provide validation audits of each major step of the assay and metallurgical recovery procedures conducted by AuRIC. In November of 1998, according to independent testing conducted by Dames & Moore, Dames & Moore validated AuRIC's fire assay and parallel chemical leach procedures as a method to verify the existence of mineralization. The positive outcome of the testing program conducted by Dames & Moore formed the subject of a November 30, 1998 and subsequently dated reports regarding IGCO's properties. Dames & Moore verified the fire and chemical assay techniques and procedures developed by AuRIC and their repeatability, as well as metallurgical recovery techniques. AuRIC and Geneva Resources, Inc., a Nevada corporation ("Geneva") entered into a Technology License Agreement dated March 17, 1999 (the "License Agreement") whereby AuRIC agreed to supply the proprietary technology to Geneva and grant to Geneva the right to sub-license the proprietary technology to the Company for use on the Blackhawk II Property. The Company and Geneva entered into a Technology Sub-License Agreement dated March 18, 1999 (the "Sub-License Agreement") whereby the Company acquired from Geneva a sub-license to utilize AuRIC's proprietary information and related precious metals recovery processes to carry out assay testing and chemical leach analysis of core samples derived from any subsequent drilling on the Blackhawk II Property. Pursuant to certain contractual terms and provisions, AuRIC and Dames & Moore had not been successful in transferring the proprietary fire assay technology to Geneva or to any independent third party assay laboratory. On September 27, 1999, Geneva and INGC, on behalf of IGCO, initiated legal proceedings against AuRIC for multiple breaches of contract stemming from the Agreement for Services and the License Agreement and against Dames & Moore in a declaratory relief cause of action (the "Lawsuit"). The Company thus suspended further exploration of the Blackhawk II Property indefinitely due to (i) the independent assessment information which did not support the claims of AuRIC and Dames & Moore; (ii) the existence of multiple breaches of contract by AuRIC and Dames & Moore under the Agreement for Services and the License Agreement; and (iii) the pending Lawsuit. Moreover, the Company deemed the probability of commercial grade gold or silver located in the Blackhawk II claims to be nil. On approximately September 25, 2001, Geneva, IGCO, INGC, and others entered into settlement agreements and releases with Dames & Moore, et. al., and AuRIC in which the parties agreed to settle in order to diminish the continuous burden, cost and expense of protracted ongoing litigation. See "Item 3. Legal Proceedings" for further disclosure. 3 New Business Endeavors During fiscal year ended December 31, 2001, management of the Company entered into two separate letters of intent to (i) acquire 100% of the issued and outstanding shares of common stock of FP Telecom Ltd, a company engaged in the leasing of cellular telephone equipment and services; and (ii) acquire 100% of the issued and outstanding shares of common stock of National Care Card, Inc., a company engaged in offering significantly discounted rates on health services. However, based on the results of the Company's due diligence, management did not consider the acquisition of either FP Telecom Ltd nor National Care Card, Inc. probable events and terminated negotiations. As of the date of this Annual Report, management of the Company is undertaking research relating to prospective new business endeavors and possible new acquisitions. This research may result in the Company entering into business operations that are not in the minerals exploration field. ITEM 2. PROPERTIES The Company does not own any real estate or other properties. The Company leases office space and its offices are located at 3305 Spring Mountain Road, Suite 60, Las Vegas, Nevada 89102. ITEM 3. LEGAL PROCEEDINGS On September 27, 1999, Geneva and INGC, on behalf of IGCO, initiated legal proceedings against AuRIC and Dames & Moore by filing a complaint in the District Court of the Third Judicial District for Salt Lake City, State of Utah, for: (i) multiple breaches of contract relating to the Agreement for Services and the License Agreement, respectively, including, but not limited to, establishment and facilitation of the proprietary technology and fire assay procedures developed by AuRIC at an independent assay lab and failure to deliver the proprietary technology and procedures to IGCO, Geneva and Dames & Moore; (ii) breach of the implied covenant of good faith and fair dealing; (iii) negligent misrepresentation; (iv) specific performance, (v) non-disclosure injunction; (vi) failure by AuRIC to repay advances, and (vii) quantum meruit/unjust enrichment. INGC, on behalf of IGCO, also named Dames & Moore in the legal proceeding in a declaratory relief cause of action (collectively, the "Lawsuit"). On October 8, 1999, Geneva and INGC, on behalf of IGCO, amended the complaint by naming as defendants AuRIC, Dames & Moore, Ahmet Altinay General Manager of AuRIC, and Richard Daniele, Chief Metallurgist for Dames & Moore and specifying damages in excess of $10,000,000. The damages sought by Geneva and INGC, on behalf of IGCO, are based on the general claims and causes of action set forth in the amended complaint relating to reliance on the assays and representations made by AuRIC, the actions and engineering reports produced by Dames & Moore and, specifically, the negligent misrepresentations and inaccuracies contained within some or all of those Dames & Moore reports and breaches of contract by AuRIC and Dames & Moore. On or about November 17, 1999, AuRIC, Dames & Moore, Richard Daniele and Ahmet Altinay filed separate answers to the amended complaint, along with counterclaims and a third party complaint against Geneva, INCG, IGCO and others for breach of contract against Geneva, INGC and others, defamation against IGCO, INGC, Geneva and others, injunctions against IGCO, INGC, Geneva and others, 4 amongst other claims. In their defamation claims against IGCO, the plaintiffs sought damages and punitive damages in an amount to be determined at trial, as well as attorney's fees and costs. In connection with the cause of action for preliminary and permanent injunctions against IGCO, AuRIC and Ahmet Altinay sought attorney's fees and costs. On approximately June 14, 2000, Dames & Moore filed an action against IGCO, INGC and others in the District Court of the Fifth Judicial District of the State of Idaho, in and for the County of Lincoln (the "Idaho Lawsuit"). In the Idaho Lawsuit, Dames & Moore sought foreclosure of a lien against IGCO and/or INGC which purportedly arose in favor of Dames & Moore. INGC has dropped the bulk of its mining claims, except for a small group related to this litigation as IGCO and INGC believed that the mining claims contain no commercial quantities of gold or silver. Dames & Moore sought to have the mining claims sold to compensate Dames & Moore for its services, materials and equipment. Dames & Moore also sought its fees and costs incurred in enforcing its claimed lien. IGCO and INGC filed an answer on or about August 8, 2000. On June 21, 2000, Geneva and INGC, on behalf of IGCO, filed a second amended complaint in the District Court of the Third Judicial District for Salt Lake City, State of Utah. The second amended complaint increased detail regarding the alleged breaches of contract and increased causes of action against other parties involved by adding two new defendants, MBM Consulting, Inc. and Dr. Michael B. Merhtens, who provided consulting services to INGC. The amendment also added certain claims of other entities involved through Geneva against the defendants. The