Since my previous long articles have been noted fr
Post# of 4018
Posted On: 12/24/2013 12:30:04 PM
Since my previous long articles have been noted front and center publicly,and they were written based on my real world experience w these things- quite different from the real world experience SIRG has encountered in dealing w the permits since then,(as I mentioned many times outside high level political interference would be a game changer-and I believe SIRG has experienced that, as have thousands of other startups since 2009, for reasons I have explained in long posts elsewhere) so I thought I would note the following public Sept 30 10Q portions
April 2013 seems to have been a key date -Rizzo, who was doing BLM permit, to whom they owed ca 530k at that time, was highly encouraged to obtain final EA or at least present to BLM as per NEPA by Apr 1- though subsequent May or June PR's indicate permits were continuing, the amount currently owed to Rizzo does not indicate much further work by them (590k minus interest on 530 k equals subsequent work performed by Rizzo on BLM unless they were paid directly for additional work via amounts received from Asher or JMJ 's etc notes)
CDM Smith was then contracted as per ca May-June PR's to do additional permits including air quality and electrical -I dont see any notes due to CDM Smith -does anybody else? -maybe paid via amounts received from other recent issued notes or paid via convertible note
Does anybody know the convention or reason for not disclosing the recipients of the convertible notes- stocks are a highly highly specialized world that were virtually ignored in my accounting economics law etc degrees
April 2013 acquisition of remaining 20% ownership at a high price-which I have bolded- has puzzled me considering the co's difficult financial position- I would think such efforts/money would rather be directed to obtain the permits -without which they can do nothing except JV or buyout -UNLESS creditors demanded such as a condition of further loans
language concerning removal of notes at a later date not currently considered valid liabilities-language new to the last 10Q- re apparently previously recognized legitimate liabilities,is also of concern- and you can guess the ramifications of that
SIRG does have forbearance agreements w some creditors (see last par of copied material- but apparently not w Brian Hebb or Black Diamond Realty? notes now contested) - meaning an agreement not to sue over delinquent notes-and though i didnt immediately notice it here, others i believe have mentioned such re amounts owed to Rizzo
from 10q for period ended Sept 30,2013
NOTE 5. CHLORIDE COPPER PROJECT
On April 23, 2010, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Medina Property Group LLC, a Florida limited liability company (“Medina”). Pursuant to the Purchase Agreement, and upon the terms and subject to the conditions thereof, the Company agreed to purchase 80 % of certain mining interests of Medina known as the Chloride Copper Project, a former copper producer comprised of a mineral deposit and some infrastructure located near Kingston, Arizona (the “Copper Mine”).
The Company’s acquisition of the Chloride Copper Project was accounted for in accordance with ASC 805 Business Combinations and the Company has allocated the purchase price based upon the fair value of the net assets acquired and liabilities assumed.
The purchase price was $ 7,505,529 which, pursuant to the Purchase Agreement, included the issuance of 12,750,000 shares of common stock by the Company to Medina or its assignees, return of 5,358,000 share of common stock by Black Diamond and the payment of $ 125,000 to the original seller of certain equipment where the Chloride Copper Mine is located, as designated by Medina in the Purchase Agreement. The purchase price was determined based on the Company’s analysis of a recently completed comparable acquisition and based on the value of the associated underlying shares of the Company’s common stock which value of $ 1.00 per share represented the offering price of the Company’s Common Stock in its most recently completed equity transaction prior to the date of the Purchase Agreement. The Company recognized goodwill of $ 7,602,069 and assumed $ 384,540 in liabilities, which consisted of a $ 360,000 promissory note and $ 3,040 in accrued interest and $ 21,500 in accounts payable.
The following table summarizes the acquisition with a total purchase price of $7,505,529:
Mining Property Rights $ 163,000
Equipment $ 125,000
Liabilities $ (384,540)
Goodwill $ 7,602,069
Net Assets $ 7,505,529
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In addition, pursuant to the Purchase Agreement, Black Diamond Realty Management, LLC returned 5,348,000 shares of the Company’s Common Stock, and as a result, a change of our shareholder voting control occurred. The Acquisition formally closed on June 21, 2010. The shares of Common Stock constituting the equity portion of the purchase price were issued on August 9, 2010 to certain assignees of Medina, and although this issuance of shares approximately doubled our outstanding shares of Common Stock, no single person or cohesive group took a controlling interest in our Company as a result of this transaction.
The Company had impairment on the entire purchase price for the Medina Property acquisition and impairment on the Chloride Cooper Project related to fixed assets and mining interests. During the year ended December 31, 2010 impairment was $ 7,890,069 was comprised of $ 7,602,069 write-off of goodwill, $ 163,000 write-off of mining interests and $ 125,000 for the write-down of fixed assets. All these assets were acquired and recorded as part of the Chloride Copper Project.
On April 12, 2013, the Company executed a Second Amendment to the Asset Purchase Agreement (“Second Amendment”) between the Company and Medina Property Group, LLC dated April 23, 2010, amended by the First Amendment to the Asset Purchase Agreement dated June 10, 2010. This Second Amendment provides for the acquisition of Medina’s remaining twenty ( 20 %) percent right, title, and interest in the asset known as the Chloride Copper Mine. The execution of this transaction increased the Company’s interests in the Chloride Copper Mine to 100 %. In consideration of the 20 % interest, the Company entered into a 6 -month promissory note for seven hundred fifty thousand ($ 750,000 ) dollars, forty million ( 40,000,000 ) shares of Class A common stock which have not been issued as of September 30, 2013, a 5 - year convertible promissory note for four million ($ 4,000,000 ) dollars, and a 10 -year-warrant purchase agreement for Medina to purchase up to twenty million ( 20,000,000 ) shares of its Class A common stock at a share price of $ 0.27 . Because the Company had control (80%) over the interest in the assets known as the Chloride Copper Mine, the acquisition of the remaining 20% interest was accounted for as an equity transaction. If the Company does not meet all conditions in the Second Amendment, the Medina Property Group, LLC has a right of reversion which includes the return of the title to all of the conveyed assets back to Medina Property Group, LLC.
NOTE 6. NOTES PAYABLE
The Company had the following notes payable outstanding as of September 30, 2013 and December 31, 2012:
September 30, 2013 December 31, 2012
Current Notes Payable
Promissory note payable dated
August 16, 2010 due to Brian Hebb
including accrued interest. $ 44,107 41,570
Promissory note payable dated
August 6, 2010 due to Black
Diamond Realty Mgmt including
accrued interest. 33,804 30,098
Promissory note payable dated May 5,
2010 due to Brian Hebb including
accrued interest. 176,880 153,469
Promissory note payable dated
February 16, 2012 due to Grand
View Ventures including accrued
interest 221,583 215,992
Promissory note payable dated
May 3, 2012 due to Grand
View Ventures including accrued
interest 182,990 147,029
Promissory note payable dated May 17,
2012 due to Tangiers Investors, LP
including accrued interest 32,794 15,900
Promissory note payable dated July 17,
2012 due to Asher Enterprises
including accrued interest -0- 54,940
Promissory notes payable dated
July 31, 2012 due to FOGO, Inc.
including accrued interest 237,573 210,060
Promissory note payable dated
October 5, 2012 due to Asher
Enterprises including accrued interest -0- 33,120
Promissory note payable dated
November 14, 2012 due to All
Business Consulting, Inc. including
accrued interest 26,217 25,258
Promissory note payable dated
December 4, 2012 due to Asher
Enterprises including accrued
interest -0- 42,752
Promissory note payable dated
February 5, 2013 due to Paul C.
