6. NOTES PAYABLE

3 Months Ended

Sep. 30, 2013

Notes to Financial Statements

6. NOTES PAYABLE

The Company had the following notes payable outstanding as of September 30, 2013 and June 30, 2013:

	September 30,  2013			June 30, 2013
Gold Exploration LLC (a)
Dated - June 1, 2008	$	52,699		$	52,699
Venture Capital International (b)
Dated – March 30, 2009		12,000			12,000
Venture Capital International (c)
Dated - May 7, 2009		17,000			17,000
Advantage Systems Enterprises Limited (d)
Dated – July 3, 2009		17,000			17,000
Advantage Systems Enterprises Limited (e)
Dated – August 7, 2009		10,000			10,000
Venture Capital International (f)
Dated – October 15, 2009		10,000			10,000
Venture Capital International (g)
Dated – October 27,2009		7,000			7,000
Advantage Systems Enterprises Limited (h)
Dated – November 9, 2009		25,000			25,000
Venture Capital International (i)
Dated – November 23, 2009		5,000			5,000
Strategic Relations Consulting, Inc. (j)
Dated – March 31, 2010		15,000			15,000
Summit Technology Corporation, Inc. (k)
Dated November 22, 2010		2,000			2,000
Gold Exploration LLC (l)
Dated July 29, 2010		97,000			97,000
Freedom Boat, LLC (m)
Dated February 7, 2012		250,000			250,000
Dr. Linh B. Nguyen (n)
Dated May 23, 2012		25,000			25,000
Mr. Charles Chapman (o)
Dated December 27, 2012		50,000			50,000
Tonaquint, Inc. (p)
Dated October 1, 2012		-			449,185
Total notes and convertible note payable		594,699			1,043,884
Less debt discount		-			(125,259	)
Less current portion of long-term debt		(594,699	)		(918,625	)
Long term debt	$	-		$	-

(a) The Company entered into a purchase agreement to purchase mining claims with Gold Exploration LLC in the amount of $99,000 on June 1, 2008. The Company paid $15,000 in cash and issued a note for $84,000 with an interest rate of 12% for the remaining balance. Pursuant to the purchase agreement, $7,000 should be paid each 90 days until the full principal balance plus accrued interest is paid off. As of September 30 and June 30, 2013, principal and interest payable to Gold Exploration LLC for this note is $73,264 and $71,670, respectively.  This agreement required that Gold Exploration LLC perfect the transfer and send the documents to the Company.  The transfer was never made and a review of the BLM lists of claims disclosed that Gold Exploration LLC never owned the claims that they attempted to sell to the Company.  On August 27, 2013, the Company has demanded the cancellation of the note agreement and remittance of $15,000. Gold Exploration LLC has not yet responded to the Company’s request.

(b) On March 30, 2009, the Company issued a $12,000 demand promissory note to Venture Capital International, Inc. The note is due on demand with an interest rate of 5%. As of September 30, 2013 and June 30, 2013, principal and interest payable to Venture Capital International, Inc. related to this note is $14,683 and $14,532, respectively. Venture Capital has not demanded the repayment of the note.

(c) On May 7, 2009, the Company issued a $17,000 demand promissory note to Venture Capital International, Inc. The note is not secured, due on demand and has an interest rate of 5%. As of September 30, 2013 and June 30, 2013, principal and interest payable to Venture Capital International, Inc. related to this note is $20,712 and $20,498,respectively. Venture Capital has not demanded the repayment of the note.

(d) On July 3, 2009, the Company issued a $17,000 demand promissory note to Advantage Systems Enterprise Limited. The note is not secured, due on demand with an interest rate of 5%. As of September 30, 2013 and June 30, 2013, principal and interest payable to Advantage Systems Enterprise Limited related to this note is $20,614 and $20,400, respectively. Advantage Systems Enterprise Limited has not demanded the repayment of the note.

(e) On August 7, 2009, the Company issued a $10,000 demand promissory note to Advantage Systems Enterprises Limited. The note is not secured, due on demand with an interest rate of 5%. As of September 30, 2013 and June 30, 2013, principal and interest payable to Advantage Systems Enterprise Limited, Inc. related to this note is $12,074 and $11,948, respectively. Advantage Systems Enterprise Limited has not demanded the repayment of the note.