proprietary technology formed the basis of claims made by Geneva and INGC, on behalf of IGCO, in the complaints as filed with the District Court. Geneva and INGC, on behalf of IGCO, alleged that the proprietary technology does not exist and that Geneva and INGC were fraudulently, recklessly and/or negligently deceived by AuRIC, Dames & Moore, and other parties to the Lawsuit. Geneva and INGC subsequently obtained an order from the District Court granting its Motion to Compel. The Order required that AuRIC and Dames & Moore produce the proprietary technology for Geneva's and INGC's restricted use by its legal counsel and industry experts. Geneva and INGC, on behalf of IGCO, obtained an expert opinion as to the absence of validity and ineffectiveness of the proprietary technology. On November 10, 2000, Geneva and INGC filed motions for partial summary judgment against Dames & Moore and AuRIC. Subsequently, on March 19, 2001, the motions for partial summary judgment were denied. The court, however, provided a ninety-day period during which both parties were required to prepare for trial, and after such period the court would set a date for trial. At a scheduling conference held on July 31, 2001, the court set trial for a period of fifteen days commencing October 16, 2001. The court date was subsequently changed to October 26, 2001 pursuant to mutual consent of the parties in an attempt to mediate the dispute. Such mediation was unsuccessful. Agreements Relating to Litigation The Company and Geneva entered into an assignment agreement dated May 9, 2000 (the "Assignment Agreement") that transferred and conveyed to Geneva the potential claims and causes of action that the Company may have under the Sub-License Agreement with Geneva. 5 On June 22, 2001, IGCO, INGC, Geneva, Brent Pierce, MBM Consultants, Inc. and Michael B. Mehrtens entered into a settlement agreement (the "Mehrtens Settlement Agreement"). Pursuant to the terms of the Mehrtens Settlement Agreement, the parties agreed to treat the contents of the Mehrtens Settlement Agreement as strictly confidential and to not disclose such terms and provisions to anyone. As IGCO has not generated revenues and has no liquid assets to commit to fund the significant estimated future expenses associated with ongoing litigation, on June 28, 2001, Geneva, IGCO, INGC, Tristar Financial Services, Inc. ("Tristar") and Alexander Cox ("Cox") entered into a funds sharing agreement (the "Funds Sharing Agreement"). Pursuant to the terms of the Funds Sharing Agreement, (i) Tristar would fund the direct costs of the litigation on a best efforts basis relating to the Lawsuit for the period from April 1, 2001 to the date that the Lawsuit was settled; (ii) as consideration therefore, Tristar would receive thirty percent (30%) of the gross proceeds received by Geneva, IGCO and INGC from any and all settlements relating to the Lawsuit, plus the repayment of all payments and advances made by Tristar (the "Tristar Payment"); and (iii) the Tristar Payment would be shared with Cox in proportion of (a) the funds advanced and paid by Cox to Tristar for the purpose of funding the costs of the litigation, (b) divided by the total amount of funds advanced by and paid by Tristar, (c) times the amount of the Tristar Payment. Cox is a shareholder of IGCO and as of the date of this Annual Report, holds an approximate 17.12% equity interest in IGCO. On September 21, 2001, Geneva, IGCO, INGC and others entered into a settlement agreement with AuRIC and Ahmet Altinay (the "AuRIC Settlement Agreement"). Pursuant to the terms of the AuRIC Settlement Agreement, the parties agreed that: (i) significant additional expense and time would be incurred to proceed with and resolve the Lawsuit and therefore desired to settle the Lawsuit; (ii) AuRIC would pay an undisclosed sum; (iii) AuRIC would return three promissory notes in the principal amounts of $250,000 marked cancelled payable to AuRIC by the Company, IGCO and Vega-Atlantic Corporation, respectively; (iii) AuRIC would return all stock certificates received from the Company, IGCO and Vega-Atlantic Corporation, respectively; (iv) the parties would execute and jointly file a motion to dismiss the parties' respective claims and counterclaims in the Lawsuit; (v) the parties would release one another from any and all claims and liabilities, whether known or unknown, arising from or based upon the Lawsuit; and (vi) the Agreement for Services, the License Agreement and the related Sub-License Agreement would be deemed null, void and without further force or effect. On September 25, 2001, Geneva, IGCO, INGC, and others entered into a settlement agreement and release with Dames & Moore, et. al. (the "Dames & Moore Settlement Agreement"). Pursuant to the terms of the Dames & Moore Settlement Agreement, the parties agreed that: (i) solely to save the burden, cost and expense of continued litigation, the Lawsuit and the Idaho Lawsuit would be settled without any admission of liability by any party; (ii) the parties would execute and jointly file a motion to dismiss the parties' respective claims and counterclaims in the Lawsuit and the Idaho Lawsuit with prejudice; (iii) the parties would release one another from any and all claims and liabilities, whether known or unknown, arising from or based upon the Lawsuit and the Idaho Lawsuit, including those arising from or related to the Blackhawk projects, mining claims and property; (iv) each party would bear its own respective attorneys' fees and costs incurred in connection with the Lawsuit, the Idaho Lawsuit and the Dames & Moore Settlement Agreement; and (v) Dames & Moore would pay $798,000. 6 Results of Settlement Pursuant to the Assignment Agreement, the Company transferred and conveyed to Geneva the potential claims and causes of action that the Company may had under the Sub-License Agreement with Geneva. The amount of damages to be recovered by Geneva and INGC pursuant to the Dames & Moore Settlement Agreement and the AuRIC Settlement Agreement were primarily used for payment of attorneys fees, expert witness fees, and associated costs of litigation. The Company, therefore, was not in a position to retain any portion of the cash settlement damages. IGCO and INGC had paid an aggregate of $938,805 in cash to AuRIC and Dames & Moore for services before the litigation commenced. IGCO and INGC also owed $219,469 to Dames & Moore for disputed but unpaid services. Prior to the litigation, (i) AuRIC received 100,000 shares of Common Stock from the Company and a promissory note in the principal amount of $250,000, and (ii) Geneva received a promissory note in the principal amount of $250,000 and a promissory note in the principal amount of $100,000. As of the date of this Annual Report, the Company has received: (i) the share certificate issued to AuRIC representing 100,000 shares of Common Stock, which has been cancelled and the shares returned to treasury; (ii) the promissory note in the principal amount of $250,000 payable by the Company to AuRIC, which has been cancelled; (iii) the promissory note in the principal amount of $250,000 payable by the Company to Geneva, which has been cancelled; (iv) the promissory note in the principal amount of $100,000 payable by the Company to Geneva, which has been cancelled; and (v) $10,000. Geneva, IGCO, INGC and other parties also received an aggregate of $808,000 in settlement proceeds. An aggregate in excess of approximately $2,000,000 was incurred as legal fees and associated direct costs relating to the litigation. Of the $808,000 in settlement proceeds, $345,000 was paid for outstanding amounts due and owing to legal counsel relating to the litigation, $10,000 was paid to the Company, and the remaining $453,000 was paid to Tristar to provide a partial recovery of approximately $800,000 paid by Tristar pursuant to the provisions of the Funds Sharing Agreement. At the time the respective settlement agreements were entered into, after incurring in excess of $2,000,000 in legal fees and associated direct costs relating to the litigation, management of IGCO estimated that future litigation costs to continue through the trial stage could have reached an additional $1,000,000, with no guarantee of either outcome or award. Management of IGCO further believed that if the litigation proceeded to trial, any positive future monetary award in favor of IGCO and INGC could have been subjected to a lengthy appeals process and further legal costs. While Dames & Moore, currently a subsidiary of URS Corporation, has approximately $2 billion in annual revenues representing a formidable resource for future legal expenses, IGCO has not generated revenues and has no liquid assets to commit to such significant estimated future expenses associated with ongoing litigation. Management of IGCO believes, therefore, that settlement of the litigation and execution of the respective settlement agreements was in the best interests of IGCO, the Company and respective shareholders. 7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Pursuant to a Definitive Proxy Statement dated December 19, 2000, a shareholders' special meeting was held on January 30, 2001 in which the shareholders of the Company voted and approved certain proposals. Fifty-two percent (52%) of the outstanding shares of common stock entitled to vote, represented in person or by proxy, was required for a quorum at the special meeting. The affirmative vote of shareholders holding at least a majority of the shares of common stock present, or represented, at the special meeting, was required to approve certain proposals as follows: 1. To authorize the Board of Directors to effect a reverse stock split of one-for-ten (the "Reverse Stock Split") of the Company's outstanding Common Stock, depending upon a determination by the Board of Directors that a Reverse Stock Split was in the best interests of the Company and its shareholders; 2. To adopt an amendment to the Company's Articles of Incorporation, as amended, which would effect the Reverse Stock Split, without having any effect upon the authorized and unissued shares of Common Stock; 3. To elect the following three (3) persons to serve as directors of the Company until their successor shall have been elected and qualified: Carson Walker, Ron F. Horvat and James Bunyan; and 4. To ratify the selection of LaBonte & Co. as the independent public accountants of the Company for the fiscal year ending December 31, 2001. No other matters or business were introduced or voted upon by the shareholders at the special meeting. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information Goldstate Corporation's common stock is traded on the OTC Bulletin Board under the symbol "GDSS". The market for the Company's common stock is limited, volatile and sporadic. The following table sets forth the high and low sales prices relating to the Company's common stock for the last two fiscal years. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions. FISCAL YEARS ENDED ------------------------------------------------------------ DECEMBER 31, 2001 DECEMBER 31, 2000 ------------------------------------------------------------ HIGH BID LOW BID HIGH BID LOW BID ------------------------------------------------------------ First Quarter $0.140 $0.007 $5.900 $0.200 Second Quarter $0.530 $0.030 $5.500 $0.062 Third Quarter $0.250 $0.100 $1.200 $0.300 Fourth Quarter $0.180 $0.050 $0.400 $0.100 8 Holders As of March 25, 2002, the Company had approximately 46 shareholders of record. Dividends No dividends have ever been declared by the board of directors of the Company on its common stock. During the fiscal year ended December 31, 2001, the Company did not pay any dividends on its preferred stock. The Company's losses do not currently indicate the ability to pay any cash dividends, and the Company does not indicate the intention of paying cash dividends in the foreseeable future. Recent Sales of Unregistered Securities During fiscal year ended December 31, 2001, to provide capital, the Company has sold stock in private placement offerings or issued stock in exchange for debts of the Company or pursuant to contractual agreements as follows: |X| On May 18, 2001, the board of directors of the Company authorized the execution of settlement agreements with certain creditors of the Company and the subsequent issuance of an aggregate of 7,035,308 shares of its restricted common stock. The Company has incurred debt inclusive of accrued interest in the aggregate amount of $125,706.17 and $15,000.00, respectively, with certain creditors of the Company (the "Creditor(s)"). Such debt due and owing by the Company relates to either past financial, administrative and managerial services performed by the respective Creditor pursuant to consulting service agreements entered into with the Company and/or prior advances made by the respective Creditor to the Company. Therefore, the Company entered into separate settlement agreements dated May 18, 2001, respectively, with each Creditor (the "Settlement Agreement(s)"), whereby each Creditor agreed to settle the debt owed to it by the Company and accept the issuance of restricted common shares of the Company at the rate of $0.02 per share as settlement for all interest and principle due and outstanding to such Creditor as of the date of the Settlement Agreement as follows: - -------------------------------------------------------------------------------- Name of Creditor Dollar Amount Rate per Share Number of Shares of Of Debt Common Stock Issued - -------------------------------------------------------------------------------- Tarmac Management Ltd. $125,706.17 $0.02 6,285,308 No. 50 Corporate $15,000.00 $0.02 750,000 Ventures Ltd. - -------------------------------------------------------------------------------- |X| Subsequently, Tarmac Management Ltd. ("Tarmac") entered into several separate assignment agreements dated May 18, 2001 (the "Assignment Agreement(s)"), whereby Tarmac agreed to assign certain of its rights, title and interest in the Settlement Agreement, including the issuance of the restricted common shares of the Company, in exchange for the settlement and release of contractual debts owed by Tarmac to certain creditors. On May 18, 2001, the Company issued an aggregate of 7,035,308 of its restricted common stock to the Creditors and the respective assignees of Tarmac based upon the assignee's proportionate right to the issuance of such shares of restricted common stock. 