Rizzo & Associates including
accrued interest 590,666 -0-
Promissory note payable dated
February 25, 2013 due to Asher
Enterprises including accrued
interest 50,447 -0-
Promissory note payable dated
February 27, 2013 due to Asher
Enterprises including accrued
interest 5,240 -0-
Promissory note payable dated
April 8, 2013 due to Asher
Enterprises including accrued
interest 58,169 -0-
Promissory note payable dated
April 12, 2013 due to Medina
Property Group, LLC 750,000 -0-
Promissory note payable dated
June 19, 2013 due to JMJ
Financial including accrued interest 27,778 -0-
Promissory note payable dated
July 17, 2013 due to Tangiers
Investors, LP including accrued
interest 53,568 -0-
Promissory note payable dated
August 8, 2013 due to Asher
Enterprises including accrued interest 38,441 -0-
Total Current Notes Payable 2,530,257 970,188
Non Current Notes Payable
Promissory note payable dated
April 12, 2013 due to Medina
Property Group, LLC including
accrued interest 4,056,416 -0-
Less: Debt discount (3,688,380) (97,423)
Total Notes Payable 2,898,293 872,765
A summary of future maturities of long term debt are as follows:
For the year ended September 30,
2014 -0-
2015 -0-
2016 -0-
2017 -0-
2018 4,025,973
Thereafter -0-
4,025,973
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The Company entered into a promissory note with Brian Hebb on August 16, 2010 in the amount of $ 34,527 . The note has an interest rate of 8 % with the maturity date of July 15, 2011 . The Company is currently in default of the note. As of September 30, 2013 and December 31, 2012, the Company had a balance due including principal, interest and default penalties in the amount of $ 44,107 and $ 41,570 , respectively. Although management questions whether this amount is a valid liability of the Company, Generally Accepted Accounting Principles (GAAP) requires it to be carried on the Company’s books. The Company will seek all remedies to have the debt removed at a later date.
The Company entered into a promissory note with Black Diamond Realty Management on August 6, 2010 in the amount of $ 25,000 . The note has an interest rate of 8 % with the maturity date of August 16, 2011 . The Company is currently in default of the note. As of September 30, 2013 and December 31, 2012, the Company had a balance due including principal, interest and default penalties in the amount of $ 33,804 and $ 30,098 , respectively. Although management questions whether this amount is a valid liability of the Company, Generally Accepted Accounting Principles (GAAP) requires it to be carried on the Company’s books. The Company will seek all remedies to have the debt removed at a later date.
The Company entered into a promissory note with Brian Hebb on May 5, 2010 in the amount of $ 125,000 . The note has an interest rate of 8 % with the maturity date of August 16, 2011 . The Company is currently in default of the note. As of September 30, 2013 and December 31, 2012, the Company had a balance due including principal, interest and default penalties in the amount of $ 176,880 and $ 153,469 , respectively. Although management questions whether this amount is a valid liability of the Company, Generally Accepted Accounting Principles (GAAP) requires it to be carried on the Company’s books. The Company will seek all remedies to have the debt removed at a later date.
The Company entered into a Convertible Promissory Note with Grand View Ventures on February 16, 2012 in the amount of $ 190,000 . The note has an interest rate of 15 % with a maturity date of February 16, 2013 (see Note 7). The balance due including principal and accrued interest was $ 221,583 and $ 215,992 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Grand View Ventures on May 3, 2012 in the amount of $ 133,333 . The note has an interest rate of 15 % with a maturity date of November 1, 2012 (see Note 7). The balance due including principal and accrued interest was $ 182,990 and $ 147,029 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Tangiers on October 14, 2011 in the amount of $ 31,500 . The note has an interest rate of 10 % with the maturity date of July 14, 2012 . The Company has renegotiated the terms of the note. The new terms require the Company to make two payments of $ 18,750 , which one payment has been timely satisfied, and issue 3,000,000 shares of common stock to Tangiers. The second payment of $ 18,750 has not been paid as of June 30, 2013. In addition, as of September 30, 2013, the Company has not issued shares of common stock to Tangiers. The balance due including principal and accrued interest was $ 32,794 and $ 15,900 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on July 17, 2012 in the amount of $ 53,000 . The note had an interest rate of 8 % with a maturity date of April 19, 2013 . This obligation has been satisfied as of September 30, 2013 (See Note 7).
The Company entered into a Promissory Note with FOGO, Inc. on July 31, 2012 in the amount of $ 200,000 . The note had an interest rate of 12 % with a maturity date of January 1, 2013. On January 30, 2013, the Company and Fogo Inc. (“Fogo”) entered into an amendment to the Promissory Note dated July 31, 2012, which changed the maturity date of the note to July 31, 2013 (see Note 14). The note interest rate shall bear an interest rate of 13.5 % annual rate beginning February 2013 and increasing 1.5 % each month with an maximum of 20 % in July 2013 provided the note is outstanding. The balance due including principal and accrued interest was $ 237,573 and $ 210,060 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on October 5, 2012 in the amount of $ 32,500 . The note had an interest rate of 8 % with a maturity date of July 10, 2013 . This obligation has been satisfied as of September 30, 2013 (See Note 7).
The Company entered into a Convertible Promissory Note with All Business Consulting Inc. on November 14, 2012 in the amount of $ 25,000 . The note had an interest rate of 8 % with a maturity date of November 14, 2013 . The balance due including principal and accrued interest was $ 26,217 and $ 25,258 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on December 4, 2012 in the amount of $ 42,500 . The note had an interest rate of 8 % with a maturity date of September 16, 2013 (See Note 7). This obligation has been satisfied as of September 30, 2013 (See Note 7).
