Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - SUNERGY INC | Financial_Report.xls |
| EX-32.1 - CERTIFICATION - SUNERGY INC | sney_10q-ex3201.htm |
| EX-31.1 - CERTIFICATION - SUNERGY INC | sney_10q-ex3101.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| S | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | September 30, 2012 |
| £ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from | to |
| Commission File Number | 000-52767 |
SUNERGY, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 26-4828510 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 14362 N. Frank Lloyd Wright Blvd., Suite 1000, Scottsdale, AZ | 85260 |
| (Address of principal executive offices) | (Zip Code) |
| 480.477.5810 FREE 480.477.5810 |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| £ | YES | S | NO |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| £ | YES | £ | NO |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | £ | Accelerated filer | £ | ||
| Non-accelerated filer | £ | (Do not check if a smaller reporting company) | Smaller reporting company | S | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act
| £ | YES | S | NO |
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.
| £ | YES | £ | NO |
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
1,813,843,183 as of October 31, 2012
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial statements included herein are unaudited but reflect, in management's opinion, all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of our financial position and the results of our operations for the interim periods presented. Because of the nature of our business, the results of operations for the quarterly period ended September 30, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year.
| 1 |
SUNERGY, INC. (An Exploration Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||||
| 2012 | 2011 | |||||||||
| ASSETS | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | 78 | $ | 85,515 | ||||||
| Prepaid expenses | 7,250 | – | ||||||||
| Total current assets | 7,328 | 85,515 | ||||||||
| Long-term assets | ||||||||||
| Exploratory properties | 1,753,497 | 1,753,497 | ||||||||
| Property and equipment, net | 188,393 | 225,007 | ||||||||
| Total long-term assets | 1,941,890 | 1,978,504 | ||||||||
| Total assets | $ | 1,949,218 | $ | 2,064,019 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
| Current liabilities | ||||||||||
| Notes payable, current portion | $ | 60,585 | $ | 65,585 | ||||||
| Accounts payable and accrued liabilities | 191,707 | 205,089 | ||||||||
| Accrued interest | 246,000 | 101,700 | ||||||||
| Accounts payable to related parties | 173,928 | 172,202 | ||||||||
| Total current liabilities | 672,220 | 544,576 | ||||||||
| Total liabilities | 672,220 | 544,576 | ||||||||
| Commitments and Contingencies | ||||||||||
| Stockholders' equity | ||||||||||
| Common stock, authorized 3,750,000,000 shares, par value $0.001, issued and outstanding on September 30, 2012 and December 31, 2011 is 1,813,843,183 and 1,557,717,831 respectively | 1,813,843 | 1,557,718 | ||||||||
| Additional paid-in capital | 4,372,378 | 3,787,902 | ||||||||
| Accumulated deficit during exploration stage | (4,909,223 | ) | (3,826,177 | ) | ||||||
| Total stockholders' equity | 1,276,998 | 1,519,443 | ||||||||
| Total liabilities and stockholders' equity | $ | 1,949,218 | $ | 2,064,019 | ||||||
The accompanying notes are an integral part of these statements.
| 2 |
SUNERGY, INC. (An Exploration Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| January 28, 2003 | ||||||||||||||||||||
| (Inception) | ||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | to September 30, | ||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | ||||||||||||||||
| Revenue | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
| Operating expenses | ||||||||||||||||||||
| Depreciation and amortization | 13,038 | 12,489 | 39,114 | 22,934 | 77,121 | |||||||||||||||
| General and administrative | 54,746 | 17,658 | 187,861 | 131,854 | 647,662 | |||||||||||||||
| Management salary | 11,696 | 69,150 | 78,696 | 99,750 | 741,196 | |||||||||||||||
| Exploration and development | 20,032 | 102,018 | 120,378 | 395,489 | 801,835 | |||||||||||||||
| Professional fees | 83,623 | 62,548 | 309,916 | 164,744 | 957,133 | |||||||||||||||
| Total expenses | 183,135 | 263,863 | 735,965 | 814,771 | 3,224,947 | |||||||||||||||
| (Loss) from operations | (183,135 | ) | (263,863 | ) | (735,965 | ) | (814,771 | ) | (3,224,947 | ) | ||||||||||
| Other income (expenses) | ||||||||||||||||||||
| Interest expense | (59,400 | ) | (86,703 | ) | (186,800 | ) | (151,089 | ) | (1,523,995 | ) | ||||||||||
| Financing costs | – | (160,281 | ) | (160,281 | ) | |||||||||||||||
| (Loss) before income taxes | (242,535 | ) | (350,566 | ) | (1,083,046 | ) | (965,860 | ) | (4,909,223 | ) | ||||||||||
| Provision for income taxes | – | – | – | – | – | |||||||||||||||
| Net (loss) | $ | (242,535 | ) | $ | (350,566 | ) | $ | (1,083,046 | ) | $ | (965,860 | ) | $ | (4,909,223 | ) | |||||
| Loss per common share: Basic & Diluted |
$ |
(0.00 |
) |
$ |
(0.00 |
) |
$ |
(0.00 |
) |
$ |
(0.00 |
) |
||||||||
| Weighted average shares outstanding: Basic & Diluted |
1,786,027,080 | 1,347,649,299 | 1,653,998,124 | 1,347,649,299 | ||||||||||||||||
The accompanying notes are an integral part of these statements.