9 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS The following discussions of the Company's results of operations and financial position should be read in conjunction with the financial statements and notes pertaining to them that appear elsewhere in this Form 10-KSB. For Fiscal Year Ended December 31, 2001 compared with Fiscal Year Ended December 31, 2000 As of the date of this Annual Report, there has been no income realized from the business operations of the Company. The Company's primary source of cash has been from advances made to the Company. Results of Operations The Company's net income for fiscal year ended December 31, 2001 was approximately $484,864 compared to a net loss of approximately $137,836 for fiscal year ended December 31, 2000. During both fiscal years ended December 31, 2001 and 2000, respectively, the Company recorded no revenue. During fiscal year ended December 31, 2001, the Company recorded actual operating expenses of $193,468, which were offset by a recognized gain of $678,332, resulting in a recognized income from continuing operations of $484,864. During fiscal year ended December 31, 2000, the Company recorded operating expenses of $137,836 (an increase of $55,632). During fiscal years ended December 31, 2001 and 2000, respectively, the Company did not incur any claims maintenance fees, exploration or staking costs resulting primarily from suspension of any further exploration of the Blackhawk II Property during 2000. During fiscal year ended December 31, 2001, the Company incurred operating expenses of $193,468, which primarily consisted of $169,422 in general and administrative expenses and $24,046 in interest expense. During fiscal year ended December 31, 2000, the Company incurred operating expenses of $137,836, which primarily consisted of $103,481 in general and administrative expenses and $34,355 in interest expense. The increase in general and administrative expenses during fiscal year ended December 31, 2001 was due primarily to an increase in expenses related to research of possible new business endeavors and the identification of possible new acquisitions. General and administrative expenses generally include corporate overhead, administrative salaries, consulting costs and professional fees. Although the Company actually incurred $193,468 of actual operating expenses during fiscal year ended December 31, 2001, such expenses were offset by the recognition of a gain in the amount of $678,332 resulting from the settlement of the Lawsuit. During fiscal year ended December 31, 2001, this resulted in recognized income from continuing operations of $484,864. Of the $169,422 incurred as general and administrative expenses during fiscal year ended December 31, 2001, approximately $60,000 was incurred payable to Tarmac Management Ltd. ("Tarmac") for amounts due and owing for managerial, administrative and financial services rendered. During fiscal year ended 10 December 31, 2001, advances in the amount of $62,900 were made by Tarmac and $6,749 of interest accrued thereon and the Company paid $ -0- to Tarmac towards an aggregate principal of $129,649 due and owing Tarmac. During fiscal year ended December 31, 2001, the Company settled a debt due and owing to Tarmac in the amount of $125,706 by issuance of 6,285,308 shares of Common Stock. Such services rendered by Tarmac include, but are not limited to, financial, administrative and investor relations management. As discussed above, the recognition of net income during fiscal year ended December 31, 2001 as compared to the net loss incurred during fiscal year ended December 31, 2000 is attributable primarily to the realization of a gain on the settlement of the Lawsuit. The Company's net earnings during fiscal year ended December 31, 2001 were approximately $484,964 or $0.06 per share compared to a net loss of approximately ($137,836) or ($0.04) per share during fiscal year ended December 31, 2000. The weighted average number of shares outstanding was 8,181,951 for fiscal year ended December 31, 2001 compared to 3,269,108 for fiscal year ended December 31, 2000, after giving retroactive effect to the ten for one share consolidation completed on February 13, 2001. LIQUIDITY AND CAPITAL RESOURCES As of fiscal years ended December 31, 2001 and 2000, the Company's total assets were $-0-. The lack of assets is due primarily to a lack of cash and cash equivalents. As of fiscal year ended December 31, 2001, the Company's total liabilities were $168,364 compared to total liabilities of $783,934 for fiscal year ended 2000. This decrease in liabilities from fiscal year ended 2000 was due primarily to the cancellation of notes payable relating to the Lawsuit and the decrease in accrued interest in the amount of $40,040 from $44,274 during fiscal year ended December 31, 2000 to $4,234 during fiscal year ended December 31, 2001. Stockholders' Deficit decreased from ($783,934) for fiscal year ended December 31, 2000 to ($168,364) for fiscal year ended December 31, 2001. Audit Committee As of the date of this Annual Report, the Company has not appointed members to an audit committee and, therefore, the respective role of an audit committee has been conducted by the board of directors of the Company. When established, the audit committee's primary function will be to provide advice with respect to the Company's financial matters and to assist the board of directors in fulfilling its oversight responsibilities regarding finance, accounting, tax and legal compliance. The audit committee's primary duties and responsibilities will be to: (i) serve as an independent and objective party to monitor the Company's financial reporting process and internal control system; (ii) review and appraise the audit efforts of the Company's independent accountants; (iii) evaluate the Company's quarterly financial performance as well as its compliance with laws and regulations; (iv) oversee management's establishment and enforcement of financial policies and business practices; and (v) provide an open avenue of communication among the independent accountants, management and the board of directors. The board of directors has considered whether the regulatory provision of non-audit services is compatible with maintaining the principal independent accountant's independence. 11 Audit Fees As of the date of this Annual Report, the Company has incurred approximately $5,600 as fees billed by its principal independent accountant for professional services rendered in connection with preparation of the Company's audited financial statements for fiscal year ended December 31, 2001. For fiscal year ended December 31, 2001, the Company incurred $5,400 as fees billed by its principal independent accountant for all other non-audit services (including reviews of the Company's quarterly financial statements). ITEM 7. FINANCIAL STATEMENTS The information required under Item 310(a) of Regulation S-B is included in this report as set forth in the "Index to Financial Statement". Index to Financial Statements Report of Independent Public Accountants Balance Sheets Statements of Operations Statements of Stockholders' Equity Statements of Cash Flow Notes to Financial Statements 12 TABLE OF CONTENTS PAGE Table of Contents F-1 Auditors' Report F-2 Balance Sheets F-3 Statements of Operations F-4 Statements of Stockholders' Equity F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7 - F-9 F-1 LABONTE & CO. 1205 - 1095 West Pender Street - ---------------------------------------- Vancouver, BC Canada C H A R T E R E D A C C O U N T A N T S V6E 2M6 - ---------------------------------------- Telephone (604) 682-2778 Facsimile (604) 689-2778 Email rjl@labonteco.com AUDITORS' REPORT - -------------------------------------------------------------------------------- To the Stockholders and Board of Directors of Goldstate Corporation We have audited the balance sheet of Goldstate Corporation. (an exploration stage company) as at December 31, 2001 and the statements of operations, stockholders' equity and cash flows for the year then ended. 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 Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2001 and the results of its operations and its cash flows and the changes in stockholders' equity for the year then ended in accordance with United States generally accepted accounting principles. /s/ LaBonte & Co. ---------------------------------- LaBonte & Co. CHARTERED ACCOUNTANTS Vancouver, B.C. January 31, 2002 COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-UNITED STATES REPORTING - ----------------------------------------------------------------------- DIFFERENCES - ----------- In the United States, reporting standards for auditors would require the addition of an explanatory paragraph following the opinion paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in Note 1. Our report to the Stockholders and Board of Directors dated January 31, 2002 is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors' report when these are adequately disclosed in the financial statements. /s/ LaBonte & Co. ---------------------------------- LaBonte & Co. CHARTERED ACCOUNTANTS Vancouver, B.C. January 31, 2002 F-2
