UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2011
or
[ ] 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 (IRS Employer
incorporation or organization) Identification No.)
14362 N. Frank Lloyd Wright Blvd., Suite 1000, Scottsdale, AZ 85260
(Address of principal executive offices) (Zip Code)
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 [X] 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 (ss.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). [X] 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 [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act [ ] YES [X] 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.
1,559,689,258 common shares issued and outstanding as of March 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, 2011 are not necessarily indicative of the results that may
be expected for the full fiscal year.
2
SUNERGY, INC.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
2011 2010
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,841 $ 97,251
Deposits -- 50,000
------------ ------------
TOTAL CURRENT ASSETS 15,841 147,251
------------ ------------
L0NG TERM ASSETS
Exploratory properties 1,753,497 1,753,497
Property and equipment 224,395 2,254
------------ ------------
TOTAL ASSETS $ 1,993,733 $ 1,903,002
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 93,252 $ 7,601
Accruals - related party 50,242 --
Operational advances - related party 29,463 83,991
Notes payable 208,085 --
------------ ------------
TOTAL CURRENT LIABILITIES 381,042 91,592
------------ ------------
TOTAL LIABILITIES 381,042 91,592
STOCKHOLDERS' EQUITY
Common Stock, authorized 3,750,000,000 shares, par value
$0.001, issued and outstanding on September 30, 2011 and
December 31, 2010 is 1,454,657,834 and 1,046,197,880, respectively 1,454,658 1,046,198
Additional paid in capital 3,482,662 3,123,983
Accumulated deficit during exploration stage (3,324,629) (2,358,771)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,612,691 1,811,410
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,993,733 $ 1,903,002
============ ============
The accompanying notes are an integral part of these statements.
3
SUNERGY, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATION
(unaudited)
From Inception
Three Months Ended Nine Months Ended January 28, 2003 to
September 30, September 30, September 30,
2011 2010 2011 2010 2011
-------------- -------------- -------------- -------------- --------------
(Restated) (Restated)
Income $ -- $ -- $ -- $ -- $ --
-------------- -------------- -------------- -------------- --------------
Operating Expenses
General and administrative 17,658 35,792 131,854 65,118 365,892
Depreciation 12,489 -- 22,934 -- 22,934
Management salary 69,150 186,000 99,750 347,500 621,250
Professional fees 62,548 23,750 164,744 73,750 549,662
Exploration costs 102,018 6,861 395,489 23,861 542,098
-------------- -------------- -------------- -------------- --------------
Total expenses 263,863 252,403 814,771 510,229 2,101,836
-------------- -------------- -------------- -------------- --------------
Net loss from operations (263,863) (252,403) (814,771) (510,229) (2,101,836)
Other expenses
Interest expense (Restated) (86,703) (868,627) (151,089) (1,043,627) (1,222,794)
-------------- -------------- -------------- -------------- --------------
Total other expenses (86,703) (868,627) (151,089) (1,043,627) (1,222,794)
-------------- -------------- -------------- -------------- --------------
Net loss $ (350,566) $ (1,121,030) $ (965,860) $ (1,553,856) $ (3,324,630)
============== ============== ============== ============== ==============
Loss per share-basic $ (0.00) $ (0.00) $ (0.00) $ (0.00)
-------------- -------------- -------------- --------------
Weighted average number
of shares-basic 1,347,649,299 648,078,197 1,347,649,299 648,078,197
-------------- -------------- -------------- --------------
The accompanying notes are an integral part of these statements.
4
SUNERGY, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
From Inception
Nine Months Ended January 28, 2003 to
September 30, September 30,
2011 2010 2011
------------ ------------ ------------
(Restated)
OPERATING ACTIVITIES
Net loss $ (965,860) $ (1,553,856) $ (3,324,630)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 22,934 -- 22,934
Stock based compensation 44,839 456,261 385,539
Non cash interest expense (Restated) 9,500 903,227 1,043,127
Amortization of deferred finance costs 37,700 -- 37,700
Original issue discount amortization 45,000 50,000 245,000
Changes in assets and liabilities
Increase in accounts payable and accrued liabilities 85,652 22,335 85,652
Increase in accruals-related party 50,242 48,482 268,542
------------ ------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (669,993) (73,551) (1,236,136)
------------ ------------ ------------
INVESTMENT ACTIVITIES
Acquisition of property and equipment (195,075) -- (259,829)
Cash acquired through acquisition of subsidiary -- -- 39
------------ ------------ ------------
CASH USED BY INVESTMENT ACTIVITIES 95,075) -- (259,790)
FINANCING ACTIVITIES
Proceeds from sale of common stock 601,500 -- 1,232,350
Proceeds from notes payable 245,000 -- 245,000
Repayment of notes payable (46,914) (46,914)
Contributed capital -- 8,960 13,268
Operational advances (15,928) 64,569 68,063
------------ ------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES 783,658 73,529 1,511,767
------------ ------------ ------------
Net increase/(decrease) in cash (81,410) (22) 15,841
Cash and cash equivalents, beginning of period 97,251 54 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,841 $ 32 $ 15,841
============ ============ ============
5
SUNERGY, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
From Inception
Nine Months Ended January 28, 2003 to
September 30, September 30,
2011 2010 2011
------------ ------------ ------------
(Restated)
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR:
Interest $ -- $ -- $ --
------------ ------------ ------------
Income taxes $ -- $ -- $ --
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF
NON-CASH FINANCING AND INVESTING:
Stock issued to settle operational advances $ 38,600 $ -- $ (703,003)
------------ ------------ ------------
Debt issued to acquire assets $ -- $ -- $ 487,500
------------ ------------ ------------
Stock issued to acquire assets $ -- $ 1,760,988 $ (500,000)
------------ ------------ ------------
Assets acquired through acquisition of subsidiary $ -- $ -- $ (753,497)
------------ ------------ ------------
Shares issued to settle debt $ -- $ 654,402 $ 654,402
------------ ------------ ------------
Liabilities assumed through acquisition of subsidiary $ -- $ -- $ 42,725
------------ ------------ ------------
Shares issued to acquire subsidiary $ -- $ -- $ 290,000
------------ ------------ ------------
Warrants issued to acquire subsidiary $ -- $ -- $ 420,811
------------ ------------ ------------
The accompanying notes are an integral part of these statements.