| 3 |
SUNERGY, INC. (An Exploration Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| January 28, 2003 | ||||||||||||
| Nine months ended September 30, | (Inception) | |||||||||||
| to September 30, | ||||||||||||
| 2012 | 2011 | 2012 | ||||||||||
| Operating activities | ||||||||||||
| Net loss | $ | (1,083,046 | ) | $ | (965,860 | ) | $ | (4,909,223 | ) | |||
| Adjustments to reconcile net loss | ||||||||||||
| Non-cash financing costs | 160,281 | – | 160,281 | |||||||||
| Depreciation and amortization | 39,114 | 22,934 | 77,121 | |||||||||
| Stock-based compensation | 84,000 | 44,839 | 544,889 | |||||||||
| Non-cash interest expense | – | 9,500 | 1,116,327 | |||||||||
| Amortization of deferred finance costs | – | 37,700 | – | |||||||||
| Original issue discount amortization | – | 45,000 | – | |||||||||
| Amortized prepaid expense | – | – | 200,000 | |||||||||
| Change in assets and liabilities | ||||||||||||
| Increase/(decrease) in accrued interest payable | 186,800 | – | 366,500 | |||||||||
| Increase/(decrease) in accounts payable and accrued liabilities | (13,383 | ) | 85,652 | 402,405 | ||||||||
| Increase/(decrease) in accrued-related party | 337,726 | 50,242 | 509,928 | |||||||||
| Net cash used by operating activities | (288,508 | ) | (669,993 | ) | (1,531,772 | ) | ||||||
| Investing activities | ||||||||||||
| Purchase of equipment | (2,500 | ) | (195,075 | ) | (228,013 | ) | ||||||
| Deposit for purchase of dredge | – | (50,000 | ) | |||||||||
| Cash acquired through acquisition of subsidiary | – | – | 39 | |||||||||
| Net cash used by investing activities | (2,500 | ) | (195,075 | ) | (277,974 | ) | ||||||
| Financing activities | ||||||||||||
| Repayments of loans from related parties | – | – | (31,915 | ) | ||||||||
| Proceeds from issuance of debt | 12,500 | 245,000 | 222,500 | |||||||||
| Repayments of debt | – | (46,914 | ) | – | ||||||||
| Proceeds from the sale of stock | 193,071 | 601,500 | 1,605,971 | |||||||||
| Contributed capital | – | – | 13,268 | |||||||||
| Operational advances | – | (15,928 | ) | – | ||||||||
| Net cash provided by financing activities | 205,571 | 783,658 | 1,809,824 | |||||||||
| Net increase / (decrease) in cash | (85,437 | ) | (81,410 | ) | 78 | |||||||
| Cash, beginning of period | 85,515 | 97,251 | – | |||||||||
| Cash, end of period | $ | 78 | $ | 15,841 | $ | 78 | ||||||
| Supplemental Information: | ||||||||||||
| Interest paid | $ | – | $ | – | $ | – | ||||||
| Income taxes paid | $ | – | $ | – | $ | – | ||||||
| Non-cash activities: | ||||||||||||
| Stock issued for service as prepaid expenses | $ | 7,250 | $ | – | $ | 7,250 | ||||||
| Debt issued to acquire assets | $ | – | $ | – | $ | 487,500 | ||||||
| Stock issued to acquire assets | $ | – | $ | – | $ | 500,000 | ||||||
| Assets acquired through acquisition of subsidiary | $ | – | $ | – | $ | 753,497 | ||||||
| Liabilities assumed through acquisition of subsidiary | $ | – | $ | – | $ | 42,725 | ||||||
| Shares issued to acquire subsidiary | $ | – | $ | – | $ | 290,000 | ||||||
| Stock issued to settle operational advances | $ | – | $ | 38,600 | $ | – | ||||||
| Stock issued to settle debt | $ | 396,000 | $ | – | $ | 1,337,624 | ||||||
| Warrants issued to acquire subsidiary | $ | – | $ | – | $ | 420,811 | ||||||
The accompanying notes are an integral part of these statements.
| 4 |
SUNERGY, INC.
(An Exploration Stage Company)
Notes to the Condensed Financial Statements
September 30, 2012
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
SUNERGY, Inc. (The Company) was organized in the state of Nevada on January 28, 2003 and is an exploration phase mineral and mining company.
