6. Notes Payable in Gold	6 Months Ended
Jun. 30, 2015
Notes
6. Notes Payable in Gold	6. NOTES PAYABLE IN GOLD During 2013, the Company issued notes in principal amounts totaling $820,000, less a discount of $205,000, for proceeds of $615,000. Under the terms of the notes, the Company agreed to deliver gold to the holders at the lesser of $1,350 per ounce of fine gold or a 25% discount to market price as calculated on the contract date and specify delivery of gold in November 2014. The notes payable in gold contracts contain standard terms regarding delivery and receipt of gold and payment of delivery costs. The Company paid a finder’s fee of $42,000, and incurred other placement costs of $2,143, for a total of $44,143 of deferred finance costs. Additionally, for each dollar of note payable in gold entered, the holder received one half of a common stock purchase warrant. A total of 307,500 warrants were issued. Each whole warrant is exercisable to purchase one share of common stock of the Company at an exercise price of $0.40 for a period of two years following the date of issue. A portion of the proceeds from the notes were allocated to the warrants, resulting in an increase in additional paid in capital and a discount on the notes payable in gold of $7,590. The fair value of warrants issued with the notes payable in gold was estimated at the date of issuance using the Black-Scholes fair value model, which requires the use of highly subjective assumptions, including the expected volatility of the stock price, which may be difficult to estimate for small reporting companies traded on micro-cap stock exchanges. At December 31, 2014 and June 30, 2015, the Company had outstanding total notes payable in gold of $576,696, representing 446.788 ounces of fine gold deliverable at November 30, 2015. As required by ASC 470, the payments required under the original note were compared to the payments required from the notes as amended to determine whether a debt modification or debt extinguishment had occurred. A difference greater than 10% requires the modification to be accounted for as a debt extinguishment. In accordance with ASC 470, the Company calculated the potential gain or loss on debt modification or extinguishment. The net carrying amount of debt is the amount due at maturity, adjusted for unamortized premium, discount, and cost of issuance. The reacquisition price of the new or amended debt instrument is the amount satisfied on extinguishment, including any call premium and miscellaneous costs of reacquisition. A difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt was recognized currently in income of the period of extinguishment as losses or gains and identified as a separate item. Gains and losses are not amortized to future periods. The Company calculated a 22% difference between the carrying value of the original contracted notes of $742,358 and the fair value under the amended notes of $576,696. Because the change in valuation exceeded 10% of the carrying value of the original debt obligation, a gain on extinguishment of debt of $165,662 was recognized for the year ended December 31, 2014. The Company is not required to purchase gold on the open market to meet delivery obligations. In the event that sufficient gold is not produced to meet future distribution requirements, the Company may be required to renegotiate the terms of the notes with the holders to avoid default. A renegotiation or default may require a change in future accounting treatment to that of derivative accounting as required by ASC 450.

6. Notes Payable in Gold

6 Months Ended

Jun. 30, 2015

6. NOTES PAYABLE IN GOLD

During 2013, the Company issued notes in principal amounts totaling $820,000, less a discount of $205,000, for proceeds of $615,000. Under the terms of the notes, the Company agreed to deliver gold to the holders at the lesser of $1,350 per ounce of fine gold or a 25% discount to market price as calculated on the contract date and specify delivery of gold in November 2014. The notes payable in gold contracts contain standard terms regarding delivery and receipt of gold and payment of delivery costs. The Company paid a finder’s fee of $42,000, and incurred other placement costs of $2,143, for a total of $44,143 of deferred finance costs.

Additionally, for each dollar of note payable in gold entered, the holder received one half of a common stock purchase warrant. A total of 307,500 warrants were issued. Each whole warrant is exercisable to purchase one share of common stock of the Company at an exercise price of $0.40 for a period of two years following the date of issue. A portion of the proceeds from the notes were allocated to the warrants, resulting in an increase in additional paid in capital and a discount on the notes payable in gold of $7,590.

The fair value of warrants issued with the notes payable in gold was estimated at the date of issuance using the Black-Scholes fair value model, which requires the use of highly subjective assumptions, including the expected volatility of the stock price, which may be difficult to estimate for small reporting companies traded on micro-cap stock exchanges.

At December 31, 2014 and June 30, 2015, the Company had outstanding total notes payable in gold of $576,696, representing 446.788 ounces of fine gold deliverable at November 30, 2015.

As required by ASC 470, the payments required under the original note were compared to the payments required from the notes as amended to determine whether a debt modification or debt extinguishment had occurred. A difference greater than 10% requires the modification to be accounted for as a debt extinguishment.

In accordance with ASC 470, the Company calculated the potential gain or loss on debt modification or extinguishment. The net carrying amount of debt is the amount due at maturity, adjusted for unamortized premium, discount, and cost of issuance. The reacquisition price of the new or amended debt instrument is the amount satisfied on extinguishment, including any call premium and miscellaneous costs of reacquisition. A difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt was recognized currently in income of the period of extinguishment as losses or gains and identified as a separate item. Gains and losses are not amortized to future periods.

The Company calculated a 22% difference between the carrying value of the original contracted notes of $742,358 and the fair value under the amended notes of $576,696. Because the change in valuation exceeded 10% of the carrying value of the original debt obligation, a gain on extinguishment of debt of $165,662 was recognized for the year ended December 31, 2014.

The Company is not required to purchase gold on the open market to meet delivery obligations. In the event that sufficient gold is not produced to meet future distribution requirements, the Company may be required to renegotiate the terms of the notes with the holders to avoid default. A renegotiation or default may require a change in future accounting treatment to that of derivative accounting as required by ASC 450.