GOLDSTATE CORPORATION (An Exploration Stage Company) BALANCE SHEETS December 31, December 31, 2001 2000 ----------- ----------- ASSETS TOTAL ASSETS $ -- $ -- =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft $ 319 $ -- Accounts payable and accrued liabilities 33,844 47,178 Due to related parties (Note 5) 129,967 92,482 Accrued interest payable 4,234 44,274 Notes payable (Note 3) -- 600,000 ----------- ----------- 168,364 783,934 ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIENCY) Capital Stock (Note 4) Preferred stock, $.001 par value; 25,000,000 shares authorized; Nil shares issued and outstanding -- -- Common stock, $.0003 par value, 75,000,000 shares authorized 10,747,261 (2000 - 38,119,500) shares issued and outstanding 13,550 11,740 Additional paid-in capital 2,695,985 2,567,089 Deficit accumulated during the exploration stage (2,877,899) (3,362,763) ----------- ----------- (168,364) (783,934) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -- $ -- =========== =========== CONTINGENCIES (Note 1) The accompanying notes are an integral part of these financial statements F-3
GOLDSTATE CORPORATION (An Exploration Stage Company) STATEMENTS OF OPERATIONS February 28, Year ended Year ended 1996 (inception) December December to December 31, 31, 2001 31, 2000 2001 ----------- ----------- ----------- PROPERTY EXPLORATION EXPENSES Technology sub-license costs $ -- $ -- $ 666,852 Claims maintenance fees, exploration and staking costs -- -- 187,805 Impairment loss related to profit sharing interest -- -- 170,000 ----------- ----------- ----------- -- -- 1,024,657 GENERAL AND ADMINISTRATIVE EXPENSES 169,422 103,481 2,339,316 INTEREST EXPENSE 24,046 34,355 192,258 GAIN ON SETTLEMENT OF LAWSUIT (Notes 3 & 6) (678,332) -- (678,332) ----------- ----------- ----------- NET LOSS (INCOME) FOR THE PERIOD $ (484,864) $ 137,836 $ 2,877,899 =========== =========== =========== BASIC (INCOME) LOSS PER SHARE $ (0.06) $ 0.04 =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,181,951 3,269,108 =========== =========== The accompanying notes are an integral part of these financial statements F-4
GOLDSTATE CORPORATION (An Exploration Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM FEBRUARY 28, 1996 (INCEPTION) TO DECEMBER 31, 2001 Common Stock -------------------------- Deficit Total Accumulated Additional During Paid - in Exploration Shares Amount Capital Stage ----------- ----------- ----------- ----------- ----------- Balance, February 28, 1996 (inception) -- $ -- $ -- $ -- $ -- Issuance of common stock for cash ($.001 par per share,$.004 per share) 3,038,000 3,038 9,342 -- 12,380 Less offering costs -- -- (7,173) -- (7,173) Stock Split on a 3:1 basis 6,076,000 -- -- -- -- Net loss, February 28, 1996 (inception) to December 31, 1996 -- -- -- (4,164) (4,164) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1996 9,114,000 3,038 2,169 (4,164) 1,043 Shares redeemed (5,500,200) (1,650) 1,650 -- -- Issuance of common stock for cash ($.0003 par per share, total of $.20 per share) 1,825,000 548 364,452 -- 365,000 Net loss, year ended December 31, 1997 -- -- -- (942,938) (942,938) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1997 5,438,800 1,936 368,271 (947,102) (576,895) Issuance of common stock pursuant to profit sharing agreement ($.0003 par per share, total of $.17 per share) 1,000,000 300 169,700 -- 170,000 Issuance of common stock for cash ($.0003 par per share, total of $.20 per share) 2,300,000 690 459,310 -- 460,000 Net Loss, Year ended December 31, 1998 -- -- -- (439,473) (439,473) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 8,738,800 2,926 997,281 (1,386,575) (386,368) Issuance of common stock in settlement of debt ($.0003 par per share, total of $.20 per share) 42,500 13 8,496 -- 8,509 Issuance of common stock pursuant to Technology Sublicense Agreement ($.0003 par per share, total of $.09 per share) 1,000,000 300 89,700 -- 90,000 Issuance of common stock for cash ($.0003 par per share, total of $.20 per share) 4,350,000 1,305 868,695 -- 870,000 Adjustment of shares outstanding 200 -- -- -- -- Net Loss, year ended December 31, 1999 -- -- -- (1,838,352) (1,838,352) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1999 14,131,500 4,544 1,964,172 (3,224,927) (1,256,211) ----------- ----------- ----------- ----------- ----------- The accompanying notes are an integral part of these financial statements F-5
GOLDSTATE CORPORATION (An Exploration Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM FEBRUARY 28, 1996 (INCEPTION) TO DECEMBER 31, 2001 (Continued) Common Stock -------------------------- Deficit Total Accumulated Additional During Paid - in Exploration Shares Amount Capital Stage ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1999 14,131,500 4,544 1,964,172 (3,224,927) (1,256,211) Issuance of common stock in settlement of debt ($.0003 par per share, total of $.0175 per share) 22,970,000 6,891 395,257 -- 402,148 Issuance of common stock on conversion of notes ($.0003 par per share, total of $.2043 per share) 1,018,000 305 207,660 -- 207,965 Net Loss, year ended December 31, 2000 -- -- -- (137,836) (137,836) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2000 38,119,500 11,740 2,567,089 (3,362,763) (783,934) Share consolidation - 10:1 (34,307,547) -- -- -- -- Issuance of common stock in settlement of debt ($.0003 par per share, total of $.02 per share) 7,035,308 2,110 138,596 140,706 Return and cancellation of shares issued for technology sublicense agreement (100,000) (300) (9,700) -- (10,000) Net income (loss), year ended December 31, 2001 -- -- -- 484,864 484,864 ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2001 10,747,261 13,550 2,695,985 (2,877,899) (168,364) =========== =========== =========== =========== =========== The accompanying notes are an integral part of these financial statements F-5 {Con't)
GOLDSTATE CORPORATION (An Exploration Stage Company) STATEMENTS OF CASH FLOWS February 28, Year ended Year ended 1996 (inception) December 31, December 31, to December 31, 2001 2000 2001 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) for the period $ 484,864 $ (137,836) $(2,877,899) Adjustments to reconcile net loss to net cash from operating activities: - Impairment loss on profit sharing interest -- -- 170,000 - Non-cash technology sub-license costs -- -- 690,000 - Net discount recognized on technology notes payable -- 3,495 -- - Gain on settlement of lawsuit (668,332) -- (668,332) - Changes in assets and liabilities Accounts payable 36,249 34,751 91,937 Due to related parties 122,900 92,482 215,382 Directors fees payable -- (24,000) -- Accrued interest payable 24,000 30,860 169,065 ----------- ----------- ----------- CASH FLOWS USED IN OPERATING ACTIVITIES (319) (248) (2,209,847) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft 319 -- 319 Sale of common stock -- -- 1,700,207 Advances received -- -- 1,880,521 Advances repaid -- -- (1,546,200) Proceeds from notes payable -- -- 175,000 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES 319 -- 2,209,847 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH -- (248) -- CASH, BEGINNING OF PERIOD -- 248 -- ----------- ----------- ----------- CASH, END OF PERIOD $ -- $ -- $ -- =========== =========== =========== OTHER NON-CASH TRANSACTIONS: During the year ended December 31, 2001, the Company issued 7,035,308 post-consolidation common shares at a price of $.02 per share in settlement of accounts payable, amounts due to related parties and accrued interest totalling $140,706. In connection with the settlement described in Note 6, during the year ended December 31, 2001, the Company wrote off its notes payable and accrued interest totalling $658,332 and reacquired 100,000 post-consolidation shares valued at $10,000, resulting in a non-cash gain of $658,332. The accompanying notes are an integral part of these financial statements F-6