The Company has precious and rare earth element (“REE”) mineral properties located in the Republic of Ghana and Sierra Leone, Africa and has not yet determined whether these properties contain reserves that are economically recoverable. The recoverability, if any, of amounts from these properties will be dependent upon the discovery of economically recoverable reserves located within the property interests held by the Company, the ability of the Company to obtain necessary financing to satisfy the expenditure requirements under the property agreements to complete the development of the properties and upon future profitable production or proceeds for the sale thereof.
Since inception, through the date of this report, the Company has not generated any revenue and is considered an exploration stage entity as defined by accounting principles generally accepted in the United States (“US GAAP”).
NOTE 2. CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2012, and for all periods presented herein, have been made.
In accordance with Article 8-03 of Regulation S-X certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2011 audited financial statements. The results of operations for the period ended September 30, 2012 are not necessarily indicative of the operating results for the full year.
The consolidated financial statements include the accounts of Sunergy, Inc and its subsidiaries, Mikite Gold Resources Limited, a Ghanaian company, and Allied Mining and Supply LLC, a Nevada limited liability company (100%). Allied Mining and Supply LLC also has one 100% owned subsidiary, a Sierra Leone company, Allied Mining and Supply Ltd which are 100% consolidated in the financial statements. All material inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and financial instruments which mature within three months of the date of purchase.
Earnings per Share
Basic earnings per share excludes dilution and is computed by dividing net income (loss) by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company has potentially dilutive common shares consisting of warrants, which are excluded from the diluted earnings per share computation in periods where the Company has incurred net loss.
| 5 |
Stock Based Compensation
The Company has on occasion issued equity and equity linked instruments to non-employees in lieu of cash to various vendors for the receipt of goods and services and, in certain circumstances the settlement of short-term loan arrangements. The applicable GAAP establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
In these transactions, we issue unregistered and restricted equity instruments along with equity-linked instruments that are convertible into unregistered and restricted shares of our common stock.
While we have 1,003,960,736 shares of freely-traded stock with a quoted market price (a Level 1 input within the GAAP hierarchy), the fair value of the unregistered and restricted shares issued as valued by the quoted market price does not reflect the economic substance of the transactions; correspondingly, the quoted market price is not the most reliably measurable fair value.
When unregistered common shares and equity-linked instruments convertible into unregistered common shares are issued for the settlement of short-term financing arrangements (that are not initially convertible), the reacquisition price of the extinguished financing arrangement is determined by the value of the debt which is more clearly evident, and no additional inducement expense is recognized.
In situations in which we issue unregistered restricted common shares and equity-linked instruments in exchange for goods and services, and the value of the goods and services are not the most reliably measurable, we recognize the fair value of the unregistered restricted equity instruments based on the value of similar instruments issued in private placements in exchange for cash in the most recent transactions (a Level 2 input within the GAAP hierarchy). We have determined this methodology reflects the risk adjusted fair value of our unregistered restricted equity instruments using a commercially reasonable valuation technique.
Recent Accounting Guidance Not Yet Adopted
The Company has reviewed recently issued accounting pronouncements and does not expect any to have a material impact on our financial position, results of operations, or cash flows.
NOTE 3. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. However, the Company has not generated any revenue and continues to incur operating losses and negative cash flows. This raises substantial doubt about the Company’s ability to continue as a going concern. These financials do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
While we have been successful in raising enough capital to pay for professional and administrative fees to file our delinquent financial statements, we have not had the ability to raise any significant additional capital to materially advance our exploration and mining operations. We continue to actively pursue additional sources of capital, however, there is no guarantee these efforts will be successful.
| 6 |
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment consisted of the following at September 30, 2012 and December 31, 2011:
| September 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Exploration equipment | $ | 247,259 | $ | 247,259 | ||||
| Rolling stock | 13,500 | 13,500 | ||||||
| Office furniture and equipment | 4,754 | 2,254 | ||||||
| Subtotal | $ | 265,513 | $ | 263,013 | ||||
| Less accumulated depreciation | (77,120 | ) | (38,006 | ) | ||||
| Property, and equipment - net | $ | 188,393 | $ | 225,007 | ||||
NOTE 5. NOTES PAYABLE
During the period ended September 30, 2012 we accrued $186,800 of interest expense on the outstanding principal balance of our notes payable in default totaling $60,085 as of September 30, 2012 and $65,585 as of December 31, 2011. The individual notes carry daily interest penalties between $100 and $500.
NOTE 6. STOCKHOLDERS’ EQUITY
Common Stock
The following provides additional information for certain stock transactions that occurred since January 1, 2012. For additional details for all stock transactions please see the consolidated statement of changes in stockholders’ equity as reported in the Company’s 10-K for the period ended December 31, 2011 and filed with the Securities Exchange Commission on July 2, 2012.
