| 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 June 30, 2016, the
outstanding principal balance was $450,000 and accrued interest on the senior subordinated convertible notes was $144,500 and was
in default. In December 2016 the court administered trust paid and aggregate $23,000 to the note holders and was applied against
the accrued interest on the notes. In March 2017 the three
accredited investors reached an agreement with the Company for an aggregate cash settlement of $13,500 on all the outstanding principles
and accrued interest as payment in full. The settlement amount was paid by according to the terms of the settlement in April 2017.
At the time of the agreement to settle the three accredited investors had an aggregate balance of principle and accrued interest
owed them of $603,688 and the Company recorded a gain on extinguishment of debt of $590,188 on the settlement. 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. 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 year ended June 30, 2016, amortization of loan discount was recognized as interest expense
of $48,251 and during the nine months ended March 31, 2017, amortization of loan discount recognized as interest expense was $49,840
and the unamortized discount balance was $0 at March 31, 2017. On March 31, 2017 and June 30, 2016, the total outstanding principal
balance on the IGS Secured Convertible Note totaled $0 and $2,903,316, respectively, and accrued interest was $0 and $642,624,
respectively. In December 2016 the court administered trust paid $174,507 to the note holder and was applied against the accrued
interest on the note. IGS never submitted a conversion notice and in March 2017 reached an agreement with the Company for a cash
settlement of $88,282 on the outstanding principle and accrued interest as payment in full. The settlement amount was paid by wire
transfer in April 2017. At the time of the agreed settlement the outstanding principle
and accrued interest aggregated $3,563,662 and the Company recorded a gain on extinguishment of debt of $3,475,380 on the settlement. 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 fiscal year ended June 30, 2016, the investor converted the balance of the note principle
and added interest charges of $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. During the fiscal year ended June 30, 2016, amortization
of loan discount 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. During the fiscal year
ended June 30, 2016, amortization of loan discount was recognized as interest expense of $60,973. During the fiscal year ended
June 30, 2016, the investor converted principle and added interest charges aggregating $62,223 into 27,522,855 shares of restricted
common stock. During the nine months ended March 31, 2016, the Company recorded
$90,081 as resolution of derivative liability upon note conversions back into Additional Paid-in Capital. 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. During the fiscal years
ended June 30, 2016, $6,666 was added to the note principle and note discount and amortization of the loan discount was recognized
as interest expense of $5,541 for the fiscal year ended June 30, 2016. No note conversions were made on the note during the fiscal
years ended June 30, 2016 and 2015. During fiscal year ended June 30, 2016, $31,111 in default charges was added to the note balance.
At March 31, 2017 and June 30, 2016 the note balance was $0 and $93,333 respectively, and amortization of the loan discount was
recognized as interest expense of $56,088 for the nine months ended March 31, 2017, and the unamortized loan discount balance as
of March 31, 2017 and June 30, 2016, was $0 and $56,088, respectively. 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. The note was not converted and was retired
for $90,000 in installments, the final installment made on January 25, 2017, and the Company recorded a gain on extinguishment
of debt of $3,333. 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 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. 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. During the fiscal year ended June 30, 2016, amortization of loan discounts on the two notes
was recognized as interest expense of $66,388. During the fiscal year ended June 30, 2016, the investor converted the note principle
and added interest charges of $60,192 under the first consideration into 18,007,333 shares of restricted common stock. During the
fiscal year ended June 30, 2016, penalties and default charges of $43,347 were added to the two note balances. At March 31, 2017
and June 30, 2016, the note balances were $-0- and $107,599, respectively and the unamortized loan discounts were $0 and $55,445,
respectively. During the nine months ended March 31, 2017, amortization of the loan discount recognized as interest expense was
$55,445. 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 June 30, 2016, the two note tranches had aggregated outstanding principal $107,599 and had a conversion price of $$0.0003. During
the three months ended September 30, 2016, the note was not converted and was retired for $93,000 in installments, the final installment
made on September 6, 2016. The transaction resulted in recognition of a gain on extinguishment of debt of $14,599. The components of the unsecured convertible notes payable
are as follows:
March 31, 2017: Principal Unamortized
Amount Discount Net
Current portion $ - $ - $ -
June 30, 2016: Principal Unamortized
Amount Discount Net
Current portion $ 3,554,249 $ (161,814 ) $ 3,392,435 |