6
SUNERGY, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
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 mineral properties located in the Republic of Ghana and has not
yet determined whether these properties contain reserves that are economically
recoverable. The recoverability 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.
The Company entered into a purchase agreement, which closed October 18, 2010, to
acquire Allied Mining and Supply LLC., a Nevada limited liability company.
Allied Mining and Supply LLC also has one subsidiary, a Sierra Leone company,
Allied Mining and Supply Ltd. As part of the acquisition the Company now has a
concession in Sierra Leone. The Company has been in the exploration phase of
this concession since the purchase. No revenues have been generated as of yet.
This concession, if determined to be economically feasible, may produce gold and
rare metals.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
interim financial statements be read in conjunction with the financial
statements of the Company for the year ended December 31, 2010 and notes thereto
included in the Company's 10-K annual report and all amendments. The Company
follows the same accounting policies in the preparation of interim reports.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sunergy, Inc and
its subsidiaries Mikite Gold Resources Limited, a Ghanaian company (100%) 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.
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.
ACCOUNTING BASIS
The statements were prepared following generally accepted accounting principles
of the United States of America. The Company operates on a December 31 fiscal
year end.
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.
7
SUNERGY, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting Standards Codification ("ASC") 820, Fair Value Measurements and
Disclosures, requires disclosing fair value to the extent practicable for
financial instruments that are recognized or unrecognized in the balance sheet.
Fair value of financial instruments is the amount at which the instruments could
be exchanged in a current transaction between willing parties. The Company
considers the carrying amounts of cash, certificates of deposit, accounts
receivable, accounts payable, notes payable, related party and other payables,
customer deposits, and short term loans approximate their fair values because of
the short period of time between the origination of such instruments and their
expected realization. The Company considers the carrying amount of notes payable
to approximate their fair values based on the interest rates of the instruments
and the current market rate of interest.
EXPLORATION STAGE COMPANY
The Company complies with Accounting Standards Codification (ASC) Topic 915 for
its characterization of the Company as exploration stage. All losses accumulated
since inception has been considered as part of the Company's exploration stage
activities.
The Company is subject to several categories of risk associated with its
exploration stage activities. Mineral exploration and production is a
speculative business, and involves a high degree of risk. Among the factors that
have a direct bearing on the Company's prospects are uncertainties inherent in
estimating mineral deposits, future mining production, and cash flows,
particularly with respect to properties that have not been fully proven with
economic mineral reserves; access to additional capital; changes in the price of
the underlying commodity; availability and cost of services and equipment; and
the presence of competitors with greater financial resources and capacity.
MINERAL PROPERTY COSTS
Mineral property exploration costs are expensed as incurred. Mineral property
acquisition costs are initially capitalized when incurred. The Company assesses
the carrying costs for impairment at each fiscal quarter end. When it has been
determined that a mineral property can be economically developed as a result of
establishing proven and probable reserves, the costs then incurred to develop
such property, are capitalized. Such costs will be amortized using the
units-of-production method over the estimated life of the probable reserve. If
mineral properties are subsequently abandoned or impaired, any capitalized costs
will be charged to operations.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are recorded at historical cost. Minor additions and
renewals are expensed in the year incurred. Major additions and renewals are
capitalized and depreciated over their estimated useful lives. When property and
equipment are retired or otherwise disposed of, the cost and accumulated
depreciation is removed from the accounts and any resulting gain or loss is
included in the results of operations for the respective period. Depreciation is
provided over the estimated useful lives of the related assets using the
straight-line method for financial statement purposes. The Company uses other
depreciation methods (generally accelerated) for tax purposes where appropriate.
The estimated useful lives for significant property and equipment categories are
as follows:
Furniture and Fixtures 5 - 7 Years
Equipment 3 - 5 Years
RECENT ACCOUNTING GUIDANCE NOT YET ADOPTED
The Company has reviewed recently issued accounting pronouncements and believes
none will have any material impact on our financial statements.