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On February 5, 2013, the Company and Paul C. Rizzo Associates, Inc. entered into an agreement which provided for the execution of a Promissory Note, the granting of warrants to purchase 3,000,000 shares of the Common Stock at an exercise price of $ 0.0125 per share if the final Environmental Assessment is delivered to the Bureau of Land Management by April 1, 2013 with an additional 250,000 warrants to be issued upon the same terms for each full week that the final EA is delivered before April 1, 2013. A final EA had not been delivered by April 1, 2013. The Promissory Note was executed on February 5, 2013 which the principal amount of $ 536,860 representing all outstanding invoices up to December 1, 2012. The Promissory Note shall bear interest at an annual rate of 15 % with a maturity date of sixty ( 60 ) days after the date the United States Bureau of Reclamation issues a submittal of Environmental Assessment documentation seeking a Finding of No Significant Impact (“FONSI”) or August 1, 2013 whichever occurs first (See Note 14). The balance due including principal and accrued interest was $ 590,666 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on February 25, 2013 in the amount of $ 63,000 . The note had an interest rate of 8 % with a maturity date of November 27, 2013 (See Note 7). The balance due including principal and accrued interest was $ 50,447 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on February 27, 2013 in the amount of $ 5,000 . The note had an interest rate of 8 % with a maturity date of December 4, 2013 (See Note 7). The balance due including principal and accrued interest was $ 5,240 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on April 8, 2013 in the amount of $ 56,000 . The note had an interest rate of 8 % with a maturity date of January 10, 2014 (See Note 7). The balance due including principal and accrued interest was $ 58,169 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
In April 2013, the Company acquired the remaining 20 % interest in certain assets and properties of Medina Property Group, LLC (see Note 5). Part of the considerations consists of a 3 % convertible note in the amount of $ 4,000,000 , due in April 2018, and convertible into common stock at a conversion rate equal to 30 % of the average closing price for the ten trading days immediately preceding the day of conversion. Because the conversion price of the 3% $ 4,000,000 convertible note is uncertain and the number of shares issuable upon conversion are unknown and unlimited, equity classification of the conversion option is prohibited. Therefore, the conversion option is required to be separated from the debt and recorded as a derivative liability, with subsequent changes in fair value reflected in the statement of operations. The Company estimated the fair value of the conversion option on the date of issuance using Monte Carlo simulations and the following assumptions: volatility – 134.16 %; risk free rate -0.7%; Term – 5 Years. The Company estimated the fair value of the conversion option as of the issuance date to be $ 10,309,000 . The excess of the initial fair value of the conversion option over the face value of the convertible note, totaling $ 6,309,395 , was recorded as derivative expense on the issuance date and $ 4,000,000 was recorded as a discount against the convertible note to be amortized into interest expense over the five-year term of the note. During the nine months ended September 30, 2013, the Company recognized $ 172,961 of interest expense from the amortization of the discount. In addition to the amortization of the discount, the Company recognized $ 25,973 of interest expense on the Convertible Note for the three and nine months ended September 30, 2013. The carrying value of the convertible note as of September 30, 2013 was $ 229,377 , net of unamortized discount of $ 3,827,039 .
The Company entered into a Convertible Promissory Note with JMJ Financial on June 19, 2013 for the principal sum of $ 300,000 . Only $ 25,000 of the note was advanced to the Company, resulting in a $ 27,778 note payable net of $ 2,778 original issue discounts. The lender may advance additional Principal (up to the $300,000) to the Company at the lender’s sole discretion. The note has an interest rate of 0 % for the first 90 days beginning on the advancement date and a one-time interest charge of 12 % on the principal sum advanced thereafter with a maturity date of June 19, 2014 (see Note 7). The balance due was $ 27,778 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
NOTE 7. Convertible Notes
8 % Convertible Notes
In July 2012, the Company issued a convertible note with a face value of $ 53,000 . The note was to mature in April 2013, bears interest at an annual rate of 8 %, and was convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. Because the convertible note was convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operation.
On the date of issuance the Company recorded a derivative liability of $ 81,000 , a debt discount of $ 53,000 and initial derivative liability expense of $ 28,000 . The debt discount was being amortized into expense through the maturity date of the convertible note. During the nine months ended September 30, 2013, the holder of the convertible notes elected to convert all principal and interest into 18,696,052 shares of common stock. On each date of conversion, a portion of the remaining unamortized discount attributable to the principal converted was amortized into interest expense and the related derivative liability was reclassed to equity. During the nine months ended September 30, 2013, the Company recorded amortization expense of $ 20,931 . As of September 30, 2013, no principal or interest remained outstanding. In addition to the amortization of the discount the Company recognized $ 180 of interest expense on the convertible note for the nine months ended September 30, 2013.
The fair value of the embedded derivatives as of each conversion date was determined using Monte Carlo Simulations and the following assumptions, resulting in derivative expense of $2,000 for the nine months ended September 30, 2013:
Volatility 35.45% - 122.6%
Risk Free Rate 0.05% - 0.12%
Expected Term 0.1 - .22 Years
Dividend Rate 0%
In October 2012, the Company issued a convertible note with a face value of $ 32,500 . The note was to mature in July 2013, accrued interest at an annual rate of 8 %, and was convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. In April 2013, the entire principal amount of $32,500 was converted into 14,733,447 shares of common stock. Because the convertible note was convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations.
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On the date of issuance the Company recorded a derivative liability of $ 36,000 , a debt discount of $ 32,500 and initial derivative liability expense of $ 3,500 . The debt discount being amortized into expense through the conversion dates of the convertible note. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $0 and $22,329, respectively. As of September 30, 2013, no amounts remained outstanding on the note. In addition to the amortization of the discount the Company recognized $0 and $680 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
The fair value of the embedded derivatives as of each conversion date was determined using Monte Carlo Simulations and the following assumptions, resulting in derivative expense of $ 1,000 for the three months ended September 30, 2013 and reclassification of $ 32,000 to equity on the conversion dates:
Volatility 100.30 - 118.79%
Risk Free Rate 0.05% - 0.06%
Expected Term 0.18 - .23 Years
Dividend Rate 0%
In November 2012, the Company issued a convertible note with a face value of $ 25,000 . The note matured in March 2013, bears interest at an annual rate of 8 %, and was convertible into common stock of the Company at the option of the holder at a conversion rate equal to 45 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. Because the convertible note is convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations. In May 2013, the maturity date of the note was extended to November 2013 and $ 986 of accrued but unpaid interest was added to the principal balance of the note. As consideration for the extension, the Company agreed to amend the conversion price to the lower of 1) 45 % of the lowest trading price during the 15 days prior to conversion or 2) $ 0.0009 .
On the date of issuance the Company recorded a derivative liability of $ 31,000 , a debt discount of $ 25,000 and initial derivative liability expense of $ 6,000 . The debt discount was amortized into expense through the maturity date of the convertible note. Immediately prior to the extension of the maturity date and amendment to the conversion feature, the fair value of the conversion option was determined to be $31,000. Immediately following the amendment and extension, the fair value of the conversion option was determined to be $101,000. The Company adjusted the carrying value of the conversion option to $ 101,000 , and recorded an additional debt discount of $ 25,986 , to be amortized into interest expense through the extended maturity date, and derivative expense of $ 44,014 . The Company determined that the fair value of the derivative liability on September 30, 2013, was $ 37,000 . During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $6,497 and $28,201, respectively. As of September 30, 2013, the carrying value of the convertible note was $12,993, net of a remaining unamortized discount of $12,993. In addition to the amortization of the discount the Company recognized $231 and $959 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
The fair value of the embedded derivative as of the date of amendment, and as of September 30, 2013, was determined by using Monte Carlo Simulations and the following assumptions, resulting in net derivative income of $ 19,986 for the three and nine months ended September 30, 2013:
Volatility 108.96% - 115.7%
Risk Free Rate 0.04% - 0.08%
Expected Term 0.00 - 0.50 Years
Dividend Rate 0%
In December 2012, the Company issued a convertible note with a face value of $ 42,500 . The note matures in September 2013, bears interest at an annual rate of 8 %, and is convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. Because the convertible note is convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations. During the nine months ended September 30, 2013, the holder of the convertible note elected to convert the entire principal balance of $42,500 and $1,700 of accrued interest into 35,644,928 shares of common stock .
On the date of issuance the Company recorded a derivative liability and debt discount of $ 42,500 . The debt discount is being amortized into expense through the maturity date of the convertible note. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $2,889 and $38,391, respectively. In addition to the amortization of the discount the Company recognized $302 and $2,105 of interest expense on the convertible note for the three and nine months ended September 30, 2013.
