U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-26705
GOLDSTATE CORPORATION
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0354425
------------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
3305 Spring Mountain Road, Suite 60
Las Vegas, Nevada 89102
--------------------------------------
(Address of Principal Executive Offices)
(888) 228-5526
-------------------------
(Issuer's telephone number)
N/A
--------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date:
Class Outstanding as of November 14, 2000
------ ----------------------------------
Common Stock, $.0003 par value 38,119,500
Transitional Small Business Disclosure Format (check one)
Yes No X
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GOLDSTATE CORPORATION
(An Exploration Stage Company)
FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page
----
Table of Contents 1
Balance Sheet 2
Statements of Operations 3
Statements of Cash Flows 4
Notes to Financial Statements 5 - 8
Management's Discussion and Analysis or Plan of Operation 9
Changes in Securities and Use of Proceeds 14
Defaults Upon Senior Securities 14
Submission of Matters to a Vote of Security Holders 14
Other Information 14
Exhibits and Reports on Form 8-K 14
Signatures 15
1
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<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited financial statements of Goldstate Corporation (the "Company")
reflect all adjustments which are, in the opinion of management, necessary to
present a fair statement of the operating results for the interim period
presented.
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Balance Sheet
(Unaudited)
September 30,
2000
-----------
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ --
-----------
Total Assets $ 0
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 13,904
Advances payable 59,388
Accrued interest payable 36,621
Directors fees payable 25,500
Notes payable (Note 2) 600,000
-----------
Total Liabilities 735,413
-----------
STOCKHOLDERS' EQUITY (Note 3)
Preferred stock, $.001 par value; authorized 25,000,000 shares;
Nil shares issued and outstanding at September 30, 2000 - Common stock
$.0003 par value; authorized 75,000,000 shares;
38,119,500 shares issued and outstanding at September 30, 2000 11,740
Additional paid - in capital 2,567,089
Accumulated deficit through exploration stage (3,314,242)
-----------
Total Stockholders' Equity (Deficiency) (735,413)
-----------
Total Liabilities and Stockholders' Equity $ 0
===========
See accompanying notes to financial statements.
2
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<TABLE>
<CAPTION>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Statements of Operations
(Unaudited)
Inception
(February 28,
1996) to
For the 3 Months Ended Sep.30, For the 9 Months Ended Sep.30,September 30,
---------------------------- ----------------------------
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ------------
PROPERTY EXPLORATION EXPENSES
<S> <C> <C> <C> <C> <C>
Technology sub-license costs -- -- -- 666,852 666,852
Claims maintenance fees, exploration, and
staking costs -- 45,870 (2,702) 45,870 187,805
Impairment loss related to profit sharing
interest -- 170,000 -- 170,000 170,000
------------ ------------ ------------ ------------ ------------
Total Property Exploration Expenses
(recoveries) -- 215,870 (2,702) 882,722 1,024,657
------------ ------------ ------------ ------------ ------------
ADMINISTRATIVE EXPENSES
General and administration 17,949 182,495 22,529 782,554 1,690,432
Professional fees 8,090 63 34,559 30,643 113,197
Directors fees -- 1,500 1,500 4,500 25,500
Internet design and access 114 -- 1,000 -- 6,172
Printing and stationary (21) -- 576 -- 5,142
Transfer agent 200 75 900 510 3,773
News wire services 250 975 920 1,075 5,020
Courier and postage (15) 371 615 968 11,376
Reports/information/subscripitions 371 2,086 1,078 2,086 38,841
Interest Expense 6,944 18,885 26,702 43,088 160,559
Office supplies -- 613 -- 613 6,460
Consulting fees -- -- -- -- 88,190
Office rent 549 -- 1,279 -- 43,787
Telephone and fax 64 11 218 11 35,987
Wages and salaries -- -- 140 -- 22,584
Travel -- -- -- -- 16,731
Auto -- -- -- -- 7,259
Promotion -- -- -- -- 7,165
Miscellaneous -- -- -- -- 1,410
------------ ------------ ------------ ------------ ------------
Total Administrative Expenses 34,495 207,074 92,016 866,048 2,289,585
------------ ------------ ------------ ------------ ------------
Net Loss 34,495 $ 422,944 $ 89,314 $ 1,748,770 $ 3,314,242
============ ============ ============ ============ ============
Basic and fully diluted loss per share 0.001 $ 0.030 $ 0.003 $ 0.141 $ 0.280
============ ============ ============ ============ ============
Weighted Average Number of
Common Shares Outstanding 38,119,500 14,131,300 30,868,398 12,382,536 11,834,311
============ ============ ============ ============ ============
See accompanying notes to financial statements.