(f) On October 15, 2009, the Company issued a $10,000 demand promissory note to Venture Capital International. The note is not secured, due on demand with an interest rate of 5%. As of September 30, 2013 and June 30, 2013, principal and interest payable to Venture Capital International related to this note is $ $11,979 and $11,853, respectively. Venture Capital has not demanded the repayment of the note.

(g) On October 27, 2009, the Company issued a $7,000 demand promissory note to Venture Capital. The note is not secured, due on demand with an interest rate of 5%. As of September 30, 2013 and June 30, 2013, principal and interest payable to Venture Capital International related to this note is $8,374 and $8,286, respectively.  Venture Capital has not demanded the repayment of the note.

(h) On November 9, 2009, the Company issued a $25,000 demand promissory note to Advantage Systems Enterprise Limited. The note is not secured, due on demand with an interest rate of 5%. As of September 30, 2013 and June 30, 2013, principal and interest payable to Advantage Systems Enterprise Limited related to this note is $29,887 and $29,572, respectively. Advantage Systems Enterprise Limited has not demanded the repayment of the note.

(i) On November 23, 2009, the Company issued a $5,000 demand promissory note to Venture Capital International. The note is not secured, due on demand with an interest rate of 5%. As of September 30, 2013 and June 30, 2013, principal and interest payable to Venture Capital International related to this note is $5,963 and $5,900, respectively. Venture Capital International has not demanded the repayment of the note.

(j) On March 31, 2010, the Company issued a $15,000 demand promissory note to Strategic Relations consulting, Inc. The note is not secured, due on demand with an interest rate of 5%. As of September 30, 2013 and June 30, 2013 principal and interest payable to Strategic Relations Consulting, Inc. related to this note is $17,628 and $17,439, respectively.  Subsequent to September 30, 2013, Strategic Relations Consulting, Inc. has agreed to convert the note to 15,000 units of Gunner Gold’s stock that the Company acquired on September 20, 2013.

(k) On November 22, 2010, the Company issued a $7,000 demand promissory note to Summit Technologies Corporation, Inc. The note is not secured, due on demand with an interest rate of 5%. As of September 30, 2013 and June 30, 2013, principal and interest payable to Strategic Relations Consulting, Inc. related to this note is $2,436 and $2,411, respectively.  Summit Technologies Corporation, Inc. has not demanded the repayment of the note.

 (l) On July 29, 2010, the Company issued 8,300,000 common shares to Gold Exploration LLC, valued at $83,000 (or $0.01 per share) based upon the closing price of the Company’s stock on the date the agreement was executed, to partially repay  $10,000 of principal on the promissory note held by Gold Exploration LLC initially issued to Global Mineral Resources Corporation.  This payment of common stock reduced the outstanding balance of the note held by Gold Exploration LLC to $97,000. The Company recognized a loss on debt conversion of $73,000.  During fiscal year 2012, the note holder called the balance of the note and demanded payment although the agreement states the note is not due until 2015. The note holder indicated that the note was in default because the Company failed to maintain the Midas Placer Mining Claim, collateral which secured the note.  Pursuant to the note agreement, the note should accrue interest at 12% when due or declared due. The note is classified as a current liability on the balance sheets. As of September 30 and June 30, 2013, principal and interest payable to Gold Exploration LLC related to this note is $123,214 and $120,280, respectively.  This agreement required that Gold Exploration LLC perfect the transfer and send the documents to the Company.  The transfer was never made and a review of the BLM lists of claims disclosed that Gold Exploration LLC never owned the claims that they attempted to sell to the Company.  On June 2, 2011, Gold Exploration LLC requested to lift the Section 144 restrictive legends without a proper legal opinion and the legends were removed at the direction of David Janney, the Company’s former CEO.  On August 27, 2013, the Company demanded the cancellation of the promissory note and the return of the 8,300,000 common shares.  Gold Exploration LLC has not yet responded to the Company’s demand.