The fair value of the embedded derivatives as of the date of conversion, and as of the September 30, 2013, was determined using Monte Carlo Simulations and the following assumptions, resulting in no charge to earnings since the fair value of the derivative did not change from March 31, 2013, and reclassification of $ 28,500 to equity on the date of conversion:
Volatility 112.52% - 122.40%
Risk Free Rate 0.05% - 0.04%
Expected Term 0.18 - .22 Years
Dividend Rate 0%
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In February 2013, the Company issued two convertible notes with an aggregate face value of $ 68,000 . The notes mature in nine months from the date of issuance, bear interest at an annual rate of 8 %, and are convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. Because the convertible notes are convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations. The Company estimated the fair value of the derivative liabilities on the dates of issuance using Monte Carlo Simulations and the following assumptions:
Volatility 124.2%
Risk Free Rate 0.16% - 0.17%
Expected Term 0.75 Years
Dividend Rate 0%
On the dates of issuance the Company recorded derivative liabilities and debt discounts totaling $ 65,800 . The debt discounts are being amortized into expense through the maturity dates of the convertible notes. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $21,933 and $51,178, respectively. As of September 30, 2013, the carrying value of the convertible notes was $53,378, net of remaining unamortized discounts of $14,622. In addition to the amortization of the discount the Company recognized $1,409 and $2,210 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
The fair value of the embedded derivatives as of the September 30, 2013 was determined to be $65,800, resulting in no charge to earnings since the fair value of the derivative did not change from March 31, 2013, by using Monte Carlo Simulations and the following assumptions:
Volatility 112.66 %
Risk Free Rate 0.10 %
Expected Term 0.42 Years
Dividend Rate 0 %
In April 2013, the Company issued a convertible note with face value of $ 56,000 . The note matures nine months from the date of issuance, bears interest at an annual rate of 8 %, and is convertible into common stock of the Company at the option of the holder at a conversion rate equal to 45 % of the average of the lowest two closing trading prices of the Company’s common stock during the thirty trading days immediately preceding the conversion date. Because the convertible note is convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations. The Company estimated the fair value of the derivative liability on the date of issuance using Monte Carlo Simulations and the following assumptions:
Volatility 128.10 %
Risk Free Rate 0.13 %
Expected Term 0.75 Years
Dividend Rate 0 %
On the date of issuance the Company recorded derivative liability of $ 68,000 , a debt discount of $ 56,000 , and derivative expense of $ 12,000 . The debt discount is being amortized into expense through the maturity date of the convertible note. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $ 18,599 and $35,379, respectively. As of September 30, 2013, the carrying value of the convertible notes was $35,379, net of remaining unamortized discounts of $20,621. In addition to the amortization of the discount the Company recognized $1,150 and $2,168 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
The fair value of the embedded derivative as of the September 30, 2013 was determined to be $68,500. The fair value of the derivative from the date of issuance, by using Monte Carlo Simulations and the following assumptions:
Volatility 112.66 %
Risk Free Rate 0.10 %
Expected Term 0.5 Years
Dividend Rate 0 %
15% Convertible Notes
In February 2012, the Company issued a convertible note with a face value of $ 190,000 . The note matured on February 16, 2013, bears interest at an annual rate of 15 %, and is convertible into common stock of the Company at the option of the holder at a conversion price of $ 0.045 per share. The investor in the convertible debt also acquired 8,650,00 shares of common stock and warrants to acquire 6,900,000 share of common stock for an exercise price of $ 0.015 per share over a four-year term for proceeds for $ 10,000 . The Company allocated the proceeds from the sale of convertible debt, common stock, and warrants to their equity and liability components and recorded an additional debt discount equal to the amount of proceeds allocated the warrants equal to $ 8,289 to be amortized into expense through the maturity date of the convertible note. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $ 4,799 and $5,863, respectively. As of September 30, 2013, the outstanding principal balance was $171,250. In addition to the amortization of discounts the Company recognized $8,371 and $24,342 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
In May 2012, the Company issued a convertible note with a face value of $ 133,000 . The note matured on November 1, 2012, accrued interest at an annual rate of 15 %, and is convertible into common stock of the Company at the option of the holder at a conversion price of $ 0.045 per share. In conjunction with the issuance of the convertible note, the Company also granted the holder of the convertible note the right to purchase a number of shares of common stock equal to 62.5 % of the common stock issuable upon conversion of the convertible notes issued in January and February of 2012, for an exercise price equal to the outstanding principal on the notes issued in January and February of 2012. The Company was required to use the proceeds of such exercise to settle the notes issued in January and February of 2012. Because the exercise price and number of shares purchasable under the purchase option are indeterminable, the Company was required to record a derivative liability for the fair value of the purchase option.
On the date of issuance the Company a recorded a derivative liability and debt discount of $ 6,000 . The debt discount was amortized into expense through the maturity date of the convertible notes.
During the quarter ended September 30, 2012, the holders of the convertible debt issued in January and February of 2012 converted the notes into common stock, effectively terminating the purchase right. Accordingly, the fair value of the derivative liability of $6,000 was reclassed to additional paid in capital.
The investor in the convertible debt also acquired 6,666,666 shares of common stock and warrants to acquire 6,666,666 share of common stock for an exercise price of $ 0.12 per share over a four-year term for proceeds for $ 33,333 . The Company allocated the proceeds from the sale of convertible debt, common stock, and warrants to their equity and liability components and recorded an additional debt discount equal to the amount of proceeds allocated the warrants equal to $ 15,915 which has been fully amortized into expense through the maturity date of the convertible note. In connection with a January 2013, forbearance agreement described below, the principal balance of the convertible note was increased by $ 17,500 . As of September 30, 2013, the outstanding principal balance of the note was $150,833. In addition to the amortization of discounts the Company recognized $6,666 and $18,461 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
17
The Company has failed to comply with certain terms of the convertible notes issued in May 2012 and February 2012 and, in January 2013, entered into a forbearance agreement the holder of these notes. Among other events of default, the Company did not repay the notes on their respective maturity dates in November 2012 and February 2013. In consideration for entering into the Agreement, the Company has agreed that it shall perform (or agree to the terms of) the following material requirements: (a) the May Note shall bear an 18 % interest rate from November 1, 2012 forward, (b) a deed of trust on the Company’s 80 % interest in the Chloride Copper Mine shall be filed to secure the February and May Notes , (c) the exercise price associated with Warrants issued in connection with the February and May Notes shall be reset, and (d) the Company shall issue additional warrants to purchase 6,750,000 shares of the Common Stock with an exercise price of $ 0.008 provided that the Company may repurchase a certain percentage of such warrants at a purchase price of $ 0.001 per share if the February 2012 and May 2012 Notes are paid prior to July 15, 2013. In consideration for entering into the agreement, the Note Holder has agreed to the following material terms; (i) waive any defaults and breaches of the Company or all dates prior to the date of the Forbearance Agreement, and (ii) both the February 2012 and May 2012 Notes are amended to extend the maturity date of
April 2013 seems to have been a key date -Rizzo, who was doing BLM permit, to whom they owed ca 530k at that time, was highly encouraged to obtain final EA or at least present to BLM as per NEPA by Apr 1- though subsequent May or June PR's indicate permits were continuing, the amount currently owed to Rizzo does not indicate much further work by them (590k minus interest on 530 k equals subsequent work performed by Rizzo on BLM unless they were paid directly for additional work via amounts received from Asher or JMJ 's etc notes)
CDM Smith was then contracted as per ca May-June PR's to do additional permits including air quality and electrical -I dont see any notes due to CDM Smith -does anybody else? -maybe paid via amounts received from other recent issued notes or paid via convertible note
Does anybody know the convention or reason for not disclosing the recipients of the convertible notes- stocks are a highly highly specialized world that were virtually ignored in my accounting economics law etc degrees
April 2013 acquisition of remaining 20% ownership at a high price-which I have bolded- has puzzled me considering the co's difficult financial position- I would think such efforts/money would rather be directed to obtain the permits -without which they can do nothing except JV or buyout -UNLESS creditors demanded such as a condition of further loans
language concerning removal of notes at a later date not currently considered valid liabilities-language new to the last 10Q- re apparently previously recognized legitimate liabilities,is also of concern- and you can guess the ramifications of that
SIRG does have forbearance agreements w some creditors (see last par of copied material- but apparently not w Brian Hebb or Black Diamond Realty? notes now contested) - meaning an agreement not to sue over delinquent notes-and though i didnt immediately notice it here, others i believe have mentioned such re amounts owed to Rizzo
from 10q for period ended Sept 30,2013
NOTE 5. CHLORIDE COPPER PROJECT
On April 23, 2010, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Medina Property Group LLC, a Florida limited liability company (“Medina”). Pursuant to the Purchase Agreement, and upon the terms and subject to the conditions thereof, the Company agreed to purchase 80 % of certain mining interests of Medina known as the Chloride Copper Project, a former copper producer comprised of a mineral deposit and some infrastructure located near Kingston, Arizona (the “Copper Mine”).