3
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<TABLE>
<CAPTION>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Statements of Cash Flows
(Unaudited)
Inception
(February 28,
For the 9 Months Ended Sep.30, 1996) to
------------------------------ September 30,
2000 1999 2000
----------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (89,314) $(1,748,770) $(3,314,242)
Adjustments to reconcile net (loss) to cash
used by operating activities
Impairment loss on profit sharing interest -- 160,255 170,000
Non-cash technology sub-license costs -- 500,000 690,000
Changes in Assets and Liabilities
Accounts payable 1,476 (4,231) 22,413
Director fees payable 1,500 4,500 25,500
Accrued interest payable 26,702 29,686 137,413
----------- ----------- -----------
Net Cash Flows Used for Operating Activities (59,636) (1,058,560) (2,268,916)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock -- 968,509 1,707,380
Offering costs -- -- (7,173)
Advances received 59,388 837,970 1,939,909
Advances repaid -- (848,000) (1,546,200)
Proceeds from notes payable -- 100,000 175,000
----------- ----------- -----------
Net Cash Flows Provided by Financing Activities 59,388 1,058,479 2,268,916
----------- ----------- -----------
Net increase in cash (248) (81) --
Cash and cash equivalents - Beginning of period 248 877 --
----------- ----------- -----------
Cash and cash equivalents - End of period $ -- $ 796 $ --
=========== =========== ===========
Significant Non-Cash Transactions
---------------------------------
The Company accrued interest on notes payable of $46,225 and $29,218 for the
twelve month periods ended December 31, 1999 and 1998, respectively. The Company
has also recognized an additional $19,653 in imputed interest during 1999. The
Company has accrued interest on notes payble of $17,250 during 2000.
Company issued 22,970,000 shares of common stock in settlement of a $334,321
in advances payable and $67,827 of related accrued interest during 2000.
The Company issued 1,018,000 shares of common stock in settlement of $175,000 of
notes payable and $32,964 of related accrued interest during 2000.
Since inception the Company has not capitalized any interest.
See accompanying notes to financial statements.
4
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GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Financial Statements
September 30, 2000
Unaudited
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
----------------------------
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, adjustments (consisting
of normal recurring accruals) considered necessary for a fair
representation have been included. Operating results for the nine month
period ending September 30, 2000, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. For
further information, refer to the financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended
December 31, 1999.
Going Concern and Continued Operations
--------------------------------------
To date, the Company has not generated revenues from operations and as of
September 30, 2000 had working capital and stockholders' deficits of
$735,413. The Company ceased exploration of the joint venture lode mining
claims located in the State of Idaho, pending the outcome of Intergold
Corporation and Geneva's ongoing litigation with regard to the transfer of
technology pursuant to the Sub-license Agreement between the Company and
Geneva There is a chance that the technology to be transferred under the
Sub-license Agreement may be delayed indefinitely, or cancelled all
together, depending on the outcome of the Intergold/Geneva litigation.
The Company expects to fund ongoing operations for the next twelve months
through a combination of advances from directors and shareholders and
future common stock offerings. The Company has been undertaking research
relating to new business endeavors and possible new acquisitions. This
research may result in the Company entering into business operations and
possible acquisitions that are not in the minerals exploration field.
5
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GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Financial Statements
September 30, 2000
Unaudited
NOTE 2: NOTES PAYABLE
Pursuant to the Technology Sub-license agreement with Geneva Resources,
Inc., the Company issued promissory notes to both Geneva and AuRIC in the
amount of $250,000 to each company. These are 3% interest bearing notes and
are payable upon the transfer of the technology. These notes have been
discounted to bear an imputed interest rate of 8%. Pursuant to an amendment
to the Technology Sub-license agreement, the company has issued a
convertible promissory note to Geneva Resources, Inc. ("Geneva") in the
amount of $100,000 that is convertible to 500,000 restricted common shares
upon demand, and bears interest at the rate of 8% per annum. These
promissory notes become due and payable upon the transfer of the
technology. Transfer of the technology or any settlement thereto will be
contingent on the outcome of the lawsuit described in Note 6.
NOTE 3: STOCKHOLDERS' EQUITY
Common Stock
------------
On May 3, 2000, the Company issued 1,018,000 common shares on the
conversion of $175,000 in convertible notes and accrued interest totaling
$32,964.
