| NOTE 6 - CONVERTIBLE NOTES PAYABLE | Note 6 -
CONVERTIBLE NOTES PAYABLE Senior Subordinated Convertible Notes On October 30, 2007, the Company
completed the placement of 10% Senior Subordinated Convertible Notes of $450,000. The notes were placed with three accredited
investors for $150,000 each and bear interest at 10% per annum. The notes had term of 60 months at which time all remaining principal
and interest was due. Interest accrued for 18 months from the date of closing. Interest on the outstanding principal balance was
payable in quarterly installments commencing on the first day of the 19th month following the transaction closing. In connection
with the transaction, the Company issued a five year warrant for each $2.50 invested, for a total of 180,000 warrants, each warrant
giving the note holder the right to purchase one share of common stock at a price of $1.25 per share. All issued warrants have
expired. At the option of the holders of the convertible notes, the outstanding principal and interest was convertible at any
time into shares of the Company’s common stock at conversion price of $1.25 per share. The notes were to be automatically
converted into common stock if the weighted average closing sales price of the stock exceeded $2.50 per share for ten consecutive
trading days. The shares underlying the notes are to be registered on request of the note holders, provided the weighted average
closing price of the stock exceeds $1.50 per share for ten consecutive trading days. On October 31, 2012, the notes with the three accredited
investors became due and payable. On January 15, 2013, the maturity dates for the convertible senior subordinated notes aggregating
$450,000 were extended for a period of two years from the original maturity date. Additionally, the convertible price of the notes
was reduced to $0.40 and the automatic conversion price of $2.50 was reduced to $0.80. In connection with the extension of the
notes, 562,500 warrants were issued with a strike price of $0.40 and term of two years from the original maturity dates and have
expired. As of March 31, 2016, the outstanding principal balance
and accrued interest on the senior subordinated convertible notes, was $450,000 and $133,125, respectively, and classified in liabilities
subject to compromise. The notes are currently due and in default. Convertible Secured
Notes In October and November 2012,
the Company received advances totaling A$3,900,000 (A$ - Australia dollars), representing cash proceeds of $3,985,000, from International
Goldfields Limited (ASX: IGS) in fulfillment of an important condition of the Binding Heads of Agreement dated October 8, 2012
between the Company and IGS. The funds were advanced by way of two secured convertible notes. The convertible notes bear interest
at a rate of 6% per annum, have a three-year term, and were secured by the Company’s contractual rights to the Mogollon property.
The Company has the right to prepay the notes at any time without any premium or penalty. Should the Company fail to repay the
notes on the maturity date or should an event of default occur, then IGS may choose to have the outstanding amounts repaid in the
Company’s shares at a conversion rate equal to the daily volume weighted average sales price for the twenty trading days
immediately preceding the date of conversion. As of March 31, 2016, the total outstanding principal balance
on the IGS Secured Convertible Note totaled $2,994,112 and accrued interest was $617,096. On October 31, 2015, the note became
convertible and the CFA computed an embedded conversion option and is separated from the Note and accounted for as a derivative
instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method.
The initial carrying value of the embedded conversion option was $98,091. During the nine months March 31, 2016, amortization of
loan discount was recognized as interest expense of $29,663 and the unamortized discount was $$68,423 at March 31, 2016. The note is currently due
and in default at March 31, 2016. IGS never submitted a conversion notice and in March 2017 reached an agreement with the Company
for a cash settlement of $88,283 on the outstanding principle and accrued interest as payment in full. The settlement amount was
paid by wire transfer in April 2017. At March 31, 2016, the outstanding note balance and accrued
interest was classified in liabilities subject to compromise. Convertible Unsecured Notes On October 22, 2014, the Company
signed a $500,000 Convertible Note with an accredited investor and received a consideration of net proceeds $75,000, net an original
issue discount (“OID) of $8,333. The Consideration on the Note has a Maturity date of two years from the Effective Date and
has a 10% OID component attached to it. The Company may repay the Consideration at any time on or before 120 days from the Effect
Date and there would be no interest due on the Consideration. If the Company does not repay a Consideration on or before 120 days
from its Effective Date, a one- time interest charge of 12% shall be applied to the principal sum. If the Company does not pay
a Consideration prior to the 120-day period, the Company may not make further payments on this Note prior to Maturity Date without
written approval from the Investor. The Investor may pay additional Consideration to the Company in such amounts and at such dates
as the Investor may choose in its sole discretion. During the fiscal year ended June 30, 2015, the investor converted note principle
of $68,900 into 1,800,000 shares of restricted common stock. During the nine months ended March 31, 2016, the investor converted
the balance of the note principle and added interest charges aggregating $24,433 into 916,078 shares of restricted common stock. The original consideration contains an embedded conversion
option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is
expensed over the life of the Note under the effective interest method. The initial carrying value of the of the embedded conversion
option exceeded the net proceeds received and created a day one derivative loss of $78,529 in the period ending December 31, 2014.