The Company’s acquisition of the Chloride Copper Project was accounted for in accordance with ASC 805 Business Combinations and the Company has allocated the purchase price based upon the fair value of the net assets acquired and liabilities assumed.
The purchase price was $ 7,505,529 which, pursuant to the Purchase Agreement, included the issuance of 12,750,000 shares of common stock by the Company to Medina or its assignees, return of 5,358,000 share of common stock by Black Diamond and the payment of $ 125,000 to the original seller of certain equipment where the Chloride Copper Mine is located, as designated by Medina in the Purchase Agreement. The purchase price was determined based on the Company’s analysis of a recently completed comparable acquisition and based on the value of the associated underlying shares of the Company’s common stock which value of $ 1.00 per share represented the offering price of the Company’s Common Stock in its most recently completed equity transaction prior to the date of the Purchase Agreement. The Company recognized goodwill of $ 7,602,069 and assumed $ 384,540 in liabilities, which consisted of a $ 360,000 promissory note and $ 3,040 in accrued interest and $ 21,500 in accounts payable.
The following table summarizes the acquisition with a total purchase price of $7,505,529:
Mining Property Rights $ 163,000
Equipment $ 125,000
Liabilities $ (384,540)
Goodwill $ 7,602,069
Net Assets $ 7,505,529
12
In addition, pursuant to the Purchase Agreement, Black Diamond Realty Management, LLC returned 5,348,000 shares of the Company’s Common Stock, and as a result, a change of our shareholder voting control occurred. The Acquisition formally closed on June 21, 2010. The shares of Common Stock constituting the equity portion of the purchase price were issued on August 9, 2010 to certain assignees of Medina, and although this issuance of shares approximately doubled our outstanding shares of Common Stock, no single person or cohesive group took a controlling interest in our Company as a result of this transaction.
The Company had impairment on the entire purchase price for the Medina Property acquisition and impairment on the Chloride Cooper Project related to fixed assets and mining interests. During the year ended December 31, 2010 impairment was $ 7,890,069 was comprised of $ 7,602,069 write-off of goodwill, $ 163,000 write-off of mining interests and $ 125,000 for the write-down of fixed assets. All these assets were acquired and recorded as part of the Chloride Copper Project.
On April 12, 2013, the Company executed a Second Amendment to the Asset Purchase Agreement (“Second Amendment”) between the Company and Medina Property Group, LLC dated April 23, 2010, amended by the First Amendment to the Asset Purchase Agreement dated June 10, 2010. This Second Amendment provides for the acquisition of Medina’s remaining twenty ( 20 %) percent right, title, and interest in the asset known as the Chloride Copper Mine. The execution of this transaction increased the Company’s interests in the Chloride Copper Mine to 100 %. In consideration of the 20 % interest, the Company entered into a 6 -month promissory note for seven hundred fifty thousand ($ 750,000 ) dollars, forty million ( 40,000,000 ) shares of Class A common stock which have not been issued as of September 30, 2013, a 5 - year convertible promissory note for four million ($ 4,000,000 ) dollars, and a 10 -year-warrant purchase agreement for Medina to purchase up to twenty million ( 20,000,000 ) shares of its Class A common stock at a share price of $ 0.27 . Because the Company had control (80%) over the interest in the assets known as the Chloride Copper Mine, the acquisition of the remaining 20% interest was accounted for as an equity transaction. If the Company does not meet all conditions in the Second Amendment, the Medina Property Group, LLC has a right of reversion which includes the return of the title to all of the conveyed assets back to Medina Property Group, LLC.
NOTE 6. NOTES PAYABLE
The Company had the following notes payable outstanding as of September 30, 2013 and December 31, 2012:
September 30, 2013 December 31, 2012
Current Notes Payable
Promissory note payable dated
August 16, 2010 due to Brian Hebb
including accrued interest. $ 44,107 41,570
Promissory note payable dated
August 6, 2010 due to Black
Diamond Realty Mgmt including
accrued interest. 33,804 30,098
Promissory note payable dated May 5,
2010 due to Brian Hebb including
accrued interest. 176,880 153,469
Promissory note payable dated
February 16, 2012 due to Grand
View Ventures including accrued
interest 221,583 215,992
Promissory note payable dated
May 3, 2012 due to Grand
View Ventures including accrued
interest 182,990 147,029
Promissory note payable dated May 17,
2012 due to Tangiers Investors, LP
including accrued interest 32,794 15,900
Promissory note payable dated July 17,
2012 due to Asher Enterprises
including accrued interest -0- 54,940
Promissory notes payable dated
July 31, 2012 due to FOGO, Inc.
including accrued interest 237,573 210,060
Promissory note payable dated
October 5, 2012 due to Asher
Enterprises including accrued interest -0- 33,120
Promissory note payable dated
November 14, 2012 due to All
Business Consulting, Inc. including
accrued interest 26,217 25,258
Promissory note payable dated
December 4, 2012 due to Asher
Enterprises including accrued
interest -0- 42,752
Promissory note payable dated
February 5, 2013 due to Paul C.