On March 21, 2000, the Company issued 22,970,000 common shares on the
settlement of $402,148 of advances and accrued interest payable.
6
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GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Financial Statements
September 30, 2000
Unaudited
NOTE 4: EMPLOYEE STOCK OPTION PLAN
Selected information regarding the Company's employee stock options as of
September 30, 2000 are as follows:
September 30, 2000
----------------------
Weighted
Number Average
of Exercise
Options Price
--------- ----------
Outstanding at Beg. of Period 1,000,000 -0-
Outstanding at End of Period -0- $.15/share
Exercisable at End of Period -0- $.15/share
Options Granted ............. -0- $.15/share
Options Exercised ........... -0- -0-
Options Forfeited ........... 1,000,000 -0-
Options Expired ............. -0- -0-
On April 17, 2000, the Company received assignments of all issued and
outstanding grants of options under the Employee Stock Option Plan. As of
September 30, 2000 all options exercisable to purchase common stock have
been assigned to the Company for possible redistribution at a future date
according to the direction of the Board of Directors.
NOTE 5: CONTINGENCIES
On May 8, 2000, the Company executed an assignment agreement that
transferred and conveyed the potential claims and causes of action
that the Company may have in connections with the Sub-license
Agreement with Geneva. If amounts are recovered by the lawsuit
initiated by International Gold Corporation and Geneva, the Company
will receive the equivalent pro rata share of the Claims in relation
to all other claims and causes of action for which any damages of
settlement amounts are recovered. The Company has made this assignment
to Geneva.
On September 27, 1999, the Company's joint venture partner, Intergold
Corporation ("IGCO"), its wholly owned subsidiary, International Gold
Corporation ("IGC"), and Geneva initiated a legal complaint against
AuRIC Metallurgical Laboratories, LLC ("AuRIC"), Dames & Moore, Ahmet
Altinay, General Manager of AuRIC, and Richard Daniele, Chief
Metallurgist for Dames & Moore. The damages sought by IGCO/IGC/Geneva
are to be determined in court.
7
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Financial Statements
September 30, 2000
Unaudited
NOTE 5: CONTINGENCIES (Continued)
The damages incurred stem from reliance on assays and representations
made by AuRIC and upon actions and engineering reports produced by
Dames & Moore related to the Blackhawk claims. IGCO/IGC/Geneva also
alleges there were breaches of contract by AuRIC and Dames and Moore,
as well as other causes of action. This legal proceeding affected the
timing of technology to be transferred from Geneva to the Company that
was scheduled initially before the end of 2000.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Blackhawk II Property
The Company previously held possessory title to 439 contiguous unpatented
lode mining claims located in Lincoln and Gooding Counties, in south-central
Idaho (the "Blackhawk II Property"). Pursuant to a joint venture agreement dated
March 17, 1999 (the "Joint Venture Agreement") with Intergold Corporation a
Nevada corporation ("IGCO") and its wholly-owned private subsidiary,
International Gold Corporation, a Nevada corporation ("INGC"), the Company owed
a fifty-one percent (51%) future profit sharing interest in profits to be
realized from the exploration of the Blackhawk II Property. Pursuant to the
terms of the Joint Venture Agreement, the Company is to conduct work programs
involving exploration of the mining claims on the Blackhawk II Property.
On March 18, 1999, INGC, on behalf of IGCO, and AuRIC Metallurgical
Laboratories, LLC, of Salt Lake City, Utah ("AuRIC") entered into an agreement
for services (the "Agreement for Services"), whereby AURIC agreed to perform
certain services, including the development of proprietary technology and
know-how relating to fire and chemical assay analysis techniques and
metallurgical ore extraction procedures developed specifically for the
exploration of properties of IGCO. Dames & Moore subsequently verified the fire
and chemical assay techniques and procedures developed by AuRIC, their
repeatability, and confirmed preliminary metallurgical recovery testing. AuRIC
and Geneva Resources, Inc., a Nevada corporation ("Geneva") entered into a
technology license agreement dated March 17, 1999 (the "Technology License
Agreement"), whereby AuRIC agreed to supply the proprietary technology to Geneva
and grant to Geneva the right to sub-license the proprietary technology to the
Company for use on the Blackhawk II Property. The Company and Geneva entered
into a technology sub-license agreement dated March 18, 1999 (the "Sub-License
Agreement"), whereby the Company acquired from Geneva a sub-license to utilize
AuRIC's proprietary testing and chemical leach analysis of core samples derived
from any subsequent drilling the Blackhawk II Property.