GOLDSTATE CORPORATION (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 - -------------------------------------------------------------------------------- NOTE 1: NATURE OF CONTINUED OPERATIONS The Company is an exploration stage company. To date, the Company has not generated revenues from operations and as of December 31, 2001 had a working capital deficiency and stockholders' deficiency of $168,364 raising substantial doubt as to the Company's ability to continue as a going concern. The Company's continued operations are dependent on its ability to obtain additional financing and ultimately to attain profitable operations. The Company ceased exploration of the joint venture Black Hawk mining claims located in the State of Idaho in 1999, pending the outcome of ongoing litigation with regard to the transfer of technology pursuant to the Sub-license Agreement between the Company and Geneva Resources, Inc. As a settlement to the litigation has been reached, the technology will no longer be transferred and no further exploration work is planned. Refer to Note 6. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Mineral property costs Mineral property acquisition, exploration and development costs are expensed as incurred until such time as economic reserves are quantified. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Financial Instruments The fair value of the Company's financial assets and financial liabilities approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Stock-Based Compensation The Company accounts for stock-based compensation in respect to stock options granted to employees and officers using the intrinsic value based method in accordance with APB 25. Stock options granted to non-employees are accounted for using the fair value method in accordance with SFAS No. 123. In addition, with respect to stock options granted to employees, the Company provides pro-forma information as required by SFAS No. 123 showing the results of applying the fair value method using the Black-Scholes option pricing model. The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18. Income taxes The Company follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. Recent Accounting Pronouncements On March 31, 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No.44, Accounting for Certain Transactions Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN 44"), which provides guidance as to certain applications of APB 25. FIN 44 is generally effective July 1, 2000 with the exception of certain events occurring after December 15, 1998. The Company has determined that the implementation of this standard does not have a material impact on its financial statements. At December 31, 2001 a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been recorded. F-7 GOLDSTATE CORPORATION Page F-8 (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 - -------------------------------------------------------------------------------- NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't) Net Loss per Common Share Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive earnings per share reflects the potential dilution of securities that could share in the earnings of the Company. Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share. NOTE 3: NOTES PAYABLE Pursuant to the Technology Sub-license agreement with Geneva Resources, Inc., the Company issued promissory notes to both Geneva and AuRIC in the amount of $250,000 to each company. These were 3% interest bearing notes and were payable upon the transfer of the technology. Pursuant to an amendment to the Technology Sub-license agreement, the company had issued a convertible promissory note to Geneva Resources, Inc. ("Geneva") in the amount of $100,000 that is convertible to 500,000 restricted common shares upon demand, and bears interest at the rate of 8% per annum. These promissory notes were to become due and payable upon the transfer of the technology. Such transfer never occurred and upon settlement of the lawsuit as described in Note 6 all notes including accrued interest were cancelled. NOTE 4: CAPITAL STOCK The Company completed a ten for one share consolidation on February 13, 2001, resulting in a decrease in issued and outstanding common stock from 38,119,500 shares to 3,811,953 shares. During the year the Company issued 7,035,308 post-consolidation restricted common shares at a price of $.02 per share in settlement of accounts payable and accrued interest totalling $140,706. During the year 100,000 post-consolidation common shares originally issued pursuant to the Technology Sub-license agreement were returned to the Company as part of the litigation settlement. These shares were returned to treasury and cancelled. See Note 6. The weighted average number of shares outstanding and loss per share figures for the year ended December 31, 2000 have been restated to reflect the 10:1 share consolidation on February 13, 2001. NOTE 5: RELATED PARTY TRANSACTIONS During the year ended December 31, 2001 $30,000 was incurred to a significant shareholder for consulting and administrative expenses. Also in this year $15,000 owing to this shareholder was settled by the issuance of 750,000 post-consolidation restricted common shares at $.02 per share. At December 31, 2001 $34,583 is owing to this shareholder. During the year ended December 31, 2001 $60,000 was incurred to Tarmac Management Ltd. ("Tarmac"), a significant shareholder, for administrative and management fees, $62,900 was paid by Tarmac for expenses of the Company and $6,749 of interest was accrued to Tarmac. Also, $125,706 owing to Tarmac, including accrued interest of $5,708, was settled by the issuance of 6,285,308 post-consolidation restricted common shares at $.02 per share representing approximately 58% of the issued and outstanding shares resulting in a change in control. The majority of these shares were issued to creditors of Tarmac pursuant to debt assignments. At December 31, 2001 $95,384 plus $4,234 of accrued interest is owing to Tarmac. F-8 GOLDSTATE CORPORATION Page F-9 (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 - -------------------------------------------------------------------------------- NOTE 6: SETTLEMENT OF LAWSUIT On May 8, 2000, the Company executed an assignment agreement to Geneva that transferred and conveyed the potential claims and causes of an action that the Company had in connection with the Sub-license Agreement with Geneva. If amounts were recovered from the lawsuit initiated during 1999 by International Gold Corporation, a subsidiary of Intergold Corporation, a public corporation, and Geneva, the Company will receive the equivalent pro rata share of the recovery in relation to all other claims and causes of action by other parties for which any damages or settlement amounts are recovered. On October 8, 2000, the Company's joint venture partners, Intergold Corporation, International Gold Corporation, and Geneva initiated a legal complaint against AuRIC Metallurgical Laboratories, LLC ("AuRIC"), Dames & Moore, Ahmet Altinay, General Manager of AuRIC, and Richard Daniele, Chief Metallurgist for Dames & Moore. The damages sought by IGCO/IGC/Geneva were to be determined in court. The damages incurred stemmed from reliance on assays and representations made by AuRIC and upon actions and engineering reports produced by Dames & Moore related to the Blackhawk claims. The plaintiffs also alleged that there were breaches of contract by AuRIC and Dames