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 June 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 August 1, 2000
----- ----------------------------------
Common Stock, $.0003 par value 38,119,500
Transitional Small Business Disclosure Format (check one)
Yes No X
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited financial statements of Goldstate Corporation (the "Company")
reflect all adjustments which are, in the opinion of management, necessary to
present a fair statement of the operating results for the interim period
presented.
GOLDSTATE CORPORATION
(An Exploration Stage Company)
FINANCIAL STATEMENTS
(Unaudited)
JUNE 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 - 9
1
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Balance Sheet
June 30,
2000
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ (327)
-----------
Total Assets $ (327)
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable - trade $ 37,115
Advances payable 8,300
Accrued interest payable 29,676
Directors fees payable 25,500
Notes payable 600,000
-----------
Total Liabilities 700,591
-----------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized 25,000,000 shares;
0 shares issued and outstanding at June 30, 2000 --
Common stock $.0003 par value; authorized 75,000,000 shares;
38,119,500 shares issued and outstanding at June 30, 2000 11,740
Paid - in capital 2,567,089
Accumulated deficit through development stage (3,279,747)
-----------
Total Stockholders' Equity (Deficit) (700,918)
-----------
Total Liabilities and Stockholders' Equity $ (327)
===========
See accompanying summary of accounting policies
and notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Statements of Operations
Inception
(February 28,
For the 3 Months Ended June 30, For the 6 Months Ended June 30, 1996) to
------------------------------- ------------------------------- June 30,
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ------------
REVENUES
<S> <C> <C> <C> <C> <C>
Other income $ -- $ -- $ -- $ -- $ 1,026
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
PROPERTY EXPLORATION EXPENSES
Research and Development - Sublicense Agreement -- -- -- 666,852 666,852
Claims maintenance fees, exploration,
and staking costs (2,702) -- (2,702) -- 187,805
Impairment loss related to profit sharing
interest -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total Property Exploration Expenses (2,702) -- (2,702) 666,852 854,657
------------ ------------ ------------ ------------ ------------
ADMINISTRATIVE EXPENSES
Overhead and Administration 4,450 332,100 4,450 600,000 1,672,745
Legal and accounting 12,258 27,795 26,469 30,580 105,107
Directors fees -- 1,500 1,500 3,000 25,500
Internet design and access 886 -- 886 -- 6,058
Printing and stationary 597 -- 597 -- 5,163
Transfer agent 190 385 700 435 3,573
News wire services 670 100 670 100 4,770
Courier and postage 321 567 630 597 11,391
Reports/information/subscripitions 707 -- 707 -- 38,470
Bank charges 106 18 130 59 605
Office supplies -- -- -- -- 6,460
Consultants -- -- -- -- 88,190
Office rent 136 -- 730 -- 43,238
Telephone and fax (66) -- 154 -- 35,923
Wages and salaries 140 -- 140 -- 22,584
Travel -- -- -- -- 16,731
Auto -- -- -- -- 7,259
Promotion -- -- -- -- 7,165
Miscellaneous -- -- -- -- 1,410
Computer supplies -- -- -- -- 159
------------ ------------ ------------ ------------ ------------
Total Administrative Expenses 20,395 362,465 37,763 634,771 2,102,501
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 17,693 362,465 35,061 1,301,623 2,957,158
------------ ------------ ------------ ------------ ------------
Income (Loss) from Operations (17,693) (362,465) (35,061) (1,301,623) (2,956,132)
OTHER INCOME (EXPENSES)
Impairment Loss -- -- -- -- (170,000)
Interest Expense (1,406) (12,477) (19,758) (24,203) (153,615)
------------ ------------ ------------ ------------ ------------
Net (Loss) $ (19,099) $ (374,942) $ (54,819) $ (1,325,826) $ (3,279,747)
============ ============ ============ ============ ============
Earnings (Loss) Per Share - Basic $ (0.001) $ (0.027) $ (0.002) $ (0.115) $ (0.316)
============ ============ ============ ============ ============
Weighted Average Number of
Common Shares Outstanding 37,750,335 13,999,432 27,203,005 11,493,662 10,381,917
============ ============ ============ ============ ============
See accompanying summary of accounting policies and notes to financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Inception
For the 3 Months Ended For the 6 Months Ended (February 28,
Jun. 30, Jun. 30, 1996) to
-------------------------- -------------------------- June 30,
2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (19,099) $ (374,942) $ (54,819) $(1,325,826) $(3,279,747)
Adjustments to reconcile net (loss) to cash
used by operating activities
Amortization and depreciation -- -- -- -- 90
Impairment loss on profit sharing interest -- -- -- -- 170,000
Non-cash technology sub-license expenses -- -- -- -- 690,000
Net discount recognized on technology notes payable -- 6,249 3,495 (15,996) 0
Changes in Assets and Liabilities
Accounts payable 23,287 4,309 24,687 (4,200) 45,624
Director fees payable 0 1,500 1,500 3,000 25,500