A summary of shares issued follows:
| · | During the quarter ended March 31, 2012, the Company issued 14,992,854 shares of common stock for total cash of $51,275. |
| · | During the quarter ended March 31, 2012, the Company issued 6,000,000 equity units at $0.0025 per unit for prepaid consulting services with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.005 per share. |
| · | During the second quarter of 2012, the Company issued 13,714,284 equity units for cash of $46,000 at $0.0035 per unit with each unit consisting of one common share and one 12 month share purchase warrant exercisable at $0.007 per share. |
| · | During the second quarter of 2012, the Company issued 21,600,000 equity units for cash of $54,000 at $0.0025 per unit with each unit consisting of one common share and one 12 month share purchase warrant exercisable at $0.005 per share. |
| · | During the second quarter of 2012, the Company issued 285,714 shares for cash of $1,714 for the exercise of warrants at $0.006 per share. |
| · | During the second quarter of 2012, the Company issued 152,900,000 equity units to settle $336,000 of accounts payable and or related party payables and $46,250 in services at $0.0025 per unit with each unit consisting of one common share and one 12 month share purchase warrant exercisable at $0.005 per share. |
| 7 |
| · | During the third quarter of 2012, the Company issued 1,400,000 shares for cash of $7,000 for the exercise of warrants at $0.005. |
| · | During the third quarter of 2012, the Company issued 1,232,500 shares for cash of $3,081 for the exercise of warrants at $0.0025. |
| · | During the third quarter of 2012, the Company issued 10,000,000 equity units for cash of $30,000 at $0.003 per unit with each unit consisting of one common share and one twelve month share purchase warrant exercisable at $0.006 per share. |
| · | During the third quarter of 2012, the Company issued 24,000,000 equity units to settle $17,500 of note payable and $42,500 of accrued interest at $0.0025 with each unit consisting of one common share and one twelve month share purchase warrant exercisable at $0.005 per share. |
| · | During the third quarter of 2012, the Company issued 5,000,000 shares at $0.003 per share to Alex Johnston of Atech Consulting Inc and 5,000,000 shares at $0.003 to Micaddan for consulting services rendered to the company. All equity awards have been fully earned in accordance with their respective agreements. |
Outstanding Warrants
On January 23, 2012 the Company extended the expiration date of all outstanding warrants as of December 31, 2011 for six months. In accordance with the modification, the Company recognized the estimated excess value of the modified award over the fair value of the original award immediately before its terms were modified, based on the pertinent factors on the modification date. The excess value totaling $160,281 was estimated by using a Black-Scholes pricing model, and comparison of the unregistered and restricted shares underlying the warrants to those that are currently freely trading. The Company used a historically derived volatility rate of 151%; the remaining contractual terms for each award between one month and one year; a risk free rate of 0.52%; and an estimated forfeiture rate of 55% for its Black-Scholes model assumptions.
On September 30, 2012 the Company had warrants outstanding summarized in the table below:
| Warrants Outstanding | Exercise Price | Expiration Date | ||||||
| 20,200,000 | 0.005 | 22-Dec-2012 | ||||||
| 31,357,138 | 0.006 | 22-Dec-2012 | ||||||
| 100,000,000 | 0.007 | 22-Dec-2012 | ||||||
| 1,200,000 | 0.0075 | 22-Dec-2012 | ||||||
| 10,357,142 | 0.007 | 31-Jan-2013 | ||||||
| 6,450,000 | 0.005 | 20-Mar-2013 | ||||||
| 3,857,141 | 0.007 | 31-Mar-2013 | ||||||
| 7,142,857 | 0.007 | 10-Apr-2013 | ||||||
| 21,000,000 | 0.0075 | 30-May-2013 | ||||||
| 16,571,428 | 0.005 | 30-May-2013 | ||||||
| 215,071,428 | 0.005 | 23-Jun-2013 | ||||||
| 5,999,998 | 0.007 | 23-Jun-2013 | ||||||
| 14,642,855 | 0.005 | 31-Jul-2013 | ||||||
| 10,000,000 | 0.006 | 27-Jul-2013 | ||||||
| 29,000,000 | 0.005 | 31-Aug-13 | ||||||
| Total | 492,849,987 | |||||||
| 8 |
Information relating to warrant activity during the reporting period follows:
| Weighted | ||||||||||||
| Average | ||||||||||||
| Number of | Contingent | Exercise | ||||||||||
| Warrants | Warrants | Price | ||||||||||
| Total Warrants outstanding at December 31, 2011 | 592,319,951 | 100,000,000 | 0.0038 | |||||||||
| Plus: Warrants Issued | 289,935,710 | – | 0.0056 | |||||||||
| Less: Warrants Exercised | (62,318,214 | ) | – | 0.0038 | ||||||||
| Less: Warrants Expired | (327,087,460 | ) | – | 0.0045 | ||||||||
| Total Warrants outstanding at September 30, 2012 | 492,849,987 | 100,000,000 | 0.0057 | |||||||||
NOTE 7. RELATED PARTY TRANSACTIONS
Certain related parties assist in financing operations by personally paying expenses which the company considers to be in the nature of accounts payable since the obligations are incurred within the normal course of business and classified as related party accounts payable. Unpaid officer and director fees are also classified as related party accounts payable.