8
SUNERGY, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
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. The
Company has accumulated a loss of $3,324,629 during its exploration stage and
has a working capital deficit of $365,201 as of September 30, 2011. 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.
It should be noted that all mining, mineral and oil and gas companies show a
loss in the exploration stage of each project. By its very nature exploration is
expenditures with no income. To expect otherwise is not reality. In the
exploration stage almost all of the expenditures are expensed and not
capitalized. At the end of the exploration phase revenues begin with the
production phase and result in a better match of revenue with expenses. In the
production phase many expenses are capitalized and spread over the expected life
of the mining project.
Sunergy will continue to seek additional funds from its investors to complete
its exploration stage of determining when a particular project is economically
feasible.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 2011 and
December 31, 2010:
September 30, December 31,
2011 2010
---------- ----------
Exploration equipment $ 221,768 $ --
Rolling stock 10,000 --
Power generating equipment 13,307 --
Office furniture and equipment 2,254 2,254
---------- ----------
Subtotal 247,329 2,254
Less accumulated depreciation (22,934) --
---------- ----------
Property, and equipment - net $ 224,395 $ 2,254
========== ==========
NOTE 5. NOTES PAYABLE
During the nine month period ended September 30, 2011 we issued $290,000 in note
payables to various investors, which consisted of $245,000 in loans and $45,000
in originally issued discount due at maturity for the purchase of equipment used
in exploration. During the period we amortized $45,000 of the $45,000 of
originally issued discount. As an incentive for the note holders we also agreed
to issue 14,200,000 units with each unit consisting of one restricted share of
common stock and one 12 month common share purchase warrant and were valued at
$37,700 and recorded as prepaid financing cost. As of September 30, 2011, the
Company has amortized the entire $37,700 of prepaid financing cost.
Of the above loans, $105,500 were collateralized by 34,000,000 equity units with
each unit consisting of one share of common stock and a one year warrant. Of the
34,000,000 warrants 14,000,000 are exercisable at $0.005 per share, 15,000,000
are exercisable at $0.0075, and 5,000,000 are exercisable at $0.007 per share.
In the event of default, the note holders are able to convert the outstanding
balance owed to the common share collateral.
9
SUNERGY, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
As of September 30, 2011, the company was in default on $52,500 of the above
notes, including $7,500 in accrued interest. As such, the Company has recorded
$1,300 in penalty fees.
On July 30, 2011 the Company issued 8,000,000 equity units with each unit
consisting of one common share and one twelve month warrant exercisable at
$0.005 per share to settle $17,500 note and $2,500 accrued interest.
On September 26th, 2011 the Company issued 7,000,000 equity units with each unit
consisting of one common share and one twelve month warrant exercisable at
$0.0075 per share to settle $17,500 note and $7,000 accrued interest
A summary of the outstanding balance for the periods ended September 30, 2011
and December 31, 2010 follows:
September 30, December 31,
2011 2010
---------- ----------
Notes Payable $ 290,000 $ --
Payments (46,915)
Loan Settlements (35,000) --
---------- ----------
Total Notes Payable $ 208,085 $ --
========== ==========
NOTE 6. STOCKHOLDERS' EQUITY
COMMON STOCK
The following provides a summary description of the common stock and
equity-linked instruments issued during the nine months ended September 30,
2011. For a detailed description of the issuances prior to January 1, 2011
please refer to our previous filings, most recently our Form 10-K for the year
ended December 31, 2010.
On January 11, 2011 the Company issued 125,400,000 units consisting of one
common share and one 12 month warrant exercisable at $0.005 for $0.0025 per
share for $313,500 cash. The Company entered into various transactions to
issue equivalent units of one common stock and one 12 month purchase
warrant exercisable at $0.005 during the quarter.
On January 11, 2011 the Company settled $47,500 in accounts payable through
the issuance of 19,000,000 units at $0.0025 with each unit consisting of
one common share and one 12 month warrant exercisable at $0.005.
On January 11, 2011 the Company issued 18,779,960 units consisting of one
common share and one 12 month warrant exercisable at $0.005 for total
consideration of $44,861.
On January 11, 2011 the Company issued 4,000,000 units consisting of one
common share and one 12 month warrant exercisable at $0.005 for total
consideration of $10,000.
On January 11, 2011 the Company issued 15,440,000 units consisting of one
common share and one 12 month warrant exercisable at $0.005 for total
consideration of$38,600 to settle operational advances.
On January 11, 2011 the Company issued 2,500,000 units consisting of one
common share and one 12 month warrant exercisable at $0.005 for total
consideration of $6,250 of consulting services.
On February 24, 2011 the Company issued 10,000,000 shares of common stock
valued at $0.0025 per share or $25,000 for consulting services and is
recorded in exploration expense.
10
SUNERGY, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
COMMON STOCK CONT.
On May 3, 2011 the Company issued 1,000,000 shares of common stock for
$5,000 cash in the exercise of 1,000,000 warrants.
On June 22, 2011, the Company issued 13,300,000 units consisting of one
common share and one 12 month warrant with 13,000,000 warrants exercisable
at $0.005 and 300,000 warrants exercisable at $0.0075 per share as
incentive to enter into note payable agreements. The shares were valued at
$34,550.
