U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _______
Commission file number 0-26705
GOLDSTATE CORPORATION
---------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0354425
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
3305 Spring Mountain Road, Suite 60
Las Vegas, Nevada 89102
-------------------------------
(Address of Principal Executive Offices)
(888) 228-5526
--------------
(Issuer's telephone number)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date:
Class Outstanding as of December 2, 1999
- ----- ----------------------------------
Common Stock, $.0003 par value 14,131,300
Transitional Small Business Disclosure Format (check one)
Yes No X
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
The unaudited financial statements of Goldstate Corporation (the "Company")
reflect all adjustments which are, in the opinion of management, necessary to
present a fair statement of the operating results for the interim period
presented.
GOLDSTATE CORPORATION
(An Exploration Stage Company)
FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 1999
TABLE OF CONTENTS
-----------------
Page
----
Table of Contents 1
Balance Sheet 2
Statements of Operations 3
Statements of Cash Flows 4
Notes to Financial Statements 5 - 12
1
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Balance Sheet
September 30,
1999
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 796
-----------
Total Assets $ 796
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable - trade $ 54,008
Advances payable 227,997
Accrued interest payable 97,666
Directors fees payable 22,500
Notes payable 765,255
-----------
Total Liabilities 1,167,426
-----------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized 25,000,000 shares;
issued and outstanding 0 shares at September 30, 1999 --
Common stock $.0003 par value; authorized 75,000,000 shares;
issued and outstanding 14,131,300 at September 30, 1999 4,543
Paid - in capital 1,964,173
Accumulated deficit through development stage (3,135,346)
-----------
Total Stockholders' Equity (Deficit) (1,166,630)
-----------
Total Liabilities and Stockholders' Equity $ 796
===========
See accompanying summary of accounting policies
and notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Statements of Operations
Inception
For the 3 Months Ended For the 9 Months Ended (February 28,
Sept. 30, Sept. 30, 1996) to
--------------------------- --------------------------- September 30,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
REVENUES
<S> <C> <C> <C> <C> <C>
Other income $ -- $ -- $ -- $ -- $ 1,026
------------ ------------ ------------ ------------ ------------
Total Revenues -- -- -- -- 1,026
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
PROPERTY EXPLORATION EXPENSES
Research and Development - Sublicense Agreement -- -- 666,852 -- 666,852
Claims maintenance fees, exploration, and staking costs 45,870 43,905 45,870 43,905 189,775
Impairment loss related to profit sharing interest 170,000 -- 170,000 -- 170,000
------------ ------------ ------------ ------------ ------------
Total Property Exploration Expenses 215,870 43,905 882,722 43,905 1,026,627
------------ ------------ ------------ ------------ ------------
ADMINISTRATIVE EXPENSES
Overhead and Administration 182,470 75,000 782,470 225,000 1,562,470
Legal and accounting 63 -- 30,643 5,878 122,534
Directors fees 1,500 1,500 4,500 4,500 22,500
Internet design and access -- -- -- 3,461 5,172
Printing and stationary -- -- -- 3,741 4,260
Transfer agent 75 115 510 1,413 2,623
News wire services 975 525 1,075 2,330 5,075
Courier and postage 371 99 968 952 10,596
Reports/information/subscripitions 2,086 -- 2,086 925 35,416
Bank charges 25 24 84 127 451
Office supplies 613 -- 613 95 6,623
Consultants -- -- -- -- 88,190
Office rent -- -- -- -- 42,033
Telephone and fax 11 -- 11 -- 35,567
Wages and salaries -- -- -- -- 22,444
Travel -- -- -- -- 16,731
Auto -- -- -- -- 7,259
Promotion -- -- -- -- 7,165
Miscellaneous -- -- -- -- 1,410
Computer supplies -- -- -- -- 159
------------ ------------ ------------ ------------ ------------
Total Administrative Expenses 188,189 77,263 822,960 248,422 1,998,678
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 404,059 121,168 1,705,682 292,327 3,025,305
------------ ------------ ------------ ------------ ------------
Income (Loss) from Operations (404,059) (121,168) (1,705,682) (292,327) (3,024,279)
OTHER INCOME (EXPENSES)
Interest Income -- -- -- -- 1
Interest Expense (18,885) (6,656) (43,088) (20,339) (111,068)
------------ ------------ ------------ ------------ ------------
Net (Loss) $ (422,944) $ (127,824) $ (1,748,770) $ (312,666) $ (3,135,346)
============ ============ ============ ============ ============
Earnings (Loss) Per Share - Basic $ (0.030) $ (0.015) $ (0.141) $ (0.039) $ (0.395)
============ ============ ============ ============ ============
Weighted Average Number of
Common Shares Outstanding 14,131,300 8,738,800 12,382,536 8,083,489 7,933,044
============ ============ ============ ============ ============
See accompanying summary of accounting policies