Rizzo & Associates including
accrued interest 590,666 -0-
Promissory note payable dated
February 25, 2013 due to Asher
Enterprises including accrued
interest 50,447 -0-
Promissory note payable dated
February 27, 2013 due to Asher
Enterprises including accrued
interest 5,240 -0-
Promissory note payable dated
April 8, 2013 due to Asher
Enterprises including accrued
interest 58,169 -0-
Promissory note payable dated
April 12, 2013 due to Medina
Property Group, LLC 750,000 -0-
Promissory note payable dated
June 19, 2013 due to JMJ
Financial including accrued interest 27,778 -0-
Promissory note payable dated
July 17, 2013 due to Tangiers
Investors, LP including accrued
interest 53,568 -0-
Promissory note payable dated
August 8, 2013 due to Asher
Enterprises including accrued interest 38,441 -0-
Total Current Notes Payable 2,530,257 970,188
Non Current Notes Payable
Promissory note payable dated
April 12, 2013 due to Medina
Property Group, LLC including
accrued interest 4,056,416 -0-
Less: Debt discount (3,688,380) (97,423)
Total Notes Payable 2,898,293 872,765
A summary of future maturities of long term debt are as follows:
For the year ended September 30,
2014 -0-
2015 -0-
2016 -0-
2017 -0-
2018 4,025,973
Thereafter -0-
4,025,973
13
The Company entered into a promissory note with Brian Hebb on August 16, 2010 in the amount of $ 34,527 . The note has an interest rate of 8 % with the maturity date of July 15, 2011 . The Company is currently in default of the note. As of September 30, 2013 and December 31, 2012, the Company had a balance due including principal, interest and default penalties in the amount of $ 44,107 and $ 41,570 , respectively. Although management questions whether this amount is a valid liability of the Company, Generally Accepted Accounting Principles (GAAP) requires it to be carried on the Company’s books. The Company will seek all remedies to have the debt removed at a later date.
The Company entered into a promissory note with Black Diamond Realty Management on August 6, 2010 in the amount of $ 25,000 . The note has an interest rate of 8 % with the maturity date of August 16, 2011 . The Company is currently in default of the note. As of September 30, 2013 and December 31, 2012, the Company had a balance due including principal, interest and default penalties in the amount of $ 33,804 and $ 30,098 , respectively. Although management questions whether this amount is a valid liability of the Company, Generally Accepted Accounting Principles (GAAP) requires it to be carried on the Company’s books. The Company will seek all remedies to have the debt removed at a later date.
The Company entered into a promissory note with Brian Hebb on May 5, 2010 in the amount of $ 125,000 . The note has an interest rate of 8 % with the maturity date of August 16, 2011 . The Company is currently in default of the note. As of September 30, 2013 and December 31, 2012, the Company had a balance due including principal, interest and default penalties in the amount of $ 176,880 and $ 153,469 , respectively. Although management questions whether this amount is a valid liability of the Company, Generally Accepted Accounting Principles (GAAP) requires it to be carried on the Company’s books. The Company will seek all remedies to have the debt removed at a later date.
The Company entered into a Convertible Promissory Note with Grand View Ventures on February 16, 2012 in the amount of $ 190,000 . The note has an interest rate of 15 % with a maturity date of February 16, 2013 (see Note 7). The balance due including principal and accrued interest was $ 221,583 and $ 215,992 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Grand View Ventures on May 3, 2012 in the amount of $ 133,333 . The note has an interest rate of 15 % with a maturity date of November 1, 2012 (see Note 7). The balance due including principal and accrued interest was $ 182,990 and $ 147,029 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Tangiers on October 14, 2011 in the amount of $ 31,500 . The note has an interest rate of 10 % with the maturity date of July 14, 2012 . The Company has renegotiated the terms of the note. The new terms require the Company to make two payments of $ 18,750 , which one payment has been timely satisfied, and issue 3,000,000 shares of common stock to Tangiers. The second payment of $ 18,750 has not been paid as of June 30, 2013. In addition, as of September 30, 2013, the Company has not issued shares of common stock to Tangiers. The balance due including principal and accrued interest was $ 32,794 and $ 15,900 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on July 17, 2012 in the amount of $ 53,000 . The note had an interest rate of 8 % with a maturity date of April 19, 2013 . This obligation has been satisfied as of September 30, 2013 (See Note 7).
The Company entered into a Promissory Note with FOGO, Inc. on July 31, 2012 in the amount of $ 200,000 . The note had an interest rate of 12 % with a maturity date of January 1, 2013. On January 30, 2013, the Company and Fogo Inc. (“Fogo”) entered into an amendment to the Promissory Note dated July 31, 2012, which changed the maturity date of the note to July 31, 2013 (see Note 14). The note interest rate shall bear an interest rate of 13.5 % annual rate beginning February 2013 and increasing 1.5 % each month with an maximum of 20 % in July 2013 provided the note is outstanding. The balance due including principal and accrued interest was $ 237,573 and $ 210,060 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on October 5, 2012 in the amount of $ 32,500 . The note had an interest rate of 8 % with a maturity date of July 10, 2013 . This obligation has been satisfied as of September 30, 2013 (See Note 7).
The Company entered into a Convertible Promissory Note with All Business Consulting Inc. on November 14, 2012 in the amount of $ 25,000 . The note had an interest rate of 8 % with a maturity date of November 14, 2013 . The balance due including principal and accrued interest was $ 26,217 and $ 25,258 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on December 4, 2012 in the amount of $ 42,500 . The note had an interest rate of 8 % with a maturity date of September 16, 2013 (See Note 7). This obligation has been satisfied as of September 30, 2013 (See Note 7).
14
On February 5, 2013, the Company and Paul C. Rizzo Associates, Inc. entered into an agreement which provided for the execution of a Promissory Note, the granting of warrants to purchase 3,000,000 shares of the Common Stock at an exercise price of $ 0.0125 per share if the final Environmental Assessment is delivered to the Bureau of Land Management by April 1, 2013 with an additional 250,000 warrants to be issued upon the same terms for each full week that the final EA is delivered before April 1, 2013. A final EA had not been delivered by April 1, 2013. The Promissory Note was executed on February 5, 2013 which the principal amount of $ 536,860 representing all outstanding invoices up to December 1, 2012. The Promissory Note shall bear interest at an annual rate of 15 % with a maturity date of sixty ( 60 ) days after the date the United States Bureau of Reclamation issues a submittal of Environmental Assessment documentation seeking a Finding of No Significant Impact (“FONSI”) or August 1, 2013 whichever occurs first (See Note 14). The balance due including principal and accrued interest was $ 590,666 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on February 25, 2013 in the amount of $ 63,000 . The note had an interest rate of 8 % with a maturity date of November 27, 2013 (See Note 7). The balance due including principal and accrued interest was $ 50,447 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on February 27, 2013 in the amount of $ 5,000 . The note had an interest rate of 8 % with a maturity date of December 4, 2013 (See Note 7). The balance due including principal and accrued interest was $ 5,240 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
The Company entered into a Convertible Promissory Note with Asher Enterprises Inc. on April 8, 2013 in the amount of $ 56,000 . The note had an interest rate of 8 % with a maturity date of January 10, 2014 (See Note 7). The balance due including principal and accrued interest was $ 58,169 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
In April 2013, the Company acquired the remaining 20 % interest in certain assets and properties of Medina Property Group, LLC (see Note 5). Part of the considerations consists of a 3 % convertible note in the amount of $ 4,000,000 , due in April 2018, and convertible into common stock at a conversion rate equal to 30 % of the average closing price for the ten trading days immediately preceding the day of conversion. Because the conversion price of the 3% $ 4,000,000 convertible note is uncertain and the number of shares issuable upon conversion are unknown and unlimited, equity classification of the conversion option is prohibited. Therefore, the conversion option is required to be separated from the debt and recorded as a derivative liability, with subsequent changes in fair value reflected in the statement of operations. The Company estimated the fair value of the conversion option on the date of issuance using Monte Carlo simulations and the following assumptions: volatility – 134.16 %; risk free rate -0.7%; Term – 5 Years. The Company estimated the fair value of the conversion option as of the issuance date to be $ 10,309,000 . The excess of the initial fair value of the conversion option over the face value of the convertible note, totaling $ 6,309,395 , was recorded as derivative expense on the issuance date and $ 4,000,000 was recorded as a discount against the convertible note to be amortized into interest expense over the five-year term of the note. During the nine months ended September 30, 2013, the Company recognized $ 172,961 of interest expense from the amortization of the discount. In addition to the amortization of the discount, the Company recognized $ 25,973 of interest expense on the Convertible Note for the three and nine months ended September 30, 2013. The carrying value of the convertible note as of September 30, 2013 was $ 229,377 , net of unamortized discount of $ 3,827,039 .