On June 22, 2011, the Company issued 7,714,285 units for $27,000 cash
consisting of one common share and one 12 month warrant exercisable at
$0.006.
On June 22, 2011, the Company issued 1,200,000 units for $3,000 cash at
$0.025 per unit with each unit consisting of one common share and one 12
month warrant exercisable at $0.005 and 27,928,567 units for $97,750 cash
at $0.0035 per unit with each unit consisting of one common share and one
12 month warrant exercisable at $0.006.
On June 22, 2011, the Company issued 100,000,000 units at $0.0035 for
$350,000 cash with each unit consisting of one common share and one 12
month warrant exercisable at$0.007 per share. Upon exercise each original
warrant will be issued an incentive warrant if exercised within seven
months. The number of incentive warrants issued for each original warrant
exercised will decrease to 80%, 70%, 60%, 50%, and 40% if exercised on the
8th, 9th, 10th, 11th or 12th month respectively. Incentive warrants will be
exercisable at a 30% discount of the preceding five day average price per
share.
On June 22, 2011, the Company issued 900,000 units consisting of one share
of common stock and one 12 month warrant exercisable at $0.0075 per share,
as incentive to enter into various loan agreements. The units were valued
at $3,350 based on the $0.0035 unit price from subscriptions sold for cash
in the same period.
During the third quarter of 2011, the Company issued 10,000,000 common
shares at $0.0025 for $25,000 cash and 8,000,000 common shares at $0.005
for $40,000 cash for the exercise of warrants.
During the third quarter of 2011, the Company issued 3,000,000 common
shares for various services. These shares were valued at $10,500 based on
the $0.0035 cash subscription price sold during the same period.
During the third quarter 2011, 10,357,142 units were issued for $36,250
cash at $0.0035 per unit with each unit consisting of one common share and
one 12 month warrant exercisable at $0.007 per share.
OUTSTANDING WARRANTS
On October 18, 2010, the Company authorized the issuance of 100,000,000 one year
warrants exercisable at $0.0025 and 100,000,000 one year warrants exercisable at
$0.005 per share. The warrants were issued as consideration for the acquisition
of Allied Mining and subsidiary.
11
SUNERGY, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
On January 11, 2011, the Company issued 125,400,000 one year warrants
exercisable at $0.005 per share. The warrants were issued as consideration for
the cash purchase of an equal number of common shares at $0.0025 per share.
OUTSTANDING WARRANTS CONT.
On January 11, 2011, the Company issued 18,779,960 one year warrants exercisable
at $0.005 per share. The warrants were issued as consideration to settle related
party management services. The warrants were valued with their associated common
stock issued as units at the current private placement price of $0.0025 per
unit.
On January 11, 2011, the Company issued 4,000,000 one year warrants exercisable
at $0.005 per share for services. The warrants were valued as units with common
stock at the current private placement price of $0.0025 per unit.
On January 11, 2011, the Company issued 19,000,000 one year warrants exercisable
at $0.005 per share for settlement of debt. The warrants were valued as units
with common stock at the current private placement price of $0.0025 per unit.
On January 11, 2011, the Company issued 15,440,000 one year warrants exercisable
at $0.005 per share for the settlement of debt. The warrants were valued as
units with common stock at the current private placement price of $0.0025 per
unit.
In a 2012 resolution, the Company extended the expiration date on most of the
outstanding warrants by six months. The new expiration dates are reflected in
the below listed schedules.
On September 30, 2011 the Company had warrants outstanding for the purchase of
an aggregate of 545,459,954 shares of its common stock, which are summarized in
the table below:
Warrants Exercise Expiration
Outstanding Price Date
----------- ----- ----
90,000,000 0.0025 16-Jul-2012
100,000,000 0.005 16-Jul-2012
194,059,960 0.005 16-Jul-2012
14,200,000 0.005 22-Dec-2012
35,642,852 0.006 22-Dec-2012
100,000,000 0.007 22-Dec-2012
1,200,000 0.0075 22-Dec-2012
6,000,000 0.007 31-Jan-2013
1,428,571 0.007 1-Feb-2013
1,500,000 0.007 4-Feb-2013
1,428,571 0.007 16-Mar-2013
-----------
Total 545,459,954
===========
12
SUNERGY, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
OUTSTANDING WARRANTS CONT.
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, 2010 200,000,000 -- 0.00375
Plus: Warrants Issued 364,459,954 100,000,000 0.0057
Less: Warrants Exercised (19,000,000)
Less: Warrants Expired
------------ ------------
Total Warrants outstanding at September 30, 2011 545,459,954 100,000,000 0.0050
============ ============
NOTE 7. RELATED PARTY TRANSACTIONS
Operational Advances - Related Party
Operational advances are short-term, unsecured, non-interest bearing operational
loans made by various related parties to maintain day-to-day operations. Summary
of balance follows:
September 30, December 31,
2011 2010
-------- --------
Operational Advances $ 29,463 $ 83,991
Accruals - Related Party
Related party transactions include accruals of unpaid management and director
fees. Summary of balance follows:
September 30, December 31,
Related Party-Accruals 2011 2010
---------------------- -------- --------
Management & Director Fees $ 41,242 $ --
Advisor Fees 9,000 --
-------- --------
Total Related Party Accruals $ 50,242 $ --
======== ========
NOTE 8. RESTATED FINANCIALS
On September 30, 2010 the Company had used erroneous market prices to calculate
the fair value of certain stock issues which it corrected in its 10-K annual
report dated December 31, 2010. The correction impacted reported interest
expense in the statement of operations and the statement of cash flows. The
Company had determined that it was unnecessary to restate its September 30, 2010
10-Q filing because the calculation error was not discovered until the audit of
its annual report and the corrections were made there. Because both reports were
over nine months late, restatement of the September 30, 2010 10-Q would have
been irrelevant to potential users.