On September 27, 1999, INGC, on behalf of IGCO, and Geneva initial legal
proceedings against AuRIC by filing a complaint in the District Court of the
Third Judicial District for Salt Lake City, State of Utah, alleging (i) multiple
breaches of contract relating to the Agreement for Services and the License
Agreement, respectively, including, but not limited to, establishment and
facilitation of the proprietary technology and fire assay procedures developed
by AuRIC at an independent assay lab and failure to deliver the proprietary
technology and procedures to the Company, Geneva and Dames & Moore; (ii) breach
of the implied covenant of good faith and fair dealing; (iii) negligent
misrepresentation; (iv) specific performance; (v) non-disclosure injunction;
(vi) failure by AuRIC to repay advances; and (vii) quantum meruit/unjust
enrichment. INGC, on behalf of IGCO, also named Dames & Moore in the legal
proceeding in a declaratory relief cause of action.
9
<PAGE>
The proprietary technology forms the basis of claims made by Geneva and
INGCO, on behalf of IGCO, in the complaints as filed with the District Court.
Geneva and INGC allege that the proprietary technology does not exist and that
Geneva and INGC were fraudulently, recklessly and/or negligently deceived by
AuRIC, Dames & Moore, and other parties to the lawsuit. Management deems the
proprietary technology crucial with respect to successful exploration of the
Blackhawk II Property. Management, therefore, had suspended exploration of the
Blackhawk II Property indefinitely until resolution of the legal proceedings.
Effective September, 1, 2000, the Company has ceased continuation of payments of
any maintenance fees for any of the Blackhawk II Property, as management does
not believe that the Blackhawk II Claims contain any commercial grades of gold
or silver. See "Part II. Item 1. Legal Proceedings" for additional disclosure.
Investment in Other Ventures
Management of the Company has been undertaking research relating to
prospective new business endeavors and acquisitions. This research may result in
the Company entering into business operations that are not in the minerals
exploration field. As of the date of this Quarterly Report, the Company is
seeking further acquisitions and assessing other business prospects.
RESULTS OF OPERATION
As of the date of this Quarterly Report, there has been no income realized
from the business operations of the Company. During fiscal year 1999 and the
nine-month period ended September 30, 2000, the Company's primary source of
financing has been from advances made to the Company.
Nine-Month Period Ended September 30, 2000 Compared to Nine-Month Period Ended
September 30, 1999.
For the nine-month period ended September 30, 2000, the Company recorded a
net loss of $89,314 compared to a net loss of $1,748,770 in the corresponding
period of 1999. During the nine-month period ended September 30, 2000, and
September 30, 1999, the Company recorded no income.
During the nine-month period ended September 30, 2000, the Company recorded
operating expenses of $92,016 as compared to $1,748,770 of operating expenses
recorded in the same period for 1999. There were no property exploration
expenses incurred during the nine-month period ended September 30, 2000 as
compared to property exploration expenses incurred in the amount of $882,722
during the same period for 1999; however, a credit for claims maintenance fees,
exploration and staking costs offset the total operating expenses by $2,702 for
nine-month period ended September 30, 2000. The lack of property exploration
expenses during the nine-month period ended September 30, 2000 resulted from
suspension of further exploration of the Blackhawk II Property and the cessation
of work orders for research, development and metallurgical services compared to
the significant property exploration expenses of $882,722 incurred in the same
period for 1999 relating to amounts paid by the Company for research,
development and metallurgical services performed associated with contractual
agreements between the Company and Geneva Resources, Inc.
10
<PAGE>
Administrative expenses decreased significantly by approximately $774,032
in the nine-month period ended September 30, 2000 as compared to the nine-month
period ended September 30, 1999. Administrative expenses of $866,048 was
incurred during the nine-month period in 2000 as compared to administrative
expenses of $92,016 during the nine-month period ended September 30, 1999.
This decrease in administrative expenses was due primarily to a $760,025
decrease in general, overhead and administration expenses resulting from the
decreasing scale and scope of overall corporate activity pertaining to
exploration of the Blackhawk II Property. General, overhead and administration
expenses of $22,529 was incurred during the nine-month period in 2000 as
compared to general, overhead and administration expenses of $782,554 incurred
during the nine-month period ended September 30, 1999. Interest expense also
decreased by $16,386 during the nine-month period ended September 30, 2000 as
compared to the nine-month period ended September 30, 1999. Interest expense of
$26,702 was incurred during the nine-month period in 2000 as compared to
interest expense of $43,088 incurred during the nine-month period ended
September 30, 1999.
