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