NOTE 8. SUBSEQUENT EVENTS
On October 15, 2012, P.K. Medhi retired as Chairman of the Board of Directors and resigned as Director. He has agreed to remain with the Company and serve on our Advisory Board. Gary Houck was appointed Director on the same date.
Our board of directors now consists of Larry Max Bigler, Robert A. Levich, and Gary Houck.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This quarterly and unaudited report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited financial statements are stated in United States dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
In this quarterly and unaudited report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "common stock" refer to the common shares in our capital stock.
As used in this quarterly and unaudited report, the terms "we", "us", "our", "our company" and "Sunergy" mean Sunergy, Inc. and our wholly owned subsidiaries, Mikite Gold Resources Limited, a Ghanaian company and Allied Mining and Supply LLC, a Nevada limited liability, unless otherwise stated.
| 9 |
Overview and Current Business
We were incorporated in the State of Nevada, USA, on January 28, 2003. We are an exploration stage company engaged in the acquisition, exploration and development of mineral properties with a view to exploiting any mineral deposits we discover that demonstrate economic feasibility. Our current exploration efforts are focused on our two properties; one of which is located in Sierra Leone, Africa and the other is located in Ghana, Africa.
Nyinahin Concession, Ghana:
The Nyinahin concession is located between two geological gold belts, the Bibiani Belt to the west and the Asankrangwa to the east. The license allows for the exploration and mining of gold, silver, base metals and diamonds. About 80% of the Nyinahin concession lies to the west of the Offin River within the Ashanti region of Ghana. There are several historical pits and adits with a strong clustering of artisan pits located along the Offin River. Three old gold prospects exist on the concession. The property is accessed via the main Kumasi-Bibiani trunk road. It falls under the jurisdiction of the Atwima Mponua District Assembly with headquarters at Nyinahin. The Offin River area offers strong alluvial operations potential as well as the underlying bedrock is a continuation of the Keegan Esaase-Jeni Project. The large area west of the Offin River area contain some significant geological anomalies that warrant additional exploration activities. In the overall, this concession represents a significant future development opportunity for our Company.
We have commenced the exploration stage of our operations on Nyinahin but can provide no assurance that we will discover economic mineralization on the property, or if such minerals are discovered, that we will enter into commercial production. This year’s exploration is designed to confirm initial discoveries of gold on our concession contained in a report that accompanied the purchase of the property. The results indicate further exploration work is required involving geochemical and geophysical work which, if successful, should set the stage for drilling in the bedrock that is a direct extension of the Keegan Esaase-Jeni Project. Due to our current lack of funding, our activities during the current fiscal year have been limited to maintaining “good-standing” status of our concession.
Alluvial mining operations for gold have sprung up along the Offin River which runs through the eastern portion of our concession, and surround this area of our concession. Immediately adjacent on the east to the Nyinahin concession are the Esaase-Jeni (Gyeni) properties, held by Keegan Resources of Canada. Prior to Keegan's acquisition of the Bonte (now called Esaase) and the Jeni (Gyeni) concessions, they were mined for alluvial gold by Bonte Gold Mines, a subsidiary of Akrokeri-Ashanti Gold Mines of Canada. This recent alluvial activity suggests the strong viability of the alluvial opportunity on our concession and alluvial Joint Venture partners are being sought at this time.
Pampana River Concession, Sierra Leone:
The Pampana River concession is an alluvial mining concession consisting of Exploration License No. EXPL 5/2009 which was issued to Allied Mining and Supply Ltd. (AMS) on August 12, 2009. The license is located in the Kholifa Rowalla, Kafe Simiria and Tane Chiefdoms in the Tonkolili District of the Northern Province of Sierra Leone covering an area of 141.3 square kilometers. The concession is situated on the western fringes of the southern Sula Mountains greenstone belt and for most of the northern and central part it straddles the Pampana River. On the west of the southern part, the concession runs along the Pampana River. The property is south of the Sula Mountains in the Greenstone belt, around 120 miles east of the capital, Freetown.
In 2011, we dredged the Masanga Area that is believed to have limited overburden and good river accessibility. Shortly after deployment the two Allied dredges were producing daily quantities of heavy mineral sands (HMS). This effort validated our early extraction estimate of 400 to 500 pounds of HMS per dredge per 10 hour day. The process involved regular performance evaluation resulting in modifications and adjustments of the dredges and support equipment in order to maximize the efficiency of the advanced exploration.