Accrued interest payable 1,404 6,226 16,262 17,048 130,467
----------- ----------- ----------- ----------- -----------
Net Cash Flows Used for Operating Activities 5,592 (356,658) (8,875) (1,325,974) (2,218,066)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment (purchases) dispositions (90)
Organization costs -- 270 -- 270 --
----------- ----------- ----------- ----------- -----------
Net Cash Flows Provided (Used) for Investing
Activities -- 270 -- 270 (90)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock -- 600 -- 1,617 3,930
Additional paid-in capital -- 399,400 -- 966,891 1,696,277
Advances received -- 334,100 8,300 604,500 1,895,116
Advances repaid (6,294) (417,000) -- (848,000) (1,552,494)
Proceeds from notes payable -- -- -- 600,000 175,000
----------- ----------- ----------- ----------- -----------
Net Cash Flows Provided by Financing Activities (6,294) 317,100 8,300 1,325,008 2,217,829
----------- ----------- ----------- ----------- -----------
Net increase in cash (702) (39,288) (575) (696) (327)
Cash and cash equivalents - Beginning of period 375 39,469 248 877 --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents - End of period $ (327) $ 181 $ (327) $ 181 $ (327)
=========== =========== =========== =========== ===========
Schedule of Non-Cash Investing and Financing Activities:
--------------------------------------------------------
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 a additional $19,653 in imputed interest during 1999. The Company has accru
The Company issued 22,970,000 shares of common stock in settlement of a $334,622 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.
During 2000, the Company has accrued $5,658 of interest on outstanding advances payable.
Since inception the Company has not capitalized any interest.
See accompanying summary of accounting policies and notes to financial statements.
4
</TABLE>
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
------------
Goldstate Corporation (the "Company") has included the balance sheet of the
Company as of June 30, 2000, and statements of operations and cash flows
for the three-month and six-month periods ended June 30, 2000 and 1999 and
for the period from inception (February 28, 1996) to June 30, 2000,
together with condensed notes thereto. These financial statements are
prepared utilizing the interim reporting requirements of the Securities and
Exchange Commission ("SEC") as outlined in Article 10 of Regulation S-X,
which is a basis of accounting differing from generally accepted accounting
principles ("GAAP"). In the opinion of management of the Company, the
financial statements reflect all adjustments necessary to fairly present
the consolidated financial condition, results of operations, and cash flows
of the Company for the interim periods presented. The interim period
financial statements presented should be read in conjunction with the GAAP
basis audited financial statements of the Company and notes thereto
included with the annual report of the Company on Form 10-K for the year
ended December 31, 1999.
Earnings Per Share
------------------
The Company has notes payable plus accrued interest that can be converted
to 551,440 shares of common stock. As this convertible note payable would
have an antidilutive effect on the presentation of loss per share, a
diluted loss per share calculation is not presented.
Going Concern and Continued Operations
--------------------------------------
As of June 30, 2000, the Company had not generated revenues from operations
and had working capital and stockholders' deficits of $700,918. Subsequent
to December 31, 1999, 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 Resources, Inc.'s ongoing litigation with
regard to the transfer of technology pursuant to the Sub-license Agreement
between the Company and Geneva Resources, Inc. 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.
5
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company expects to fund ongoing operations for the next twelve months
through a combination of advances 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.
NOTE 2: ADVANCES AND NOTES PAYABLE
Advances are comprised of the following:
Advances
--------
The Company at June 30, 2000 had advances, payable on demand, bearing 10%
simple interest, to the following affiliated companies:
Tri-Star Financial Services, Inc. $ 8,300
=======
The advance bears 10% simple interest and is due on demand. There is $95 of
interest accrued on the advance as of June 30, 2000.
Notes Payable
-------------
On May 3, 2000, the Company converted certain convertible notes in the
amount of $175,000 together with accrued interest in the amount of $32,964
at $0.20 per share into 1,018,000 common shares in the capital of the
Corporation.
The following convertible promissory notes payable were converted:
Brent Pierce $ 75,000
Rising Sun Capital Corporation 100,000
---------
$175,000
========
NOTE 3: STOCKHOLDERS' EQUITY
Common Stock
------------
On May 3, 2000, the Company issued 1,018,000 trading common shares
resulting from the conversion of $175,000 in convertible notes and accrued
interest totaling $32,964.