13
SUNERGY, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
NOTE 8. RESTATED FINANCIALS CONT
Following is a summary of the restated amounts as they affect the comparative
amounts currently being reported:
Three Months Nine Months
Ended Ended
September 30, September 30,
2010 2010
------------ ------------
As Previously Reported $ (1,252,388) $ (1,901,388)
As Restated (868,627) (1,043,627)
------------ ------------
Affect of Restatement $ (383,761) $ (857,761)
============ ============
NOTE 9. SUBSEQUENT EVENTS
During the fourth quarter of 2011, the Company issued 22,000,000 units to settle
$52,500 of debt with each unit consisting of one common share and one 12 month
warrant with 14,000,000 exercisable at $0.0075 and 8,000,000 exercisable at
$0.005 per share.
During the fourth quarter of 2011, 1,428,571 units were issued for cash at
$0.0035 per unit with each unit consisting of one common share and one 12 month
warrant exercisable at $0.007 per share.
During the fourth quarter of 2011, 4,500,000 shares were issued for consulting
services at $0.0035 per share.
During the fourth quarter of 2011, 6,000,000 units were issued for consulting
services at $0.0035 per unit with each unit consisting of one common share and
one 12 month warrant exercisable at $0.005 per share.
During the fourth quarter of 2011, 5,000,000 common shares were issued for cash
in the exercise of warrants at $0.0025 per share.
During the fourth quarter of 2011, 2,000,000 common shares were issued for cash
in the exercise of warrants at $0.005 per share.
During the first quarter of 2012, the Company issued 18,800,000 common shares in
the exercise of warrants at $0.005 per share and 14,600,000 common shares in the
exercise of warrants at $0.0025 per share.
During the first quarter of 2012, the Company issued 17,071,425 units for cash
at $0.0035 per unit, with each unit consisting of one common share and one 12
month share purchase warrant. Of the total warrants issued 14,642,855 are
exercisable at $0.005 and 2,428,570 are exercisable at $0.007 per share.
During the first quarter of 2012, the Company issued 37,571,428 units at $0.0035
to settle debt with each unit consisting of one common share and one 12 month
share purchase warrant. Of the total warrants issued 30,571,428 are exercisable
at $0.005 and 7,000,000 are exercisable at $0.0075 per share.
During the first quarter of 2012, the Company issued 6,000,000 units at $0.0025
per share for consulting services with each unit consisting of one common share
and one 12 month share purchase warrant exercisable at $0.005 per share.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This quarterly 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 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 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.
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:
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. A budget of $50,000 was committed to initiate this sampling
program. The program commenced in the third quarter beginning July 2011 and
ended in November 2011 with a Technical Report filed in December with the
Minerals Commission in Ghana. The results indicate further exploration 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. .
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
15
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.
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.
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 km2. 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.
When we purchased the Pampana River concession in 2010, Allied Mining and Supply
had been conducting exploration there for two years and had laid out a program
to exploit the newly discovered rare earth elements in the heavy mineral sands
that exist in association with the gold. To further that program, we contracted
to purchase approximately $200,000 worth of dredges and associated support
equipment to deploy on the Pampana River directly to establish our ability to
recover the gold and other valuable minerals, commonly referred to as rare earth
elements (REE), associated with the heavy mineral sands (HMS).
Rare earth elements are a unique group of chemical elements that exhibit a range
of special electronic, magnetic, optical and catalytic properties. REEs are used
in a wide range of alloys and compounds, and can greatly affect the performance
of complex engineered systems. They occur in a variety of chemical forms and
have a wide variety of applications, including the processing of materials. REEs
are used in components in engineered products, and their uses include fluid
cracking catalysts, automotive catalytic convertors, polishing materials,
permanent magnets, energy storage, phosphors, and glass additives. In modern
society, many of these uses are critical for high tech devices including
electronics, jet planes and rocks, and vital engineered components.
The REEs include the 15 elements of the lanthanide series, (Atomic Numbers 57
through 71), and consist of lanthanum, cerium, praseodymium, neodymium,
promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium,
erbium, thulium, ytterbium, and lutetium. In addition, several non-lanthanides,
which have similar or related properties and uses, are sometimes classified with
the REEs, and these include yttrium, niobium, and tantalum.
In furtherance of the exploration activities carried out by Allied in 2010, and
based on the preliminary results of their prior efforts, we commenced our
initial dredging April 16, 2011, well into the mining season which generally
ends with the beginning of rainy season (July). The dredging took place in the
Masanga Area that is believed to have limited overburden and has good river
accessibility. Shortly after deployment in April 2011, the two Allied dredges
16
were producing daily quantities of heavy mineral sands (HMS). The early estimate
range of 400 to 500 pounds of HMS per dredge per 10 hour day, were validated.