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Multiple areas along the river were sampled involving considerable de-staging, repositioning and deployment in order to generate target appraisals and gauge future recovery potential. Due to our limited exploration budget, our 2012 exploration activities consist of investigation of additional areas of our Pampana River concession and other potential areas where we have been looking for gold, diamonds, REE’s and coltan minerals. Our activities have been designed to make ready for renewed aggressive exploration activity now that we are current in our filings with the SEC and trading on the OTCQB and may have greater ability to attract exploration and development capital.
Due to the complex nature and broad range of apparent minerals of the Pampana sands, additional mineralogy is required in order to prove their full mineralogical and elemental content, and to accurately describe the economic value and overall potential. We have already learned that in addition to the free gold contained in the sands, there is an additional amount of precious metals including gold contained in the sands themselves that will require special separation equipment to recover. Once these additional mineralogical studies are completed by Hazen Research Labs of Denver, Colo. and the separation equipment and process is defined, we are committed to establishing our processing facility and conducting operations designed to both produce cash flow and to develop resources and reserves immediately A report dated August 22, 2012 from Hazen Research in Colorado in part states as follows: (The complete report is available for review on our website www.sunergygold.com )
MINERALOGICAL EXAMINATION
An initial microscopic examination of the Stockpile sample showed major ilmenite, zircon, and subordinate monazite and quartz.
To provide evidence of the occurrence of randomly distributed free placer gold, a 100 g grab sample of the blended Stockpile sample was separated using a high-intensity rare earth hand magnet to separate the paramagnetic ilmenite from the nonmagnetic constituents, including the gold. Both magnetic products were assayed for gold and PGMs. The results show that about 99% of the gold is in the nonmagnetic product which assayed 14.4 g/t Au and represents about 28% of the total weight of the sample.
CONCLUSIONS AND RECOMMENDATIONS
Based on the results of this preliminary investigation, the Stockpile sand contains appreciable gold which is easily recoverable by magnetic and gravity separation.
If desirable or necessary, a high-grade ilmenite product could also be recovered. Production of monazite and zircon concentrates would also be feasible, however, a monazite concentrate would be high in thorium, probably in the several-percent range and would certainly represent radioactive source material.
The recovery of the niobium and tantalum values would require more development work, but considering the information at hand, it is expected that niobium occurring as niobian rutile can be recovered by electrostatic and high-intensity magnetic separation. The niobium and tantalum occurring as the columbite–tantalite series (Coltan) would concentrate along with the ilmenite and might be difficult to recover as a separate concentrate.
For the next phase of this project we would recommend sample variability testing for assessment of the gold potential. As part of this evaluation, further upgrading of the conventional table concentrate(s) with a Gemini table might be included to produce extra high-grade concentrates. If recovery of the other components is of interest, the material, preferably a composite, would be processed by the procedure.”
We are currently engaged in further mineralogical studies to determine the final design of a pilot plant facility, which once finalized will be deployed in our operation in Sierra Leone.
We are in the process of securing funding to advance Pampana dredging operations and to finance the acquisition and commissioning of the pilot plant facility Dredging and sampling operations are scheduled to commence in the next 45 days or sooner
Liquidity and Capital Requirements
As we do not have the funds necessary to cover our projected operating expenses for the next twelve month period, we will be required to raise additional funds through the issuance of equity securities, through loans or through debt financing. There can be no assurance that we will be successful in raising the required capital or that actual cash requirements will not exceed our estimates. We intend to fulfill any additional cash requirement through the sale of our equity securities.
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If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.
The continuation of our business is dependent upon obtaining further financing, a successful program of exploration and/or development, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.
We have obtained additional commitments for funding to be received within the next 30 days. We continue to explore opportunities for the receipt of funding in either equity or financing transactions. As we receive these funds, the Board of Directors and Management evaluate the best use of the funding received so as to continue on the path of fast ramp up to production.
Results of Operations
The following discussion should be read in conjunction with our unaudited financial statements and the related notes contained in this report for the period ended September 30, 2012. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed in this interim report.
Operations
Our operating expenses for the nine months ended September 30, 2012 and 2011 are outlined in the table below:
|
Nine Months Ended September 30, |
||||||||||||
| 2012 | 2011 | Change | ||||||||||
| Depreciation and amortization | $ | 39,114 | $ | 22,934 | $ | (16,180 | ) | |||||
| General and administrative | $ | 187,861 | $ | 131,854 | $ | (56,007 | ) | |||||
| Management salary | $ | 78,696 | $ | 99,750 | $ | 21,054 | ||||||
| Exploration and development | $ | 120,378 | $ | 395,489 | $ | 275,111 | ||||||
| Professional fees | $ | 309,916 | $ | 164,744 | $ | (145,172 | ) | |||||
Revenue
We are an exploration stage entity and have not commenced any revenue producing activities since our inception. We do not anticipate earning revenues until such time as we have entered into commercial production on the Nyinahin or Pampana River concessions.