and notes to financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Inception
For the 3 Months Ended For the 9 Months Ended (February 28,
Sept. 30, Sept. 30, 1996) to
------------------------- ------------------------ September 30,
1999 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net (loss) $ (422,944) $ (127,824) $(1,748,770) $ (312,666) $(3,135,346)
Adjustments to reconcile net (loss) to cash
used by operating activities
Amortization and depreciation -- -- -- -- 90
Changes in Assets and Liabilities
Accounts payable (301) -- (4,501) -- 54,008
Director fees payable 1,500 1,500 4,500 4,500 22,500
----------- ----------- ----------- ----------- -----------
Net Cash Flows Used for Operating Activities (421,745) (126,324) (1,748,771) (308,166) (3,058,748)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment (purchases) dispositions -- -- -- -- (90)
Organization costs -- -- 270 -- --
----------- ----------- ----------- ----------- -----------
Net Cash Flows Provided (Used) for Investing Activities -- -- 270 -- (90)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale (redemption) of common stock -- -- 1,617 989 4,543
Additional paid-in capital 1 -- 966,892 459,311 1,801,346
Offering costs -- -- -- -- (7,173)
Advances received 233,470 122,681 837,970 417,981 1,774,197
Advances repaid -- -- (848,000) (695,000) (1,546,200)
Impairment loss on profit sharing interest 170,000 -- 170,000 0 170,000
Interest recognized through discount adjustment -- -- 13,403 -- 13,403
Notes payable issued for technology -- -- 500,000 -- 500,000
Discount on technology notes payable for imputed interest 6,251 -- (23,148) -- (23,148)
Accrued interest payable 12,638 6,656 29,686 20,339 97,666
Proceeds from notes payable -- -- 100,000 105,000 275,000
----------- ----------- ----------- ----------- -----------
Net Cash Flows Provided by Financing Activities 422,360 129,337 1,748,420 308,620 3,059,634
----------- ----------- ----------- ----------- -----------
Net increase in cash 615 3,013 (81) 454 796
Cash and cash equivalents - Beginning of period 181 1,038 877 916 --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents - End of period $ 796 $ 1,070 $ 796 $ 1,070 $ 796
=========== =========== =========== =========== ===========
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 $29,685 and $20,339 for the nine month periods ended September 30, 1999 and 1998,
respectively. The Company has not paid any accrued interest. The Company has also recognized an additional $13,403 of imputed
interest during 1999.
See accompanying summary of accounting policies
and notes to financial statements.
4
</TABLE>
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
September 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 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 September 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 exploration 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.
5
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
------------------
As of September 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.
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 September 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, however legal proceedings initiated by Intergold Corporation
6
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 2: TECHNOLOGY SUB-LICENSE AGREEMENT (Continued)
and Geneva against AuRIC and Dames & Moore may impact the schedule for
transfer (see Note 9 - Contingencies). 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
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 September 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 of September 30, 1999, the
Company's management has determined that future cash flows from the profit
sharing interest cannot be estimated, and that, absent the ability to value
those future cash flows, the value of the asset should be adjusted. This
valuation adjustment is shown as a $170,000 impairment loss on the
Statement of Operations.
The consolidation method is being utilized to account for the joint venture
agreement with Intergold Corporation. The Company will have majority
accounting control over the exploration of the claims. As of September 30,
1999, no profit had been generated by the exploration of the claims.
The sole director and officer of Goldstate Corporation is also a director
of Intergold Corporation.
7
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 4: ADVANCES AND NOTES PAYABLE
Advances are comprised of the following:
Advances
--------
The Company at September 30, 1999 had advances, payable on demand, bearing
10% simple interest, to the following affiliated companies:
Amerocan Marketing, Inc. $ 46,500
Tri-Star Financial Services, Inc. 527
Investor Communications International, Inc. 180,970
--------
$227,997
========
Notes Payable
-------------
The Company had Notes Payable at September 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. (4,873)
AuRIC Metallurgical Laboratories, LLC 250,000
Discount for imputed interest on AuRIC Labs (4,872)
---------
$ 765,255
=========
Accrued Interest Payable to September 30, 1999 from Advances and Notes
Payable was $97,666.