(m) On February 7, 2011, the Company issued a $250,000 promissory note with an interest rate of 12% per annum to Freedom Boat LLC (“Freedom Boat”). Payment of $2,500 is due monthly from July 5, 2011 through December 5, 2011 with a final payment of interest and principal of $260,000 due on February 7, 2012. Freedom Boat also has a right to royalties under certain conditions. The note is secured by the Hull Lode claim, the West Acre Hull tract, property held by David Janney, former officer, and 10,000,000 of the Company’s common shares currently held in escrow.  Proceed from the note was used to purchase Tarantula Mining Claim from Judgetown, LLC.  As of September 30 and June 30, 2013, the remaining principal owed was $250,000.   This note is presently in default but the Company is negotiating with the holder for an amendment of this note.  On September 24, 2013 the Company entered into an agreement with Gunner Gold LLC in which Gunner agreed to pay $2,500 per month to lease the Hull Lode claim for 24 months. The $2,500 received from Gunner Gold LLC will be used to pay the monthly interest payment on the above note.

(n) On April 6, 2011, the Company entered into a demand promissory note with Linh B. Nguyen in the amount of $25,000.  The note is not secured, due on demand with an interest rate of 5%.  As of September 30 and June 30, 2013, principal and interest payable to Linh B. Nguyen related to this note is $27,942 and $27,627, respectively. Dr. Nguyen has demanded the repayment of this note during the year ended June 30, 2013. The note is currently in default.

(o) On December 27, 2011, the Company issued a $50,000 unsecured promissory note to Mr. Charles Chapman.  The note was due on February 15, 2012 with an interest rate of 12%.  Pursuant to the note agreement, Mr. Chapman has the right to receive 500,000 shares of the Company’s common stock in lieu of interest payment. On December 28, 2011, the Company issued 500,000 shares valued at $4,000 in lieu of the interest.  On March 19, 2012, the note agreement was amended to extend the due date to May 15, 2012.  Pursuant to the amendment, the Company agreed to issue an additional 500,000 common shares valued at $15,500 which was recorded as debt discount and fully amortized during fiscal year 2012.  On May 16, 2012, the Company entered into a second amendment to extend the loan to November 15, 2012. Pursuant to the second amendment, the Company will issue 100,000 shares of its common stock per month for a period of six months in lieu of interest. During the year ended June 30, 2013, the Company issued the 500,000 common shares related to the March 19, 2012 amendment and an additional 100,000 common shares for one month interest which was valued at 1,950.  On October 9, 2013, the $50,000 note and any unpaid interest were settled with 55,000 units of Gunner Gold, LLC stock that the Company acquired on September 20, 2013.

(p) On October 1, 2012, the Company entered into a Secured Convertible Promissory Note and Warrant Purchase Agreement with Tonaquint, Inc., a Utah corporation ("Tonaquint"), whereby the Company issued (i) a Secured Convertible Promissory Note of the Company in the principal amount of $1,660,000 with a conversion price of $0.05 per share and an annual interest rate of 8% and (ii) a warrant to purchase 158,953,080 shares of the Company’s common stock. The warrant has an exercise price of $0.075 per share and can be exercised at any time within five years after October 1, 2012. Tonaquint has the right to convert, subject to restrictions described in the promissory note, all or a portion of the outstanding amount of the promissory note that is eligible for conversion into shares of the Company’s common stock.

Buyer Mortgage Note 1 was due on the earlier of (1) 60 days following March 31, 2015, and (2) upon the Company’s filing of a registration statement pursuant to the Secured Convertible Promissory Note and Warrant Purchase Agreement.  Buyer Mortgage Note 2 was due on the earlier of (1) 60 days following March 31, 2015, and (2) if Tonaquint has been required to repay Buyer Mortgage Note 1, 5 trading date after the initial registration statement is declared effective.  Buyer Mortgage Note 3 was due on the earlier of (1) 60 days following March 31, 2015, and (2) if (i) the shares issued to Tonaquint to repay the Secured Convertible Promissory Note are freely saleable or covered by an effective registration statement (ii) Tonaquint has been required to repay Buyer Mortgage Note 2 and (ii) the Company has produced 200 ounces of gold with an average production of at least 1 gram per ton of processed material within 60 days after Tonaquint was required to pay Buyer Mortgage Note 2; (iii) outstanding balance of the Secured Convertible Promissory Note payable to Tonaquint is less or equal to $1.3 million. The $750,000 promissory note receivable from Tonaquint was due on the earlier of (1) 60 days following March 31, 2015, and (2) if (i) the shares issued to Tonaquint to repay the Secured Convertible Promissory Note are freely saleable or covered by an effective registration statement (ii) Tonaquint has been required to repay Buyer Mortgage Note 3 and (ii) the Company has produced 200 ounces of gold with an average production of at least 1 gram per ton of processed material, within 60 days after Tonaquint was required to pay Buyer Mortgage Note 3; (iii) outstanding balance of  the Secured Convertible Promissory Note payable to Tonaquint is less or equal to $900,000.