Expenses
The decrease in operating expenses for the nine months ended September 30, 2012, compared to the same period in fiscal 2011, was mainly due to a decrease in exploration which related to decreased funding available to further exploration work at the concessions. Management salary decreased $21,054 due to the change in management during the third quarter of 2012 at reduced compensation rates. Professional fees increased $145,172 primarily related to auditing and accounting expenses and the payment of vendor services by issuance of stock.
Other Expenses
Interest and financing expenses increased by $195,992 with 82% of the total amount recognized through September 30, 2012 resulting from the non–recurring incremental cost associated with the modification of the warrant expiration date. The remaining increase is the result of interest and penalty expenses for unsettled notes payable expected to be settled with equity instruments during the third quarter.
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Equity Compensation
We currently do not have any formalized stock option or equity compensation plans or arrangements however, from time to time we settle obligations via the issuance of equity and equity-linked instruments.
Liquidity and Financial Condition
September 30, 2012 | December 31, 2011 | Change | ||||||||||
| Current assets | $ | 7,328 | $ | 85,515 | $ | (78,187 | ) | |||||
| Current liabilities | $ | 672,220 | $ | 544,576 | $ | (127,644 | ) | |||||
| Working Capital | $ | (664,892 | ) | $ | (459,061 | ) | $ | (270,131 | ) | |||
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Cashflow
| Nine Months Ended September 30, | ||||||||||||
| 2012 | 2011 | Change | ||||||||||
| Net cash used in operating activities | $ | (288,508 | ) | $ | (669,993 | ) | $ | 381,485 | ||||
| Net cash provided/(used) in investing activities | $ | (2,500 | ) | $ | (195,075 | ) | $ | 192,575 | ||||
| Net cash provided/(used) by financing activities | $ | 205,571 | $ | 783,658 | $ | (578,087 | ) | |||||
| Net increase/(decrease) in cash during period | $ | (85,437 | ) | $ | (81,410 | ) | $ | (4,027 | ) | |||
Our total assets at September 30, 2012 were $1,949,218. Our financial statements report a net loss of $1,083,046 for the nine months ended September 30, 2012 and a net loss of $4,909,223 for the period from January 28, 2003 (date of inception) to September 30, 2012. We had a cash balance of $78 as of September 30, 2012.
We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. In this regard we have raised additional capital through equity offerings and loan transactions. We have been successful in structuring deals in which expenses are paid for through the issuances of common shares. In addition, we have raised additional funds and expect to continue to raise additional funds through private placement equity offerings sufficient to fund our current plan of operations.
We continue to explore and seek funding opportunities through either equity or loan transactions. As we receive funding, the use of available funding is evaluated by Management and the Board of Directors for its priority of use.
Our principal sources of funds have been from sales of our common stock and we expect this to be consistent for at least the next twelve months.
During the last nine months the company has been successful in eliminating over $480,000 of its trade, notes payable and related party accounts payable, as well as on-going operational expenses, through the issuance of equity instruments which will allow a larger percentage of incoming capital to be used to expand our exploration activity.
Contractual Obligations
As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
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Critical Accounting Policies
The Company has on occasion issued equity and equity linked instruments to non-employees in lieu of cash to various vendors for the receipt of goods and services and, in certain circumstances the settlement of short-term loan arrangements. The applicable GAAP establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
In these transactions, we issue unregistered and restricted equity instruments along with equity-linked instruments (warrants) that are convertible into unregistered and restricted shares of our common stock.
When unregistered common shares and equity-linked instruments convertible into unregistered common shares are issued for the settlement of short-term financing arrangements (that are not initially convertible), the reacquisition price of the extinguished financing arrangement is determined by the value of the debt which is more clearly evident, and no additional inducement expense is recognized.
In situations in which we issue unregistered restricted common shares and equity-linked instruments in exchange for goods and services, and the value of the goods and services are not the most reliably measurable, we recognize the fair value of the unregistered restricted equity instruments based on the value of similar instruments issued in private placements in exchange for cash in the most recent transactions (a Level 2 input within the GAAP hierarchy). We have determined this methodology reflects the risk adjusted fair value of our unregistered restricted equity instruments using a commercially reasonable valuation technique.
Of major significance during the nine months period ended September 30, 2012 is the extension of all of the warrants for six months. The assumption was made when these warrants were purchased that the Caveat Emptor would be removed shortly. The filings took longer to complete than was expected. The board of directors felt that since the company had not been able to at that point catch up with its government filings, it would be fair and prudent to extend the warrant date. Now that we are current in our filings we have experienced an increase in the exercising of outstanding warrants.