and Moore, as well as other causes of action. During September 2001, a settlement was reached and all parties agreed to have the lawsuit dismissed. As part of the settlement, the Company received $10,000, the promissory notes totalling $600,000 and accrued interest totalling $58,332 to AuRIC and Geneva were cancelled, and 100,000 post-consolidation shares issued to AuRIC were returned to treasury and cancelled, resulting in a total gain of $678,332. See Notes 3 and 4. NOTE 7: INCOME TAXES The Company has recorded no tax provision for the year ended December 31, 2001 as it has sufficient loss carryforwards available to offset the income in the period. As at December 31, 2001 the Company had additional net operating loss carryforwards; however, due to the uncertainty of realization the Company has provided a full valuation allowance against the deferred tax assets resulting from its additional unutilised loss carryforwards. F-9 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OF ACCOUNTING AND FINANCIAL DISCLOSURE Since January 1, 1997 to October 20, 2000, the Company had a former accountant. Since October 21, 2000 and to date, the Company's current principal independent accountants have not resigned or declined to stand for re-election or were dismissed. The Company's former principal independent accountant, Johnson, Holscher & Company, P.C., resigned because of a business decision made by management of Johnson, Holscher & Company, P.C. to cease rendering services for clients which involve services or representation under the Securities Act or the Securities Exchange Act of 1934, as amended. Subsequently, management of the Company determined that the accounting firm of Labonte & Co. be engaged to provide services. Such decision to change accountants was approved by the board of directors. During the Company's two most recent fiscal years and any subsequent interim period preceding the resignation of Johnson, Holscher & Company, P.C., there were no disagreements with either Johnson, Holscher & Company, P.C. or LaBonte & Co., whether or not resolved, on any matter concerning accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of either Johnson, Holscher & Company, P.C. or LaBonte & Co., would have caused Johnson, Holscher & Company, P.C. or LaBonte & Co. to make reference to the subject matter of the disagreements in its respective reports. Neither the Company's current principal independent accountants 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. However, the auditor's report to the financial statements for fiscal year ended December 31, 2001 is qualified as to the Company's ability to continue as a going concern. The Company's principal independent accountant from October 21, 2000 to the current date is Labonte & Co., 1205 - 1095 West Pender Street, Vancouver, British Columbia, Canada V6E 2M6. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Identification of Directors and Executive Officers The directors and executive officers of the Company are as follows: Name Age Position with GDSS - ---- --- ------------------ Laara Shaffer 54 Director and President/Treasurer James Bunyan 38 Director and Secretary LAARA SHAFFER has been the President/Treasurer and a Director of the Company since August 14, 2001. Ms. Shaffer is a corporate management specialist with regulatory and reporting experience involving several publicly traded companies. Ms. Shaffer has developed skills involving private placement and stock option documentation, regulatory filings and news release dissemination and general administration of publicly traded companies listed on Canadian Venture Exchange, Toronto Stock Exchange and Montreal Stock Exchange. During the past five years, Ms. Shaffer has been self-employed and provides general financial, consulting and administrative services to various companies. Ms. Shaffer has been involved with providing international business relations and strategy development, investor relations and shareholder liaison, corporate public relations, press release and public information distribution and financial and business planning services. She currently is a member of the board 13 of directors of seven companies: Madison Energy Corp., Southern Pacific Development Corp., Consolidated Dencam Developments Corp., Aquila Energy Corp., Pro Tech Ventures Corp., Euro-Net Investments Ltd., and X-Chequer Resources Inc. JAMES BUNYAN has been the Secretary and a Director of the Company since January 30, 2001. Mr. Bunyan is a corporate development specialist with international business development experience including industrial and commercial industries worldwide. Mr. Bunyan has developed skills in strategic business planning, mergers, acquisitions, disposals, turnarounds and fundraising with particular emphasis in the international mining industry. Mr. Bunyan is currently a director of Tiberon Minerals Limited in which he renegotiated a joint venture agreement for control of a major polymetallic deposit and arranged a share placing with a London-based investor group to finance further development. Mr. Bunyan is also currently a director of Madison Energy Limited in which he identifies acquisition targets. From 1998 through 1999, he served as the chief executive officer of Carpathian Gold S.A. and from 1993 through 1998, he served as associate director/corporate development consultant of Euroff Limited. In both capacities, Mr. Bunyan conducted review of strategic investment/financing strategies, joint venture initiatives, cost reduction options and organization review, and identified funding opportunities. Mr. Bunyan has a masters degree in business administration from Warwick University and a B.S. in Biochemistry from Heriot-Watt University. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Exchange Act requires the Company's directors and officers, and the persons who beneficially own more than ten percent of the common stock of the Company, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Company pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the reports received by the Company and on the representations of the reporting persons, the Company believes that these persons have complied with all applicable filing requirements during the fiscal year ended December 31, 2001. ITEM 10. EXECUTIVE COMPENSATION Compensation of Officers and Directors For the fiscal year ended December 31, 2001, the Company did not accrue or pay its directors executive compensation. During fiscal year 2001, the Company obtained the services of Tarmac Management Ltd. ("Tarmac") to provide managerial and administrative services. During fiscal year ended December 31, 2001, approximately $60,000 was incurred payable to Tarmac for amounts due and owing for managerial, administrative and financial services rendered. During fiscal year ended December 31, 2001, advances in the amount of $62,900 were made by Tarmac and $6,749 of interest accrued thereon, and the Company paid $ -0- to Tarmac. During fiscal year ended December 31, 2001, the Company settled a debt due and owing to Tarmac in the amount of $125,706 by issuance of 6,285,308 shares of Common Stock. Such services rendered by Tarmac include, but are not limited to, financial, administrative and investor relations management. As of December 31, 2001, $99,618 remains due and owing to Tarmac. During fiscal year 2001, the Company also obtained short term consulting and administrative services from No. 50 Corporate Ventures, a shareholder of the Company that owns approximately 750,000 restricted common shares in the 14 capital of the Company. The Company has accrued approximately $30,000 for management services received during fiscal year 2001, and paid $-0- to No. 50 Corporate Ventures during 2001. During fiscal year 2001, the Company settled a debt due and owing No. 