NOTE 10 – NOTE PAYABLE - RELATED PARTY

DMRJ Group beneficially owned approximately 75% of the Company (on a fully-diluted basis) with Series A, A-2 and B preferred shares convertible to 47,211,002 shares of common stock (See Note 3). They are considered a related party. In July 2010, the Company entered into an Investment Agreement with DMRJ Group. The Agreement has been modified numerous times and at June 30, 2017 operated under the Fourteenth Amendment to the Investment Agreement dated December 22, 2016. The Amendments have provided for extensions of payment dates, increased funding capacity and other modifications to the debt agreement.

The total due to DMRJ Group at June 30, 2017 and December 31, 2016 is as follows:

	June 30,		December 31,
	2017		2016

Principal, due within one year	$	15,554,552	$	14,610,492
Interest payable, current		8,358,939		7,239,610
	$	23,913,491	$	21,850,102

The Investment Agreement contains certain negative covenants which prohibit us from the following actions or activities:

	●	Incurring any indebtedness except in limited circumstances;

	●	Creating any significant liens on any of our properties or assets;

	●	Enter into any sale and lease-back transaction involving any of our properties;

	●	Make any investments in or loans or advances to other parties;

	●	Engage in any merger, consolidation, sale of assets or acquisition transaction, except for the purchase or sale of inventory or certain limited investments;

	●	Declare or pay any dividends, except for dividends to DMRJ Group;

	●	Engage in any business transactions with affiliates;

	●	Make capital expenditures except as permitted in the agreement pertaining to our current mining business;

	●	Create any lease obligations;

	●	Amend, supplement or modify any existing indebtedness;

	●	Enter into any swap, forward, future or derivative transaction;

	●	Make any change in our accounting policies or reporting practices;

	●	Form additional subsidiaries; or

	●	Modify or grant a waiver or release under or terminate any principal lease agreement or other material contract.

At June 30, 2017, the Company has failed to pay certain obligations in violation of these covenants. DMRJ Group has been informed of the default and has indicated it has no present intent to declare an event of default under the Investment Agreement, as amended.

2017 Activity

At June 30, 2017, DMRJ continued to operate through the direction of its court appointed trustees (see 2016 Activity below). Funds in the amount of $944,060 were drawn from the trustees during the first two quarters of 2017 to help fund ongoing expenses.

See Note 14.

2016 Activity

At December 31, 2016, the Company has failed to pay certain obligations in violation of these covenants. DMRJ Group has been informed of the default and has indicated it has no present intent to declare an event of default under the Investment Agreement, as amended.

Several term loan advances were received from DMRJ Group by the Company between February 9, 2016 and December 29, 2016 totaling $2,470,000. A loan payment of $900,000 was made to DMRJ on July 8, 2016. The advances bear interest at 15% per annum and became due on October 31, 2016 with the remainder of the note due to DMRJ Group. These funds were used for working capital and equipment debt repayment.

A Fourteenth Amendment to the Investment Agreement was entered into on December 22, 2016 which allowed for additional funding in the amount of up to $600,000 from DMRJ Group and its affiliated fund managers. This $600,000 was drawn on December 29, 2016 which brought the total funds drawn from DMRJ Group and its affiliates for 2016 to $2,470,000.

In the third quarter of 2016, control of the management of DMRJ Group, (a Platinum Partners related entity), was given to court appointed trustees of the two major funds of Platinum Partners. On December 19th, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint (the “Complaint”) against Defendants Platinum Management, LLC (“Platinum Management”), Platinum Credit Management, L.P. (“Platinum Credit”), and the management of the DMRJ Group, DMRJ Group would effectively own 75% of stock of the Company (on a fully diluted basis). See Note 14 – Subsequent Events.