In accordance with ASC 718, a modification of the terms of an equity instrument for financial reporting purposes is treated as an exchange of the original award for a new award. We recognized, as financing costs, the excess value of the modified award over the fair value of the original award immediately before its terms were modified, based on the pertinent factors on the modification date, We estimated the excess value by using a Black-Scholes pricing model, and comparison of the unregistered and restricted shares underlying the warrants to those that are currently freely trading.
In addition to assuming a volatility rate of approximately 151% (historically derived), we estimated a forfeiture rate of approximately 55% based on prior exercise history and our prior experience with several of the warrant holders. Increases in the volatility rate assumption along with decreases in the forfeiture would result in the recognition of additional excess value.
Item 3. Quantitative Disclosures About Market Risks
As a "smaller reporting company", we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Management's Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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As of the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president(our principal executive officer) and our Chief Financial Officer (principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president (our principal executive officer) and our Chief Financial Officer ( principal accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles due to the existence of significant deficiencies constituting material weaknesses.
A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in Internal Control over Financial Reporting
.
During the period covered by this report there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Item 1A. Risk Factors
We have had no material changes in our risk factors as disclosed in our Form 10-K for the year ended December 31, 2011 filed on July 2, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following provides additional information for certain stock transactions that occurred during the three months ended September 30, 2012. For additional details for all stock transaction please see the consolidated statement of changes in stockholders’ equity as reported in the Company’s 10-K for the period ended December 31, 2011 and filed with the Securities Exchange Commission on July 2, 2012.
During the nine months ended September 30, 2012, we issued a total of 256,125,352 shares; 34,500,000 shares were issued for services valued at $91,250 to consultants, officers, and directors with $7,250 identified as prepaid expense; and 158,400,000 shares were issued to settle debt valued at $353,500 and $42,500 of accrued interest; 63,225,352 shares were issued for cash to accredited investors in private placement or exercise of warrants for receipt of cash totaling $193,071.
Item 3. Defaults Upon Senior Securities
The Company has outstanding loans, $35,000 collateralized by 14,000,000 shares of common stock and 14,000,000 one year share purchase warrants exercisable at $0.005 per share. In the event of default, the note holders are able to convert the outstanding balance owed to the common share collateral. As of September 30, 2012, the notes are in default however, neither of the note holders has converted any of the 14,000,000 collateralized equity units nor have they made any demand for settlement. The Company expects to fully settle with the issue of equity units during the fourth quarter.
Item 4. [Removed and Reserved]
None.
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Item 5. Other Information
None.
Item 6. Exhibits
| Exhibit Number | Description |
| (3) | Articles of Incorporation and By-Laws |
| 3.1 | Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on February 23, 2004) |
| 3.2 | Bylaws (incorporated by reference from our Registration Statement on Form SB-2 filed on February 23, 2004) |
| 3.3 | Certificate of Change (incorporated by reference from our Current Report on Form 8-K filed on October 8, 2008) |
| 3.4 | Certificate of Amendment (incorporated by reference from our Current Report on Form 8-K filed on August 26, 2010) |
| (10) | Material Contracts |
| 10.1 | Mineral Property Staking and Purchase Agreement dated April 10, 2003 (incorporated by reference from our Registration Statement on Form SB-2/A filed on June 30, 2004) |
| 10.2 | Mining Acquisition Agreement dated October 31, 2008 between our company and General Metals Corporation (incorporated by reference from our Current Report on Form 8-K filed on December 10, 2008) |
| 10.3 | Amending Agreement to the Mining Acquisition Agreement dated December 5, 2008 between our company and General Metals Corporation. (incorporated by reference from our Current Report on Form 8-K filed on December 10, 2008) |
| 10.4 | Membership Purchase Agreement dated October 18, 2010 between our company and Allied Mining and Supply, LLC. (incorporated by reference from our Current Report on Form 8-K filed on February 4, 2011) |
| (14) | Code of Ethics |
| 14.1 | Code of Ethics and Business Conduct (incorporated by reference to our Annual Report on Form 10-K filed on April 20, 2009) |
| (21) | Subsidiaries of the Registrant |
| 21.1 |
Allied Mining and Supply, LLC, a Nevada limited liability company Mikite Gold Resources Limited, a Ghanaian company |
| (31) | Rule 13a-14(a)/15d-14(a) Certifications |
| 31.1* | Certification of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| (32) | Section 1350 Certifications |
| 32.1* | Certification of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer filed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101* | Interactive Data Files |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SUNERGY, INC. | |||
| Date: | November 16, 2012 | By: | /s/ Larry Bigler |
| Name: | Larry Bigler | ||
| Title: | Chief Executive Officer, President, Director | ||
| Title: |
Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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