As discussed above, the decrease in net loss during the nine-month period
ended September 30, 2000 as compared to the nine-month period ended September
30, 1999 is attributable primarily to the substantial decrease in property
exploration expenses and in administrative expenses associated with cessation of
the exploration of the Blackhawk II Property. The Company's net earnings
(losses) during the nine-month period ended September 30, 2000 were
approximately ($89,314) or ($0.003) per share compared to a net loss of
approximately ($1,748,770) or ($0.141) per share during the nine-month period
ended September 30, 1999. The weighted average number of common shares
outstanding were 30,868,398 for the nine-month period ended September 30, 2000
compared to 12,382,536 for the nine-month period ended September 30, 1999.
Three-Month Period Ended September 30, 2000 Compared to Three-Month Period Ended
September 30, 1999.
For the three-month period ended September 30, 2000, the Company recorded a
net loss of $34,495 compared to a net loss of $422,944 in the corresponding
period of 1999. During the three-month period ended September 30, 2000 and
September 30, 1999, the Company recorded no income.
During the three-month period ended September 30, 2000, the Company
recorded operating expenses of $34,495 compared to $422,944 of operating
expenses recorded in the same period for 1999. There were no property
exploration expenses incurred during the three-month period ended September 30,
2000 as compared to property exploration expenses incurred in the amount of
$215,870 during the same period for 1999.
Administrative expenses decreased significantly by approximately $172,579
during the three-month period ended September 30, 2000 as compared to the
three-month period ended September 30, 1999. Administrative expenses of $207,074
was incurred during the nine-month period in 1999 as compared to administrative
expenses of $34,495 during the nine-month period ended September 30, 2000.
11
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This decrease in administrative expenses was due primarily to a $164,546
decrease in general, overhead and administration expenses. General, overhead and
administration expenses of $17,949 was incurred during the nine-month period in
2000 as compared to general, overhead and administration expenses of $182,495
incurred during the nine-month period ended September 30, 1999. Interest expense
also decreased by $11,941 during the three-month period ended September 30, 2000
as compared to the three-month period ended September 30, 1999. Interest expense
of $6,944 was incurred during the three-month period ended September 30, 2000 as
compared to $18,885 of interest expense incurred during the three-month period
ended September 30, 1999.
As discussed above, the decrease in net loss during the three-month period
ended September 30, 2000 as compared to the three-month period ended September
30, 1999 is attributable primarily to the decrease in property exploration costs
and in administrative expenses associated with cessation of the exploration of
the Blackhawk II Property. The Company's net earnings (losses) during the
three-month period ended September 30, 2000 were approximately ($34,495) or
($0.001) per share compared to a net loss of approximately ($422,944) or
($0.030) per share during the three-month period ended September 30, 1999. The
weighted average number of common shares outstanding were 38,119,500 for the
three-month period ended September 30, 2000 compared to 14,131,300 for the
three-month period ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared assuming that it will
continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classification of
liabilities that might be necessary should the Company be unable to continue in
operation.
As of the nine-month period ended September 30, 2000, the Company's total
assets were $ -0-. As of the nine-month period ended September 30, 2000, the
Company's total liabilities were $735,413.
Stockholders' Equity (deficit) increased from ($700,918) for the six-month
period ended June 30, 2000 to ($735,413) for the nine-month period ended
September 30, 2000. Stockholders' Equity (deficit) decreased from ($1,256,211)
for fiscal year ended December 31, 1999 to ($735,413) for the nine-month period
ended September 30, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 27, 1999, INGC, on behalf of IGCO, and Geneva initiated legal
proceedings against AuRIC by filing a complaint in the District Court of the
Third Judicial District for Salt Lake City, State of Utah, alleging (i) multiple
breaches of contract relating to the Agreement for Services and the License
Agreement, respectively, including, but not limited to, establishment and
facilitation of the proprietary technology and fire assay procedures developed
by AuRIC at an independent assay lab (the "Proprietary Technology") and failure
to deliver the Proprietary Technology and procedures to the Company, Geneva and
Dames & Moore; (ii) breach of the implied covenant of good faith and fair
dealing; (iii) negligent misrepresentation; (iv) specific performance; (v)
non-disclosure injunction; (vi) failure by AuRIC to repay advances; and (vii)
quantum meruit/unjust enrichment. INGC, on behalf of IGCO, also named Dames &
Moore in the legal proceeding in a declaratory relief cause of action.