The process involved regular performance evaluation and modifications and
adjustments of the dredges and support equipment in order to maximize the
efficiency of the advanced exploration activity. 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.
Operations were suspended in July 2011 during the rainy season. Results of 2011
operations will be discussed once finally tallied in an upcoming report to be
filed with the Minerals Commission in Sierra Leone.
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 economical
value and overall potential of the Allied EXPL.
Once additional mineralogical studies are completed under the control and
supervision of Sunergy board advisor, Alexander Beckmann, are completed, Allied
stands ready and committed to opening up an entirely new area in the mining
sector in Sierra Leone. Allied is currently in conversation with development
partners who have the capacity and experience to design, build and operate the
necessary processing equipment for the heavy mineral sands. Markets for the
variety of recoverable mineral fractions are actively being investigated with
the goal of securing off-take agreements in the near term.
Allied/Sunergy's steadfast commitment to community development has led to our
current standing in the district of Tonkolli which has never been higher. Our
employees, some of whom have been with us for three years, are capable, hard
working and well respected among the villages on our concession. Allied has
typically employed 70 to 80 men and women each year during the mining season.
Most are full-time, while others are part-time or temporary help. This effort is
important to maintain a high level of confidence in the communities and the
country of Sierra Leone, which gives Sunergy a strong foundation to develop
additional business in the Country.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited
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, particularly in
the section entitled "Risk Factors" of this quarterly report.
Our unaudited financial statements are stated in United States Dollars and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
---------- ---------- ---------- ----------
Revenue $ -- $ -- $ -- $ --
Operating Expenses 263,863 252,403 814,771 510,229
Interest Expense 86,703 868,627 151,089 1,043,627
---------- ---------- ---------- ----------
Net Loss $ 350,566 $1,121,030 $ 965,860 $1,553,856
========== ========== ========== ==========
17
EXPENSES
Our operating expenses for the three and nine months ended September 30, 2011
and 2010 are outlined in the table below:
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
---------- ---------- ---------- ----------
General and administrative $ 17,658 $ 35,792 $ 131,854 $ 65,118
Depreciation 12,489 -- 22,934 --
Management salary 69,150 186,000 99,750 347,500
Professional fees 62,548 23,750 164,744 73,750
Exploration costs 102,018 6,861 395,489 23,861
Operating expenses for the three months ended September 30, 2011, increased by
approximately 4.5% as compared to the same period in 2010. The increase is
primarily the result of an increase in general and administrative expenses,
professional fees and exploration costs and related party interest expenses.
Operating expenses for the nine months ended September 30, 2011, increased by
approximately 60% as compared to the same period in 2010. The increase is
primarily as a result of an increase in general and administrative expenses,
professional fees, exploration costs and interest expenses. During the nine
months ended September 30, 2011 the company increased its exploration resulting
in exploration costs for the period nearly 16 times the amount spent during the
corresponding period in the previous year.
REVENUE
We have not earned any revenues since our inception on January 28, 2003. We do
not anticipate earning revenues until such time as we have entered into
commercial production on the Nyinahin and Pampana properties. We have not
commenced the commercial development stage of our business and can provide no
assurance that we will discover economic mineralization on the properties, or if
such minerals are discovered, that we will enter into commercial production.
EQUITY COMPENSATION
We currently do not have any formalized equity compensation plans or
arrangements, however, we enter into agreements with employees, consultants, and
other service providers that allows us to issue equity instruments in settlement
of accrued expenses and financing arrangements.
18
LIQUIDITY AND FINANCIAL CONDITION
WORKING CAPITAL
At At
September 30, December 31, Increase/
2011 2010 (Decrease)
---------- ---------- ----------
Current Assets $ 15,841 $ 147,251 $ (131,410)
Current Liabilities 381,042 91,592 289,450
---------- ---------- ----------
Working Capital (deficit) $ (365,201) $ 55,659 $ (420,860)
========== ========== ==========
The decrease in working capital is a result of short-term loans obtained during
the nine month period ended September 30, 2011 used to purchase $195,076 of
exploration equipment and finance operations.
CASH FLOWS
Nine Months Ended
September 30,
----------------------------
2011 2010
---------- ----------
Net Cash (used) in Operating Activities $ (669,993) $ (73,551)
Net Cash (used) in Investing Activities (195,075) --
Net Cash Provided by Financing Activities 783,658 73,529
---------- ----------
INCREASE/(DECREASE) IN CASH DURING THE PERIOD $ (81,410) $ (22)
========== ==========
We have been aggressive in working to obtain capital through both sales of stock
and borrowings to fund our operations. During October 2010 we acquired our
subsidiary with its Pampana River concession and began dredging operations. We
have used over 50% of the cash raised to directly finance those operations.