During the nine months ended March 31, 2016, amortization of loan discounts was recognized as interest expense of $20,185. On February 25, 2015, a second consideration tranche of
$50,000 was delivered under this Convertible Note under the same terms and conditions, net of and OID charge of $5,556. The tranche
consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument
at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. The initial
carrying value of the of the embedded conversion option exceeded the net proceeds received and created a day one derivative loss
of $105,556 in the period ending March 31, 2015. During the nine months ended March 31, 2016, amortization of loan discounts was
recognized as interest expense of $60,532. During the nine months ended March 31, 2016, the investor converted the principle and
added interest charges aggregating $62,223 into 27,522,855 shares of restricted common stock. On June 24, 2015, a third Consideration tranche of $50,000
was delivered under this Convertible Note under the same terms and conditions, net of and OID charge of $5,556. The tranche consideration
contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value
and discount to the Note and is expensed over the life of the Note under the effective interest method. The initial carrying value
of the of the embedded conversion option exceeded the net proceeds received and created a day one derivative loss of $90,395 in
the period ending June 30, 2015. During nine months ended March 31, 2016, amortization of the loan discount was recognized as interest
expense of $2,817. No conversions were made on the note during the nine months ended March 31, 2016. During the nine months ended
March 31, 2016, $37,777 in default and interest charges was added to the note balance of which $6,666 was added to the note discount.
As of March 31, 2016, the note balance was $93,333 and the unamortized loan discount was $58,812. The conversion price with
this investor is the lesser of $0.0425 or 65% of the lowest trade price in the 25 trading days previous to the conversion date.
At September 30, 2015, the three note tranches had aggregated outstanding principal, discounts and accrued interest of $93,333.
Subsequent to our year current end June 30, 2016, the notes were not converted and were retired with a $90,000 payment. On January 20, 2015, the Company signed a $250,000 Convertible
Note with an accredited Investor and received on January 20, 2015, a consideration of net proceeds $50,000, net of an OID of $5,556.
The consideration on the Note has a Maturity date of two years from payment of each consideration and has a 10% OID component attached
to it. A one- time interest charge of 12% is applied to the principal sum on the on the date of the consideration. The Note principal
and interest shall be paid at Maturity date or sooner as provided within the Note and conversion provisions. The Investor may pay
additional consideration to the Company in such amounts and at such dates as the Investor may choose in its sole discretion. The
initial carrying value of the of the embedded conversion option exceeded the net proceeds received and created a day one derivative
loss of $228,200, in the period ending March 31, 2015. On June 9, 2015, a second Consideration tranche of $50,000
was delivered under this Convertible Note under the same terms and conditions, net of an original issue discount (“OID) of
$5,556. The tranche consideration contains an embedded conversion option and is separated from the Note and accounted for as a
derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest
method. The initial carrying value of the of the embedded conversion option exceeded the net proceeds received and created a day
one derivative loss of $54,270 in the period ending June 30, 2015. During the nine months ended March 31, 2016, amortization
of loan discounts on the two considerations was recognized as interest expense of $65,784. During the nine months ended March 31,
2016, the investor converted note principle of $60,192 into 18,007,333 shares of restricted common stock. During the nine months
ended March 31, 2016, penalties and default charges of $43,347 were added to the note balances. As of March 31, 2016, the aggregate
note balances were $107,599 and the unamortized loan discounts were $58,660. The conversion price with this investor is the lesser of
$0.125 or 60% of the lowest trade price in the 25 trading days previous to the conversion date. At March 31, 2016 March 31, 2016,
the two note considerations had an aggregated outstanding principal $107,599. Subsequent to our fiscal year ended June 30, 2016,
the note balances were not converted and were retired with a $93,000 payment. The components of the
unsecured convertible notes payable are as follows:
Principal Unamortized
March 31, 2016 : Amount Discount Net
Current portion $ 3,645,045 $ (185,900 ) $ 3,459,145
Long-term portion, net of current - - -
Balance classified in liabilities subject to compromise $ 3,645,045 $ (185,900 ) $ 3,459,145 At March 31, 2016, the outstanding
note balance was classified in liabilities subject to compromise.
June 30, 2015: Principal Unamortized
Amount Discount Net
Current portion $ 3,702,263 $ (258,345) $ 3,443,918
Long-term portion, net of current - - -
$ 3,702,263 $ (258,345 ) $ 3,443,918 |