12
<PAGE>
On October 8, 1999, INGC, on behalf of IGCO, and Geneva amended the
complaint by naming as defendants AuRIC, Dames & Moore, Ahmet Altinay General
Manager of AuRIC, and Richard Daniele, Chief Metallurgist for Dames & Moore and
specifying damages in excess of $10,000,000. The damages sought by Geneva and
INGC, on behalf of IGCO, are based on the general claims and causes of action
set forth in the amended complaint relating to reliance on the assays and
representations made by AuRIC, the actions and engineering reports produced by
Dames & Moore and, specifically, the negligent misrepresentations and
inaccuracies contained within some or all of those Dames & Moore reports and
breaches of contract by AuRIC and Dames & Moore.
On June 21, 2000, INGC, on behalf of IGCO, and Geneva filed a second
amended complaint in the District Court of the Third Judicial District for Salt
Lake City, State of Utah. The second amended complaint increased detail
regarding the alleged breaches of contract and increased causes of action
against other parties involved by adding two new defendants, MBM Consulting,
Inc. and Dr. Michael B. Merhtens, who provided consulting services to INGC. The
amendment also added certain claims of other entities involved through Geneva
against the defendants. The Proprietary Technology forms the basis of claims
made by Geneva and INGC, on behalf of IGCO, in the complaints as filed with the
District Court. Geneva and INGC, on behalf of IGCO, allege that the Proprietary
Technology does not exist and that Geneva and INGC were fraudulently, recklessly
and/or negligently deceived by AuRIC, Dames & Moore, and other parties to the
lawsuit.
Geneva and INGC subsequently obtained an order from the District Court
granting its Motion to Compel. The Order requires that AuRIC and Dames & Moore
produce the Proprietary Technology that was allegedly developed by AuRIC and
confirmed by multiple engineering reports by Dames & Moore for Geneva's and
INGC's restricted use by its legal counsel and industry experts. Geneva and
INGC, on behalf of IGCO, have obtained an expert opinion as to the
ineffectiveness of the Proprietary Technology.
As of the date of this Quarterly Report, various depositions have been
taken by various parties to the lawsuit. Discovery and document production have
been conducted by both sides to the dispute. Geneva and INGC, on behalf of IGCO,
continue to pursue all such legal actions and review further legal remedies
against AuRIC and Dames & Moore. Management deems the Proprietary Technology
crucial with respect to successful exploration of the Blackhawk II Property.
Management has, therefore, suspended exploration of the Blackhawk II Property
indefinitely until resolution of the legal proceedings, and has ceased to hold
possessory title to the Blackhawk II Property. Management believes that the
legal proceedings will prove that the Proprietary Technology is invalid.
If the Proprietary Technology is proven to be invalid and not transferable,
and INGC/Geneva are not successful in the outcome of the litigation and damages
are not awarded, the Company may not be able to recover its potential losses and
expenses incurred due to the breach of the Sub-License Agreement by Geneva.
However, if the Proprietary Technology is proven to be invalid and not
transferable, and INGC/Geneva are successful in the outcome of the litigation,
INGC/Geneva may then receive damages from AuRIC and Dames & Moore. Geneva's
damages result primarily from its inability to transfer the proprietary
technology to the Company in accordance with the provisions of the Sub-License
Agreement. Management believes that the Company will, under these circumstances,
be entitled to receive a pro-rata portion of the awarded damages for potential
losses incurred due to the breach of the Sub-License Agreement by Geneva.
13
<PAGE>
The Company and Geneva have entered into an assignment agreement dated May
9, 2000 (the "Geneva Assignment Agreement") that transferred and conveyed to
Geneva the potential claims and causes of action that the Company may have under
the Sub-License Agreement with Geneva. If damages are recovered in the lawsuit
initiated by Geneva and INGC, on behalf of the Company, the Company will receive
a pro rata share of such damages relating to its claims and causes of action in
relation to all other claims and causes of action for which damages are
recovered. Thus, Geneva will receive any such pro rata share of the damages
recovered pursuant to the terms and provisions of the Geneva Assignment
Agreement.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
No report required.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits required.
(b) No reports required.
On behalf of the Company an 8-K was filed on October 19, 2000.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GOLDSTATE CORPORATION
Dated: November 14, 2000 By: /s/ Carson Walker
-------------------------------
Carson Walker, President
15