We anticipate that additional funding will be required in the form of equity
financing from the sale of our common stock. At this time, we cannot provide
investors with any assurance that we will be able to raise sufficient funding
from the sale of our common stock or through a loan from our directors to meet
our obligations over the next twelve months.. There are a substantial amount of
warrants that when exercised could provide a significant amount of additional
equity funding that will assist in the future exploration and development of our
Company's mining businesses in both Ghana and Sierra Leone, however, there is no
guarantee that investors will exercise any of these warrants or that we will be
successful at raising additional capital.
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.
19
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with the accounting principles generally accepted in the United States of
America. Preparing financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue, and expenses. There has been no change in our critical accounting
estimates during the periods presented in this report.
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, including our president (our principal executive
officer, principal financial officer and principle accounting officer) 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.
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, principal financial officer and principle
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, principal financial officer and principle
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's 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,
20
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
In addition to other information in this quarterly report, the following risk
factors should be carefully considered in evaluating our business because such
factors may have a significant impact on our business, operating results,
liquidity and financial condition. As a result of the risk factors set forth
below, actual results could differ materially from those projected in any
forward looking statements. Additional risks and uncertainties not presently
known to us, or that we currently consider to be immaterial, may also impact our
business, operating results, liquidity and financial condition. If any such
risks occur, our business, operating results, liquidity and financial condition
could be materially affected in an adverse manner. Under such circumstances, the
trading price of our securities could decline, and you may lose all or part of
your investment.
OUR PROPERTIES ARE IN THE EXPLORATION STAGE. THERE IS NO ASSURANCE THAT WE CAN
ESTABLISH THE EXISTENCE OF ANY MINERAL RESOURCE ON OUR PROPERTIES IN
COMMERCIALLY EXPLOITABLE QUANTITIES. UNTIL WE CAN DO SO, WE CANNOT EARN ANY
REVENUES FROM OPERATIONS AND IF WE DO NOT DO SO WE WILL LOSE ALL OF THE FUNDS
THAT WE EXPEND ON EXPLORATION. IF WE DO NOT DISCOVER ANY MINERAL RESOURCE IN A
COMMERCIALLY EXPLOITABLE QUANTITY, OUR BUSINESS COULD FAIL.
Despite pre-exploration work on our mineral properties, we have not established
that they contain any mineral reserve, nor can there be any assurance that we
will be able to do so. If we do not, our business could fail.
A mineral reserve is defined by the Securities and Exchange Commission in its
Industry Guide 7 (which can be viewed over the Internet at
http://www.sec.gov/divisions/corpfin/forms/industry.htm#secguide7) as that part
of a mineral deposit which could be economically and legally extracted or
produced at the time of the reserve determination. The probability of an
individual prospect ever having a "reserve" that meets the requirements of the
Securities and Exchange Commission's Industry Guide 7 is extremely remote; in
all probability our mineral resource property does not contain any 'reserve' and
any funds that we spend on exploration will probably be lost.
Even if we do eventually discover a mineral reserve on one of our properties,
there can be no assurance that we will be able to develop our properties into
producing mines and extract those resources. Both mineral exploration and
development involve a high degree of risk and few properties which are explored
are ultimately developed into producing mines.
The commercial viability of an established mineral deposit will depend on a
number of factors including, by way of example, the size, grade and other
attributes of the mineral deposit, the proximity of the resource to
infrastructure such as a smelter, roads and a point for shipping, government
regulation and market prices. Most of these factors will be beyond our control,
and any of them could increase costs and make extraction of any identified
mineral resource unprofitable.
MINERAL OPERATIONS ARE SUBJECT TO APPLICABLE LAW AND GOVERNMENT REGULATION. EVEN
IF WE DISCOVER A MINERAL RESOURCE IN A COMMERCIALLY EXPLOITABLE QUANTITY, THESE
LAWS AND REGULATIONS COULD RESTRICT OR PROHIBIT THE EXPLOITATION OF THAT MINERAL
RESOURCE. IF WE CANNOT EXPLOIT ANY MINERAL RESOURCE THAT WE MIGHT DISCOVER ON
OUR PROPERTIES, OUR BUSINESS MAY FAIL.
Both mineral exploration and extraction require permits from various foreign,
federal, state, provincial and local governmental authorities and are governed
by laws and regulations, including those with respect to prospecting, mine
development, mineral production, transport, export, taxation, labor standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, mine safety and other matters. There can be no assurance that we
will be able to obtain or maintain any of the permits required for the continued
exploration of our mineral property or for the construction and operation of a
mine on our property at economically viable costs. If we cannot accomplish these
objectives, our business could fail.
21
We believe that we are in compliance with all material laws and regulations that
currently apply to our activities but there can be no assurance that we can
continue to remain in compliance. Current laws and regulations could be amended
and we might not be able to comply with them, as amended. Further, there can be
no assurance that we will be able to obtain or maintain all permits necessary
for our future operations, or that we will be able to obtain them on reasonable
terms. To the extent such approvals are required and are not obtained, we may be
delayed or prohibited from proceeding with planned exploration or development of
our mineral properties.
