| Convertible Promissory Notes | Notes Payable Series I In April and May, 2013, the Company entered
into note agreements with shareholders in the principal amount of $1,495,000, of which $340,000 was then converted to preferred
shares within the same year, netting to proceeds of $1,155,000 (the Series I Notes Series I). The Series I Notes
bear simple interest at twelve and a half percent (12.5%), accrued for twelve months, and with the accrued interest to be
added to the principal, and then interest will be paid by the Company, quarterly in arrears. The holders of the Series
I Notes (in aggregate) are also entitled to receive ten percent (10%) of the net profits received by the Company, and generated
from the bulk sampling material (if any, and up to fifty thousand tonnes) processed through the existing, or improved mill
facilities at San Jose de Gracia. Such net profits (if any) are to be calculated after deducting all expenses related to the
processing of the bulk sample material, and after a prior deduction of thirty-three percent (33%) from the profits,
to be deposited in a sinking fund cash reserve. This net profit percentage (if any) would be paid quarterly in arrears based
on the profits generated (if any) for the prior quarter. At the time of the Series I Notes, there were no proven or probable
reserves and the Company had not produced any net profits. Consequently, the fair value of the net profits interest on the date
of the Series I Note was deemed to be zero. Further, no payments have been made under the terms of this codicil. The Notes originally
matured on December 31, 2015. In April, 2015, the notes were extended to December 31, 2016. The Company has the right to prepay the
Series I Notes with a ten percent (10%) penalty. The notes are secured by the Companys stock at $5 per share. The Series I Note holder retains the option,
at any time prior to maturity or prepayment, to convert any unpaid principal and accrued interest into Common Stock at $5.00 per
share. If the Series I Note is converted into Common Stock, at the time of conversion, the holder would also receive warrants,
in the same number as the number of common shares received upon conversion, to purchase additional common shares of the Company
for $7.50 per share, with such warrants expiring on December 31, 2015. In 2013, the Company offered an inducement
to all Series I Note holders to convert their Series I Notes and accrued interest into Series B Preferred Stock (Series
B), $5/Share, which Series B was convertible into common stock on a 2 for 1 basis (i.e., $2.50 stock). This conversion into
Series B created $197,771 in inducement expense, with an offset to additional paid in capital. In 2013, $340,000 principal and
$22,734 of capitalized accrued interest of the Series I Notes were converted into Preferred Stock, Series B and 72,546 shares were
issued. At June 30, 2014, these 72,546 Series B shares were converted into 145,092 common shares. In April, 2015, the Company received note
extensions (allonges) from all Series I note holders to ensure that all Series I Notes were in good standing and also extended
the maturity date of the Series I Notes to December 31, 2016. Notes Payable Series II In 2013 and 2014, the Company entered
into additional note agreements of $199,808 and $250,000, respectively (the Series II Notes) with similar terms as
the Series I Notes. The Series II Notes bear simple interest at twelve and a half percent (12.5%), accrued for twelve months, and
with the accrued interest to be added to the principal, and then interest will be paid by the Company, quarterly
in arrears. The holders of the Series II Notes (in aggregate) are also entitled to receive ten percent (10%) of the net profits
received by the Company, and generated from the bulk sampling material (if any, on the second fifty thousand tonnes) processed
through the existing, or improved mill facilities at San Jose de Gracia. Such net profits (if any) are to be calculated after
deducting all expenses related to the processing of the bulk sample material, and after a prior deduction of thirty-three
percent (33%) from the profits, to be deposited in a sinking fund cash reserve. This net profit percentage (if any) would be
paid quarterly in arrears based on the profits generated (if any) for the prior quarter. At the time of the Series II notes,
there were no proven or probable reserves and the Company had not produced any net profits. Consequently, the fair value of the
net profits interest on the date of the Series II note was deemed to be zero. Further, no payments have been made under the terms
of this codicil. The Notes mature on December 31, 2016. The Company has the right to prepay the
Notes with a ten percent (10%) penalty. The notes are secured by the Companys stock at $5 per share. The Note holder may, at any time prior
to maturity or prepayment, convert any unpaid principal and accrued interest into common stock of the Company at $5.00 per share.
At the time of conversion, the holder would receive a warrant to purchase additional common shares of the Company for $7.50 per
share, such warrant expiring on December 31, 2016. In April, 2015, the Company received allonges
(note extensions) from all noteholders to ensure that all notes were in good standing and also confirmed the maturity of the Series
II notes to be December 31, 2016. On June 30, 2015, the Company entered
into conversion agreements with six (6) note holders. Principal and interest in the amount of $809,784 plus $33,120 of accrued
interest (total of $842,904) was contracted to convert into 337,162 common shares. In addition, 337,162 warrants are to be issued
which provide the option to purchase common shares at $2.50, with all warrants expiring December 31, 2017. The Company recorded
$826,347 inducement expense related to these conversion transactions. On August 17, 2015, these common shares and warrants were
issued. The company evaluated the application
of ASC 470-50 and ASC 470-60 and determined that the Notes were not substantially different. As a result, it was concluded that
the revised terms constituted a debt modification rather than a debt extinguishment. At June 30, 2016, the principal and capitalized
interest balance on the remaining Series I Notes was $793,125, and the principal and capitalized interest on the Series II Notes
was $191,250, for a total Note balance of $956,250. The accrued interest for these notes were $29,883 and $29,883 as of June 30,
2016 and December 31, 2015, respectively. |