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.
8
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 4: ADVANCES AND NOTES PAYABLE (continued)
Note agreements executed in 1999 relate to requirements under the
Technology Sub-license agreement that the Company executed on March 18,
1999 (see Note 3).
Pursuant to the Technology Sub-license agreement, the Company issued
promissory notes to both Geneva and AuRIC in the amount of $250,000 to each
company. These are 3% interest bearing notes and are payable upon the
transfer of the technology. 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
9
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 5: STOCKHOLDERS' EQUITY (continued)
general working capital for the continued exploration of the Company's
Blackhawk II claims. As of April 6, 1999, the entire offering had been
subscribed.
Preferred Stock
---------------
Pursuant to a Board resolution, the Corporation has authorized the creation
of preferred stock and related rights. The Company also filed a
"Certificate of Designation of Series A Preferred Stock" with the Nevada
Secretary of State on May 8, 1998. The Company has not issued any shares of
preferred stock as of September 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 nine month period ending September 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 September 30, 1999 and
1998 are as follows:
September 30, 1999 September 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-
10
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 6: EMPLOYEE STOCK OPTION PLAN (continued)
As of September 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 150 days. There are 1,000,000
options that are exercisable with a weighted average exercise price of $.15
per share of common stock.
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:
11
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 8: INCOME TAXES (continued)
1998 1997
---- ----
Deferred Tax Asset $ 414,322 $ 274,836
Less Valuation of Net Assets (414,322) (274,836)
--------- ---------
Balance at End of Year $ -0- $ -0-
========= =========
NOTE 9: CONTINGENCIES
On October 8, 1999, Intergold Corporation's wholly owned subsidiary,
International Gold Corporation ("IGC") joined a legal complaint initiated
by Geneva Resources, Inc., 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 IGC/Geneva are to be determined in court. The damages incurred stem from
reliance on assays and representations made by AuRIC and upon actions and
engineering reports produced by Dames & Moore. IGC/Geneva also alleges
there were breaches of contract by AuRIC and Dames and Moore, as well as
other causes of action. This legal proceeding may affect the timing of
technology to be transferred from Geneva to the Company that was scheduled
initially before the end of 1999.
12
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operation
- --------------------
Quarter Ended September 30, 1999 compared to September 30, 1998
- ---------------------------------------------------------------
For the three-month period ended September 30, 1999, the Company recorded a
net loss of $422,944 compared to a net loss of $127,824 in the corresponding
period of 1998. During the three-month period ended September 30, 1999 and
September 30, 1998, the Company recorded no income.
During the three-month period ended September 30, 1999, the Company
recorded operating expenses of $404,059 as compared to $121,168 of operating
expenses recorded in the same period for 1998. Property exploration expenses
increased in the approximate amount of $171,965 in the three-month period during
1999 primarily due to the characterization of the valuation of the Company's
interest pursuant to the Joint Venture Agreement as an impairment loss (due to
the inability to value future cash flows from such interest). Administrative
expenses increased significantly by approximately $110,926 in the three-month
period 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 overall corporate activity pertaining to the exploration and
administration of the property.
Nine Months Ended September 30, 1999 compared to September 30, 1998
- -------------------------------------------------------------------
For the nine-month period ended September 30, 1999, the Company recorded a
net loss of $1,748,770 compared to a net loss of $312,666 in the corresponding
period of 1998. During the nine-month period ended September 30, 1999 and
September 30, 1998, the Company recorded no income.
During the nine-month period ended September 30, 1999, the Company recorded
operating expenses of $1,705,682 as compared to $292,327 of operating expenses
recorded in the same period for 1998. Property exploration expenses increased
significantly in the approximate amount of $838,817 in the nine-month period
during 1999 primarily due to the (i) characterization of the valuation of the
Company's interest pursuant to the Joint Venture Agreement as a $170,000
impairment loss, and (ii) amounts paid by the Company as research and
exploration expenses associated with the technology sub-license agreement dated
March 19, 1999 between the Company and Geneva Resources, Inc. (the "Sub-License
Agreement"), which factors represent approximately 20% and 79% respectively of
the increase in property exploration expenses. Administrative expenses also
increased approximately $574,538 in the nine-month period during 1999 compared
to 1998. Approximately 97% of the increase in administrative expenses is
attributable to increased overhead and administrative charges resulting from the
increase in the scale and scope of the overall corporate activity pertaining to
exploration and administation of the property, such charges relating
approximately 85% to increasing scope of property exploration expenses, and
approximately 15% to increased scope of administration. Of the $782,470 incurred
as overhead and administrative expenses during the nine-month period ended
September 30, 1999, $267,900 was incurred during the first quarter, $332,100 was
incurred during the second quarter, and $182,470 was incurred during the third
quarter. An aggregate amount of $848,000 was paid to Tri Star Financial
Services, Inc. for previous amounts owing and for current services rendered
including, but not limited to, financial, administrative, gold and silver metals
exploration management, and $10,000 to Investor Communications International,
Inc. for current services rendered.