6
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 4: TECHNOLOGY SUB-LICENSE AGREEMENT
As of June 30, 2000 the Company has issued the promissory notes and common
stock required by the technology sub-license agreement to the various
parties, however, the related technology has not been transferred. These
promissory notes become due and payable upon the transfer of the
technology. Transfer of the technology or any settlement thereto will be
contingent on the outcome of the lawsuit described in Note 6.
NOTE 5: EMPLOYEE STOCK OPTION PLAN
Selected information regarding the Company's employee stock options as of
June 30, 2000 are as follows:
June 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
June 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 6: CONTINGENCIES
On October 8, 2000, the Company's joint venture partner, Intergold
Corporation ("IGCO"), its wholly owned subsidiary, International Gold
Corporation ("IGC"), , and Geneva Resources, Inc. 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 Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 6: 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. Subsequent to December 31, 1999, IGC and the Company
ceased exploration of the lode-mining claims comprising the profit sharing
agreement.
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
Resources, Inc. (Note 4). If amounts are recovered by the lawsuit initiated
by International Gold Corporation and Geneva Resources, Inc., 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
Resources, Inc.
NOTE 7: PROPOSED ACQUISITIONS
On March 31, 2000, the Company entered into a letter of intent to acquire
of 100% of the issued and outstanding shares of National Care Card, a
Washington registered company. The Company further executed a letter of
intent to purchase 50% of the issued and outstanding shares of Washington
Health Card (WHC). WHC is a Preferred Provider Organization (PPO) in
Washington State, offering significantly discounted rates on health
services to individuals who do not have health insurance, but do have the
ability to pay for their own care. On May 4, 2000, the Company announced
that the letters of intent between Goldstate Corp. and National Care Card,
Washington Health Card, NorthwestOne, and Consumer Benefits Association
have lapsed. The Company could not reach an agreement on specific terms and
conditions with the shareholders and principles of the related companies to
enable it to proceed with these acquisitions. The Company has terminated
further negotiations thereto and will not move forward with the proposed
acquisitions or contracts with, or relating to, these companies.
8
<PAGE>
GOLDSTATE CORPORATION
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 7: PROPOSED ACQUISITIONS (Continued)
On April 20, 2000, the Company entered into a letter agreement to acquire
100% of the issued and outstanding shares of FP Telecom Ltd., a corporation
organized under the laws of Alberta ("FP Telecom"). The acquisition of FP
Telecom by the Company would be in exchange for a funding commitment of an
aggregate of $250,000 CDN and the issuance of an aggregate of 425,000
restricted shares of the Company's common stock, subject to final due
diligence and finalization of negotiations relating to the Definitive
Agreement. FP Telecom is engaged in the leasing of cellular telephone
equipment and services to credit challenged consumers who do not otherwise
qualify to operate a network carrier's agreement for service without the
support and backing of FP Telecom. On June 19, 2000, the Company announced
that it has completed its due diligence in regards to FP Telecom Ltd., and
decided not to move forward with the acquisition of FP Telecom Ltd.
NOTE 7: DIRECTORS AND MANAGMENT
On April 15, 2000 the Company entered into an agreement with Tri Star
Financial Services, Inc ("Tri Star") to rescind its previous agreement for
management services entered into on July 1, 1999.
On April 17, 2000, the Company accepted the resignation of Mr. Harold
Gooding from the Board of Directors. Mr. Gooding also resigned effective
the same date from his position as Director and Officer of Intergold
Corporation.
On April 20, 2000, the Company announced the appointment of Mr. Carson
Walker as director and President of the Corporation. Mr. Walker replaces
Harold Gooding as the sole director and officer of the Corporation.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Blackhawk II Property
The Company holds 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 owns fifty-one percent
(51%) of a 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 Sity, 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.
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, has suspended exploration of the
Blackhawk II Property indefinitely until resolution of the legal proceedings.
See "Part II. Item 1. Legal Proceedings" for additional disclosure.
10
<PAGE>
National Care Card, Inc.
On March 31, 2000, the Company entered into a letter of intent to acquire
100% of the issued and outstanding shares of National Care Card, Inc., a
Washington corporation ("NCC"). The Company further executed a letter of intent
to purchase 50% of the issued and outstanding shares of Washington Health Card,
Inc., a Washington corporation ("WHC") (collectively, the "Letter of
Intent(s)"). WHC is a Preferred Provider Organization in the State of Washington
which offers significantly discounted rates on health services to individuals
who do not have health insurance but who have the ability to pay for their own
care.