The Company entered into a Convertible Promissory Note with JMJ Financial on June 19, 2013 for the principal sum of $ 300,000 . Only $ 25,000 of the note was advanced to the Company, resulting in a $ 27,778 note payable net of $ 2,778 original issue discounts. The lender may advance additional Principal (up to the $300,000) to the Company at the lender’s sole discretion. The note has an interest rate of 0 % for the first 90 days beginning on the advancement date and a one-time interest charge of 12 % on the principal sum advanced thereafter with a maturity date of June 19, 2014 (see Note 7). The balance due was $ 27,778 and $ 0 at September 30, 2013 and December 31, 2012, respectively.
NOTE 7. Convertible Notes
8 % Convertible Notes
In July 2012, the Company issued a convertible note with a face value of $ 53,000 . The note was to mature in April 2013, bears interest at an annual rate of 8 %, and was convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. Because the convertible note was convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operation.
On the date of issuance the Company recorded a derivative liability of $ 81,000 , a debt discount of $ 53,000 and initial derivative liability expense of $ 28,000 . The debt discount was being amortized into expense through the maturity date of the convertible note. During the nine months ended September 30, 2013, the holder of the convertible notes elected to convert all principal and interest into 18,696,052 shares of common stock. On each date of conversion, a portion of the remaining unamortized discount attributable to the principal converted was amortized into interest expense and the related derivative liability was reclassed to equity. During the nine months ended September 30, 2013, the Company recorded amortization expense of $ 20,931 . As of September 30, 2013, no principal or interest remained outstanding. In addition to the amortization of the discount the Company recognized $ 180 of interest expense on the convertible note for the nine months ended September 30, 2013.
The fair value of the embedded derivatives as of each conversion date was determined using Monte Carlo Simulations and the following assumptions, resulting in derivative expense of $2,000 for the nine months ended September 30, 2013:
Volatility 35.45% - 122.6%
Risk Free Rate 0.05% - 0.12%
Expected Term 0.1 - .22 Years
Dividend Rate 0%
In October 2012, the Company issued a convertible note with a face value of $ 32,500 . The note was to mature in July 2013, accrued interest at an annual rate of 8 %, and was convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. In April 2013, the entire principal amount of $32,500 was converted into 14,733,447 shares of common stock. Because the convertible note was convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option was required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations.
15
On the date of issuance the Company recorded a derivative liability of $ 36,000 , a debt discount of $ 32,500 and initial derivative liability expense of $ 3,500 . The debt discount being amortized into expense through the conversion dates of the convertible note. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $0 and $22,329, respectively. As of September 30, 2013, no amounts remained outstanding on the note. In addition to the amortization of the discount the Company recognized $0 and $680 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
The fair value of the embedded derivatives as of each conversion date was determined using Monte Carlo Simulations and the following assumptions, resulting in derivative expense of $ 1,000 for the three months ended September 30, 2013 and reclassification of $ 32,000 to equity on the conversion dates:
Volatility 100.30 - 118.79%
Risk Free Rate 0.05% - 0.06%
Expected Term 0.18 - .23 Years
Dividend Rate 0%
In November 2012, the Company issued a convertible note with a face value of $ 25,000 . The note matured in March 2013, bears interest at an annual rate of 8 %, and was convertible into common stock of the Company at the option of the holder at a conversion rate equal to 45 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. Because the convertible note is convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations. In May 2013, the maturity date of the note was extended to November 2013 and $ 986 of accrued but unpaid interest was added to the principal balance of the note. As consideration for the extension, the Company agreed to amend the conversion price to the lower of 1) 45 % of the lowest trading price during the 15 days prior to conversion or 2) $ 0.0009 .
On the date of issuance the Company recorded a derivative liability of $ 31,000 , a debt discount of $ 25,000 and initial derivative liability expense of $ 6,000 . The debt discount was amortized into expense through the maturity date of the convertible note. Immediately prior to the extension of the maturity date and amendment to the conversion feature, the fair value of the conversion option was determined to be $31,000. Immediately following the amendment and extension, the fair value of the conversion option was determined to be $101,000. The Company adjusted the carrying value of the conversion option to $ 101,000 , and recorded an additional debt discount of $ 25,986 , to be amortized into interest expense through the extended maturity date, and derivative expense of $ 44,014 . The Company determined that the fair value of the derivative liability on September 30, 2013, was $ 37,000 . During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $6,497 and $28,201, respectively. As of September 30, 2013, the carrying value of the convertible note was $12,993, net of a remaining unamortized discount of $12,993. In addition to the amortization of the discount the Company recognized $231 and $959 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
The fair value of the embedded derivative as of the date of amendment, and as of September 30, 2013, was determined by using Monte Carlo Simulations and the following assumptions, resulting in net derivative income of $ 19,986 for the three and nine months ended September 30, 2013:
Volatility 108.96% - 115.7%
Risk Free Rate 0.04% - 0.08%
Expected Term 0.00 - 0.50 Years
Dividend Rate 0%
In December 2012, the Company issued a convertible note with a face value of $ 42,500 . The note matures in September 2013, bears interest at an annual rate of 8 %, and is convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. Because the convertible note is convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations. During the nine months ended September 30, 2013, the holder of the convertible note elected to convert the entire principal balance of $42,500 and $1,700 of accrued interest into 35,644,928 shares of common stock .
On the date of issuance the Company recorded a derivative liability and debt discount of $ 42,500 . The debt discount is being amortized into expense through the maturity date of the convertible note. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $2,889 and $38,391, respectively. In addition to the amortization of the discount the Company recognized $302 and $2,105 of interest expense on the convertible note for the three and nine months ended September 30, 2013.