Liquidity and Capital Resources
- -------------------------------
As of the nine-month period ended September 30, 1999, the Company's total
assets were $796. This decrease in assets from fiscal year ended December 31,
1998 was due primarily to the re-characterization of the Company's interest
pursuant to the joint Venture Agreement, originally valued and classified as a
$170,000 asset, to an impairment loss. The Company's assets currently consist of
cash and cash equivalents. As of the nine-month period ended September 30, 1999,
the Company's total liabilities were $1,167,426. This overall increase from
fiscal year ended December 31, 1998 was due primarily to the promissory notes
issued by the Company to Geneva Resources, Inc. and AuRIC Metallurgical
Laboratories, LLC. in the amount of $250,000 each pursuant to the terms and
conditions of the Sub-License Agreement.
Stockholders' Equity (deficit) decreased from $(386,368) for fiscal year
ended December 31, 1998 to $(1,166,630) for the nine-month period ended
September 30, 1999.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
On September 27, 1999, International Gold Corporation, Intergold
Corporation's subsidiary, and Geneva Resources, Inc., a Nevada corporation
("Geneva") initiated legal proceedings against AuRIC Metallurgical Laboratories,
LLC, a Utah limited liability company ("AuRIC") and Dames & Moore, a Delaware
corporation ("Dames & Moore"), by filing its complaint in the District Court of
the Third Judicial District for Salt Lake City, State of Utah.
International Gold Corporation and AuRIC had previously entered into an
agreement for services dated March 18, 1999 (the "Service Agreement") 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 mining claims located on properties of International Gold Corporation.
Geneva and AuRIC also 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 a license to use such
technology on various claims owned by Geneva, and AuRIC also granted Geneva the
right to sub-license the proprietary technology to the Company for use on the
Blackhawk II Property. Dames & Moore subsequently verified the fire and chemical
assay techniques and procedures developed by AuRIC and their repeatability.
International Gold Corporation subsequently entered into multiple work orders
with Dames & Moore relating to a variety of services, such as professional and
independent project management, project cost control, geological mapping and
studies, permitting and land use, chain of custody drill sample collection,
environmental assessment reports, survey mapping petrographic studies, data
management and data entry, chain of custody assay database, geographic
information systems, development geology, project control, scheduling, geology
support, chain of custody protocols, laboratory evaluations, public involvement,
and field mobilizations.
International Gold Corporation and Geneva initiated legal proceedings
against AuRIC for (i) multiple breaches of contract relating to the Agreement
for Services and the License Agreement, respectively, including, but not limited
to, establishment and facilitation of the proprietary technology and fire assay
procedures developed by AuRIC at an independent assay lab and failure to deliver
the proprietary technology and procedures to International Gold Corporation,
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. The Company also named Dames & Moore in the
legal proceeding in a declaratory relief cause of action.
International Gold Corporation and Geneva are reviewing further legal
remedies against AuRIC and Dames & Moore and intends to aggressively pursue any
and all such actions.
Although the legal proceedings outlined above do not affect the Company directly
at this point in time, this legal proceeding may affect the timing of technology
to be transferred from Geneva to the Company according to the terms and
conditions of the sub-license agreement entered into between the Company and
Geneva that was scheduled to be completed before the end of 1999.
14
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
- -------------------------------------------------
No report required.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
No report required.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No report required.
Item 5. Other Information
- -------------------------
No report required.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) No exhibits required.
(b) No reports required.
15
<PAGE>
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: December 2, 1999 By: /s/ Grant Atkins
------------------------------
Grant Atkins, President
Dated: December 2, 1999 By: /s/ Grant Atkins
------------------------------
Grant Atkins, Secretary
16
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