On May 4, 2000, the Company announced that the Letters of Intent have
lapsed. Management of the Company could not reach an agreement on specific terms
and conditions with the respective shareholders and principles of NCC and WHC to
enable it to proceed with the respective acquisitions. The Company has
terminated further negotiations and will not move forward with the proposed
acquisitions or contracts relating to NCC and WHC.
FP Telecom Ltd.
On April 20, 2000, the Company entered into a letter agreement (the "Letter
Agreement") to acquire 100% of the issued and outstanding shares of FP Telecom
Ltd., a corporation organized under the laws of Albert ("FP Telecom") in
exchange for a funding commitment of an aggregate of $250,000 CDN and the
issuance of an aggregate of 425,000 restricted shares of the Company's common
stock. FP Telecom is engaged in the leasing of cellular telephone equipment and
services to credit challenged consumers who do not otherwise qualify to sign and
operate a network carrier's agreement for service without the support and
backing of FP Telecom.
The Company and FP Telecom agreed that as a pre-condition to closing such
acquisition and the consummation of a formal agreement encompassing the terms
and provisions of the Letter Agreement, the Company would conduct to its
satisfaction due diligence. As of July 31, 2000, the Company announced that it
did not consider the acquisition of FP Telecom a probable event and thus had
terminated discussions with FP Telecom based upon the results of the Company's
due diligence.
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. The Company's proposed acquisition of NCC, WHC and FP Telecom
would have been the Company's first proposed business activities relating to
non-gold precious metals interests. 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
six-month period ended June 30, 2000, the Company's primary source of financing
has been from advances made to the Company.
11
<PAGE>
Six-Month Period Ended June 30, 2000 Compared to Six-Month Period Ended June 30,
1999
For the six-month period ended June 30, 2000, the Company recorded a net
loss of $54,819 compared to a net loss of $1,325,826 in the corresponding period
of 1999. During the six-month period ended June 30, 2000, and June 30, 1999, the
Company recorded no income.
During the six-month period ended June 30, 2000, the Company recorded
operating expenses of $35,061 as compared to $1,301,623 of operating expenses
recorded in the same period for 1999. There were no property exploration
expenses incurred during the six-month period ended June 30, 2000 as compared to
property exploration expenses incurred in the amount of $666,852 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 six-month period
ended June 30, 2000. The lack of property exploration expenses during the
six-month period ended June 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 $666,852 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.
Administrative expenses decreased significantly by approximately $597,008
in the six-month period ended June 30, 2000 as compared to the six-month period
ended June 30, 1999. This decrease in administrative expenses was due primarily
to a decrease in overhead and administrative expenses resulting from the
decreasing scale and scope of overall corporate activity pertaining to
exploration of the Blackhawk II Property.
Interest expense decreased by $4,445 during the six-month period ended June
30, 2000 as compared to the six-month period ended June 30, 1999. Interest
expense of $19,758 was incurred during the six-month period in 2000 as compared
to interest expense of $24,203 during the six-month period ended June 30, 1999.
As discussed above, the decrease in net loss during the six-month period
ended June 30, 2000 as compared to the six-month period ended June 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 six-month period ended June 30, 2000 were approximately ($54,819) or
($0.002) per share compared to a net loss of approximately ($1,325,826) or
($0.115) per share during the six-month period ended June 30, 1999. The weighted
average number of common shares outstanding were 27,203,005 for the six-month
period ended June 30, 2000 compared to 11,493,662 for the six-month period ended
June 30, 1999.
Three-Month Period Ended June 30, 2000 Compared to Three-Month Period Ended June
30, 1999
For the three-month period ended June 30, 2000, the Company recorded a net
loss of $19,099 compared to a net loss of $374,942 in the corresponding period
of 1999. During the three-month period ended June 30, 2000 and June 30, 1999,
the Company recorded no income.
12
<PAGE>
During the three-month period ended June 30, 2000, the Company recorded
operating expenses of $17,693 compared to $362,465 of operating expenses
recorded in the same period for 1999. There were no property exploration
expenses incurred during either the three-month period ended June 30, 2000 or
June 30, 1999; however, a credit for claims maintenance fees, exploration and
staking costs offset the total operating expenses by $2,702 for the three-month
period ended June 30, 2000. Administrative expenses decreased significantly by
approximately $342,070 during the three-month period ended June 30, 2000 as
compared to the three-month period ended June 30, 1999. Interest expense
decreased by $11,071 during the three-month period ended June 30, 2000 as
compared to the three-month period ended June 30, 1999. Interest expense of
$1,406 was incurred during the three-month period ended June 30, 2000 as
compared to $12,477 of interest expense incurred during the three-month period
ended June 30, 1999.