The fair value of the embedded derivatives as of the date of conversion, and as of the September 30, 2013, was determined using Monte Carlo Simulations and the following assumptions, resulting in no charge to earnings since the fair value of the derivative did not change from March 31, 2013, and reclassification of $ 28,500 to equity on the date of conversion:
Volatility 112.52% - 122.40%
Risk Free Rate 0.05% - 0.04%
Expected Term 0.18 - .22 Years
Dividend Rate 0%
16
In February 2013, the Company issued two convertible notes with an aggregate face value of $ 68,000 . The notes mature in nine months from the date of issuance, bear interest at an annual rate of 8 %, and are convertible into common stock of the Company at the option of the holder at a conversion rate equal to 51 % of the average of the lowest three closing trading prices of the Company’s common stock during the ten trading days immediately preceding the conversion date. Because the convertible notes are convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations. The Company estimated the fair value of the derivative liabilities on the dates of issuance using Monte Carlo Simulations and the following assumptions:
Volatility 124.2%
Risk Free Rate 0.16% - 0.17%
Expected Term 0.75 Years
Dividend Rate 0%
On the dates of issuance the Company recorded derivative liabilities and debt discounts totaling $ 65,800 . The debt discounts are being amortized into expense through the maturity dates of the convertible notes. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $21,933 and $51,178, respectively. As of September 30, 2013, the carrying value of the convertible notes was $53,378, net of remaining unamortized discounts of $14,622. In addition to the amortization of the discount the Company recognized $1,409 and $2,210 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
The fair value of the embedded derivatives as of the September 30, 2013 was determined to be $65,800, resulting in no charge to earnings since the fair value of the derivative did not change from March 31, 2013, by using Monte Carlo Simulations and the following assumptions:
Volatility 112.66 %
Risk Free Rate 0.10 %
Expected Term 0.42 Years
Dividend Rate 0 %
In April 2013, the Company issued a convertible note with face value of $ 56,000 . The note matures nine months from the date of issuance, bears interest at an annual rate of 8 %, and is convertible into common stock of the Company at the option of the holder at a conversion rate equal to 45 % of the average of the lowest two closing trading prices of the Company’s common stock during the thirty trading days immediately preceding the conversion date. Because the convertible note is convertible into an indeterminable number of shares of common stock, the fair value of the embedded conversion option is required to be presented as a derivative liability and adjusted to fair value at each reporting date, with changes in fair value reported in the statement of operations. The Company estimated the fair value of the derivative liability on the date of issuance using Monte Carlo Simulations and the following assumptions:
Volatility 128.10 %
Risk Free Rate 0.13 %
Expected Term 0.75 Years
Dividend Rate 0 %
On the date of issuance the Company recorded derivative liability of $ 68,000 , a debt discount of $ 56,000 , and derivative expense of $ 12,000 . The debt discount is being amortized into expense through the maturity date of the convertible note. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $ 18,599 and $35,379, respectively. As of September 30, 2013, the carrying value of the convertible notes was $35,379, net of remaining unamortized discounts of $20,621. In addition to the amortization of the discount the Company recognized $1,150 and $2,168 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
The fair value of the embedded derivative as of the September 30, 2013 was determined to be $68,500. The fair value of the derivative from the date of issuance, by using Monte Carlo Simulations and the following assumptions:
Volatility 112.66 %
Risk Free Rate 0.10 %
Expected Term 0.5 Years
Dividend Rate 0 %
15% Convertible Notes
In February 2012, the Company issued a convertible note with a face value of $ 190,000 . The note matured on February 16, 2013, bears interest at an annual rate of 15 %, and is convertible into common stock of the Company at the option of the holder at a conversion price of $ 0.045 per share. The investor in the convertible debt also acquired 8,650,00 shares of common stock and warrants to acquire 6,900,000 share of common stock for an exercise price of $ 0.015 per share over a four-year term for proceeds for $ 10,000 . The Company allocated the proceeds from the sale of convertible debt, common stock, and warrants to their equity and liability components and recorded an additional debt discount equal to the amount of proceeds allocated the warrants equal to $ 8,289 to be amortized into expense through the maturity date of the convertible note. During the three and nine months ended September 30, 2013, the Company recorded amortization expense of $ 4,799 and $5,863, respectively. As of September 30, 2013, the outstanding principal balance was $171,250. In addition to the amortization of discounts the Company recognized $8,371 and $24,342 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
In May 2012, the Company issued a convertible note with a face value of $ 133,000 . The note matured on November 1, 2012, accrued interest at an annual rate of 15 %, and is convertible into common stock of the Company at the option of the holder at a conversion price of $ 0.045 per share. In conjunction with the issuance of the convertible note, the Company also granted the holder of the convertible note the right to purchase a number of shares of common stock equal to 62.5 % of the common stock issuable upon conversion of the convertible notes issued in January and February of 2012, for an exercise price equal to the outstanding principal on the notes issued in January and February of 2012. The Company was required to use the proceeds of such exercise to settle the notes issued in January and February of 2012. Because the exercise price and number of shares purchasable under the purchase option are indeterminable, the Company was required to record a derivative liability for the fair value of the purchase option.
On the date of issuance the Company a recorded a derivative liability and debt discount of $ 6,000 . The debt discount was amortized into expense through the maturity date of the convertible notes.
During the quarter ended September 30, 2012, the holders of the convertible debt issued in January and February of 2012 converted the notes into common stock, effectively terminating the purchase right. Accordingly, the fair value of the derivative liability of $6,000 was reclassed to additional paid in capital.
The investor in the convertible debt also acquired 6,666,666 shares of common stock and warrants to acquire 6,666,666 share of common stock for an exercise price of $ 0.12 per share over a four-year term for proceeds for $ 33,333 . The Company allocated the proceeds from the sale of convertible debt, common stock, and warrants to their equity and liability components and recorded an additional debt discount equal to the amount of proceeds allocated the warrants equal to $ 15,915 which has been fully amortized into expense through the maturity date of the convertible note. In connection with a January 2013, forbearance agreement described below, the principal balance of the convertible note was increased by $ 17,500 . As of September 30, 2013, the outstanding principal balance of the note was $150,833. In addition to the amortization of discounts the Company recognized $6,666 and $18,461 of interest expense on the convertible note for the three and nine months ended September 30, 2013, respectively.
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The Company has failed to comply with certain terms of the convertible notes issued in May 2012 and February 2012 and, in January 2013, entered into a forbearance agreement the holder of these notes. Among other events of default, the Company did not repay the notes on their respective maturity dates in November 2012 and February 2013. In consideration for entering into the Agreement, the Company has agreed that it shall perform (or agree to the terms of) the following material requirements: (a) the May Note shall bear an 18 % interest rate from November 1, 2012 forward, (b) a deed of trust on the Company’s 80 % interest in the Chloride Copper Mine shall be filed to secure the February and May Notes , (c) the exercise price associated with Warrants issued in connection with the February and May Notes shall be reset, and (d) the Company shall issue additional warrants to purchase 6,750,000 shares of the Common Stock with an exercise price of $ 0.008 provided that the Company may repurchase a certain percentage of such warrants at a purchase price of $ 0.001 per share if the February 2012 and May 2012 Notes are paid prior to July 15, 2013. In consideration for entering into the agreement, the Note Holder has agreed to the following material terms; (i) waive any defaults and breaches of the Company or all dates prior to the date of the Forbearance Agreement, and (ii) both the February 2012 and May 2012 Notes are amended to extend the maturity date of
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