The promissory note was due on April 1, 2015 and the interest was payable monthly.  The total amount to be funded is $1,500,000, representing the principal amount of $1,660,000 less an original issuance discount of $150,000 and the payment of $10,000 to cover Tonaquint’s fees. The shares of common stock underlying the Secured Convertible Promissory Note and Warrant were to be registered by a registration statement pursuant to the terms and conditions of a registration rights agreement. The registration statement has been withdrawn with Tonaquint’s consent.

Tonaquint initially funded the Company $150,000 in cash and issued three Buyer Mortgage Notes, in the principal amount of $50,000, $150,000, and $400,000 and a promissory note in the amount of $750,000 to the Company pursuant to the agreement.  The Buyer Mortgage Notes are secured by certain real property owned by Tonaquint located in Cook County, Illinois. The Buyer Mortgage Notes and the $750,000 promissory note carry interest of 5% per annum.

Pursuant to the purchase agreement, the Company reserved 75,000,000 shares of common stock. The Company has agreed not to enter into any equity line of credit or financing arrangement or other transaction that involves issuing securities that are convertible into common stock (including without limitation selling convertible debt, warrants or convertible preferred stock), or otherwise issue common stock (a) with conversion, exercise or similar mechanics or reset provisions that vary according to the market price of the common stock without a floor at or higher than $0.01 or (b)at a fixed price which is lower than $0.01, without the prior written consent of Tonaquint. The Company agrees not to declare or make any dividend or other distributions of its assets.

The Company’s default status on the Freedom Boat note existed prior to and during negotiations on the transaction with Tonaquint.

As of September 30, 2013, the Company has received net proceeds of $307,514 from Tonaquint.  Pursuant to the purchase agreement, warrants to purchase 22,106,057 shares of the Company’s common stock were issued. The Company determined the estimated fair value of the warrants was $1,146,845. $1,146,845 of the proceeds were allocated to the warrants. The promissory note included a beneficial conversion feature of $363,155. The total discount of $1,660,000, including the original issuance discount of $150,000, was amortized over the life of the promissory note commencing upon the receipt of the funding.

Beginning on March 30, 2013, and each month thereafter, the Company was to pay to Tonaquint principal payments of $69,167 plus the sum of any accrued and unpaid interest due on such date by converting such amount at a conversion price equals to the lower of the (i) conversion price in effect ($0.05 per share if no anti-dilution adjustment) (ii) 65% of the arithmetic average of the three lowest volume-weighted average prices of the stock price during the 20 consecutive trading day period immediately preceding the date of the payment date; provided, however, the Company may, at its option as described in the agreement, pay all or any part of such installment amount by redeeming such installment amount in cash or by any combination of a Company conversion and a Company redemption.

At June 30, 2013, the Company offset the notes receivable from Tonaquint of $1,202,486 with notes payable to Tonaquint of $1,651,671 as permitted under the agreement and had interest receivable from Tonaquint of $43,770. During the three months ended September 30, 2013, the Company recorded interest income of $14,167 which was offset with interest expense of $31,537 related to the agreement with Tonaquint.

During the three months ended September 30, 2013, the Company issued Tonaquint 35,497,806 common shares to repay interest of $22,439 and principal of $18,348.

On September 20, 2013, the entire Secured Convertible Promissory Note and Warrant Purchase Agreement with Tonaquint, Inc were settled with a cash payment of $275,000. The Company recorded a $106,999 gain on settlement of note payable related to this settlement.