As discussed above, the decrease in net loss during the three-month period
ended June 30, 2000 as compared to the three-month period ended June 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 June 30, 2000 were approximately ($19,099) or ($0.001)
per share compared to a net loss of approximately ($374,942) or ($0.027) per
share during the three-month period ended June 30, 1999. The weighted average
number of common shares outstanding were 37,750,335 for the three-month period
ended June 30, 2000 compared to 13,999,432 for the three-month period ended June
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 six-month period ended June 30, 2000, the Company's total assets
were ($327). As of the six-month period ended June 30, 2000, the Company's total
liabilities were $700,591. This decrease from the three-month period ended March
31, 2000 was due primarily to the settlement of notes payable and accrued
interest due and owing by the Company in the amount of $175,000 by issuance of
1,018,000 shares of the Company's restricted Common Stock.
Stockholders' Equity (deficit) decreased from ($889,784) for the
three-month period ended March 31, 2000 to ($700,918) for the six-month period
ended June 30, 2000. Stockholders' Equity (deficit) decreased from ($1,256,211)
for fiscal year ended December 31, 1999 to ($700,918) for the six-month period
ended June 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
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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.
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 have 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 for Geneva's and INGC's restricted use by its
legal counsel and industry experts. Geneva and INGC, on behalf of IGCO, intend
to obtain an expert opinion as to the validity or ineffectiveness of the
Proprietary Technology.
As of the date of this Quarterly Report, various depositions have been
taken by various parties to the lawsuit, with more expected in the scheduling
process. Discovery and document production have been conducted by both sides to
the dispute, but not completed. 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. 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
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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.
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
o On March 29, 2000, the Company entered into three separate settlement
agreements with three creditors (the "Settlement Agreement(s)"),
whereby the Company agreed to issue an aggregate of 22,970,000 shares
of its restricted Common Stock at $0.0175 per share in exchange for
settlement of debt due and owing by the Company in the aggregate
amount of $401,968.47. The 22,970,000 shares of restricted Common
Stock was issued to the three creditors pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"). Under
the terms of the respective Settlement Agreements, the creditors each
agreed to accept their portion of the 22,970,000 shares of Common
Stock as payment for the respective debt owed to such creditor. The
Company issued the shares of Common Stock in reliance upon the
exemption from registration provided by Section 4(2) of the Securities
Act. The creditors each represented to the Company that they acquired
the shares for their own respective account, and not with a view to
distribution, and that the Company made available all material
information concerning the Company.
Subsequently, each creditor entered into a separate assignment
agreement dated March 30, 2000 (the "Assignment Agreement(s)"),
whereby each creditor agreed to assign all of its rights, title and
interest in the Settlement Agreement, including the issuance of the
restricted shares of Common Stock of the Company, in exchange for the
issuance of a promissory note.
o On April 17, 2000, the Company received assignments from the
respective individuals listed below representing all of the options
granted under the Non-Qualified Stock Option Plan exercisable into an
aggregate of 1,000,000 shares of Common Stock. As of June 30, 2000,
all options granted to the following individuals have been assigned to
the Company for possible redistribution at a future date according to
the direction of the Board of Directors:
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Name Number of Shares Granted
---- ------------------------
Gino Cicci 200,000
Grant Atkins 300,000
Brent Pierce 300,000
Harold Gooding 100,000
Marcus Johnson 100,000
Total 1,000,000
o On May 3, 2000, the Company converted three separate convertible
promissory notes in the aggregate amount of $175,000 together with
accrued interest in the aggregate amount of $32,964 into shares of
restricted Common Stock. On May 3, 2000, the Company issued 1,018,000
shares of restricted Common Stock at $0.20 per share pursuant to the
terms of the convertible promissory notes. The holders of the
convertible promissory notes each agreed to accept their respective
shares of Common Stock in lieu of cash payment for their respective
convertible promissory note. The Company issued the shares in reliance
upon the exemption from registration provided by Section 4(20 of the
Securities Act. The holders each represented to the Company that they
acquired the shares for their own respective account, and not with a
view to distribution, and that the Company made available all material
information concerning the Company.
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 April 27, 2000, April 20, 2000
and March 30, 2000.
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: August 14, 2000 By: /s/ Carson Walker
---------------------
Carson Walker, President
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