50 Corporate Ventures by the issuance of 750,000 shares of restricted common stock at $0.02 per share. As of December 31, 2001, $34,583 remains due and owing to No. 50 Corporate Ventures. All executive officers and directors of the Company are reimbursed for any out-of-pocket expenses incurred on behalf of the Company. Executive compensation is subject to change concurrent with the Company's requirements. Messrs. Bunyan and Horvat are not officers or directors of Tarmac, nor does the Company own of of record capital stock of Tarmac. Summary Compensation Table Annual Compensation Awards Payouts --------------------- ---------- ------- $ $ $ $ # $ $ Name and Position Salary Bonus Other RSA Options LTIP Other - ----------------- ------ ----- ----- --- ------- ---- ----- Ron V. Horvat 2000 0 0 0 0 0 0 0 Pres./Director 2001 0 0 0 0 0 0 0 Paul Bunyan 2000 0 0 0 0 0 0 0 Secretary/Director 2001 0 0 0 0 0 0 0 Laara Shaffer 2001 0 0 0 0 0 0 0 Non-Qualified Stock Option Plan During fiscal year ended 1999, the Board of Directors of the Company authorized the grant of stock options to certain officers, directors and significant consultants. On April 17, 2000, the Company received assignments from the respective individuals representing all of the options granted under the Non-Qualified Stock Option Plan exercisable into an aggregate of 1,000,000 shares of Common Stock. As of the date of this Annual Report, all options granted to the individuals have been assigned to the Company for possible redistribution at a future date according to the direction of the board of directors. As of the date of this Annual Report, there are no options issued and outstanding under the Stock Option Plan. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the name and address, as of the date of this Annual Report, and the approximate number of shares of Common Stock of IGCO 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 as of the date of this Annual Report. 15 - -------------------------------------------------------------------------------- Title of Class Name and Address Amount and Nature Percent of of Beneficial Owner of Beneficial Owner of Class - -------------------------------------------------------------------------------- (1) Common Stock No. 50 Corporate 750,000 6.98% Ventures Ltd. 1255 W. Pender St. Vancouver, B.C. Canada V6E 2V1 (1) Common Stock Cybergarden 695,000 6.47% Development, Inc. 1177 W. Hastings St. Suite 1710 Vancouver, B.C. Canada V6E 2L3 (1) Common Stock Tarmac Management Ltd. 785,308 7.31% 1250 W. Hastings St. Vancouver, B.C. Canada V6E 2M4 Common Stock All officers and 100,000 .09% directors as a group (2 persons) - -------------------------------------------------------------------------------- (1) These are restricted shares of Common Stock. There are no arrangements or understandings among the entities and individuals referenced above or their respective associates concerning election of directors or any other matters which may require shareholder approval. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The officers/directors of the Company are engaged in other businesses, either individually or through partnerships and corporations in which they may have an interest, hold an office or serve on the boards of directors. Certain conflicts of interest, therefore, may arise between the Company and the respective officer/director. Such conflicts can be resolved through the exercise by such officer/director of judgment consistent with his fiduciary duties to the Company. The officers/directors of the Company intend to resolve such conflicts in the best interests of the Company. Moreover, the officers/directors will devote their time to the affairs of the Company as they deem necessary. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are filed as part of this Annual Report. None. (b) Reports on Form 8-K. None. 16 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOLDSTATE CORPORATION Dated: March 27, 2002 By: /s/ LAARA SHAFFER ---------------------------------- Laara Shaffer, President 17 owned of record or beneficially by each person who owned of record, or was known by GDSS to own beneficially, more than five percent (5%) of GDSS's Common Stock, and the name and shareholdings of each officer and director, and all officers and directors as a group as of the date of this Annual Report. - -------------------------------------------------------------------------------- Title of Class Name and Address Amount and Nature Percent(1) of Beneficial Owner of Beneficial Owner of Class - -------------------------------------------------------------------------------- (2) Common Stock Sheffield Holdings Ltd. 180,000 8.4% The Law Building P.O. Box 14 The Valley, Antigua (2) Common Stock No. 50 Corporate Ventures Ltd. 741,200 12.9% 1250 West Hastings Street Vancouver, British Columbia Canada V6E 2M4 (2) Common Stock Kurny Hellyar 175,000 8.4% R.R. 4 Comp. 28 H.P. Est. Armstrong, British Columbia Canada V0E 1B0 (2) Common Stock Epaulette Investments S.A. 328,700 8.9% P.O. Box 1320 G.T. Grand Cayman Islands, BWI (2) Common Stock Marnie Stanton 277,100 7.8% 19489 115th A Avenue Pitt Meadows, British Columbia Canada V3Y 1R5 (2) Common Stock Cybergarden Development, Inc. 595,000 6.6% 1105 Park Drive Vancouver, British Columbia Canada V6P 2J7 Common Stock All officers and directors as a -0- Group (2 persons) ------------------------------------------------------------------------------- (1) The number of issued and outstanding shares is 3,811,950 based upon the reverse stock split of ten-to-one. (2) These are restricted shares of Common Stock. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On December 11, 1997, GDSS, 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, GDSS paid $100,000 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 provided that GDSS would be the operating partner 18 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, GDSS would receive eighty percent (80%) of the net profits realized from the joint venture until its invested capital is repaid, and IGCO and INGC would receive twenty percent (20%) of the net profits realized from the joint venture. After the invested capital by GDSS had been repatriated, GDSS would then receive fifty-one percent (51%) of the net profits realized from the joint venture and IGCO and INGC would retain forty-nine percent (49%) of the net profits realized from the joint venture. GDSS also agreed to contribute all future capital requirements for the further exploration and mining operation costs of the claims on the Blackhawk II Property. As of the date of this Annual Report, GDSS and IGCO have mutually agreed to suspend GDSS's obligations and duties under the Joint Venture Agreement until resolution of the litigation against AuRIC and Dames & Moore. The officers/directors of GDSS are engaged in other businesses, either individually or through partnerships and corporations in which they may have an interest, hold an office or serve on the boards of directors. Certain conflicts of interest, therefore, may arise between GDSS and the respective officer/director. Such conflicts can be resolved through the exercise by such officer/director of judgment consistent with his fiduciary duties to GDSS. The officers/directors of GDSS intend to resolve such conflicts in the best interests of GDSS. Moreover, the officers/directors will devote their time to the affairs of GDSS as they deem necessary. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are filed as part of this Annual Report: None. (b) Reports on Form 8-K - None. 19 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOLDSTATE CORPORATION Dated: March 29, 2001 By: /s/ RON F. HORVAT - --------------------- --------------------------------- Ron F. Horvat, President 20 -----END PRIVACY-ENHANCED MESSAGE-----