IF WE ESTABLISH THE EXISTENCE OF A MINERAL RESOURCE ON ONE OF OUR PROPERTIES IN
A COMMERCIALLY EXPLOITABLE QUANTITY, WE WILL REQUIRE ADDITIONAL CAPITAL IN ORDER
TO DEVELOP THE PROPERTY INTO A PRODUCING MINE. IF WE CANNOT RAISE THIS
ADDITIONAL CAPITAL, WE WILL NOT BE ABLE TO EXPLOIT THE RESOURCE, AND OUR
BUSINESS COULD FAIL.
If we do discover mineral resources in commercially exploitable quantities on
our property, we will be required to expend substantial sums of money to
establish the extent of the resource, develop processes to extract it and
develop extraction and processing facilities and infrastructure. Although we may
derive substantial benefits from the discovery of a major deposit, there can be
no assurance that such a resource will be large enough to justify commercial
operations, nor can there be any assurance that we will be able to raise the
funds required for development on a timely basis. If we cannot raise the
necessary capital or complete the necessary facilities and infrastructure, our
business may fail.
MINERAL EXPLORATION AND DEVELOPMENT IS SUBJECT TO EXTRAORDINARY OPERATING RISKS.
WE DO NOT CURRENTLY INSURE AGAINST THESE RISKS. IN THE EVENT OF A CAVE-IN OR
SIMILAR OCCURRENCE, OUR LIABILITY MAY EXCEED OUR RESOURCES, WHICH WOULD HAVE AN
ADVERSE IMPACT ON OUR COMPANY.
Mineral exploration, development and production involve many risks which even a
combination of experience, knowledge and careful evaluation may not be able to
overcome. Our operations will be subject to all the hazards and risks inherent
in the exploration for mineral resources and, if we discover a mineral resource
in commercially exploitable quantity, our operations could be subject to all of
the hazards and risks inherent in the development and production of resources,
including liability for pollution, cave-ins or similar hazards against which we
cannot insure or against which we may elect not to insure. Any such event could
result in work stoppages and damage to property, including damage to the
environment. We do not currently maintain any insurance coverage against these
operating hazards. The payment of any liabilities that arise from any such
occurrence would have a material adverse impact on our company.
MINERAL PRICES ARE SUBJECT TO DRAMATIC AND UNPREDICTABLE FLUCTUATIONS.
We expect to derive revenues, if any, either from the sale of our mineral
resource property or from the extraction and sale of precious and base metals.
The price of those commodities has fluctuated widely in recent years, and is
affected by numerous factors beyond our control, including international,
economic and political trends, expectations of inflation, currency exchange
fluctuations, interest rates, global or regional consumptive patterns,
speculative activities and increased production due to new extraction
developments and improved extraction and production methods. The effect of these
factors on the price of base and precious metals, and therefore the economic
viability of any of our exploration properties and projects, cannot accurately
be predicted.
THE MINING INDUSTRY IS HIGHLY COMPETITIVE AND THERE IS NO ASSURANCE THAT WE WILL
CONTINUE TO BE SUCCESSFUL IN ACQUIRING MINERAL CLAIMS. IF WE CANNOT CONTINUE TO
ACQUIRE PROPERTIES TO EXPLORE FOR MINERAL RESOURCES, WE MAY BE REQUIRED TO
REDUCE OR CEASE OPERATIONS.
The mineral exploration, development, and production industry is largely
un-integrated. We compete with other exploration companies looking for mineral
resource properties. While we compete with other exploration companies in the
effort to locate and acquire mineral resource properties, we will not compete
with them for the removal or sales of mineral products from our properties if we
should eventually discover the presence of them in quantities sufficient to make
production economically feasible. Readily available markets exist worldwide for
the sale of mineral products. Therefore, we will likely be able to sell any
mineral products that we identify and produce.
22
In identifying and acquiring mineral resource properties, we compete with many
companies possessing greater financial resources and technical facilities. This
competition could adversely affect our ability to acquire suitable prospects for
exploration in the future. Accordingly, there can be no assurance that we will
acquire any interest in additional mineral resource properties that might yield
reserves or result in commercial mining operations.
RISKS RELATED TO OUR COMPANY
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO BASE AN EVALUATION OF OUR
BUSINESS AND PROSPECTS.
We have been in the business of exploring mineral resource properties since 2003
and we have not yet located any mineral reserve. As a result, we have never had
any revenues from our operations. In addition, our operating history has been
restricted to the acquisition and exploration of our mineral properties and this
does not provide a meaningful basis for an evaluation of our prospects if we
ever determine that we have a mineral reserve and commence the construction and
operation of a mine. We have no way to evaluate the likelihood of whether our
mineral property contains any mineral reserve or, if it does that we will be
able to build or operate a mine successfully. We anticipate that we will
continue to incur operating costs without realizing any revenues during the
period when we are exploring our properties. We therefore expect to continue to
incur significant losses into the foreseeable future. We recognize that if we
are unable to generate significant revenues from mining operations and any
disposition of our property, we will not be able to earn profits or continue
operations. At this early stage of our operation, we also expect to face the
risks, uncertainties, expenses and difficulties frequently encountered by
companies at the start up stage of their business development. We cannot be sure
that we will be successful in addressing these risks and uncertainties and our
failure to do so could have a materially adverse effect on our financial
condition. There is no history upon which to base any assumption as to the
likelihood that we will prove successful and we can provide investors with no
assurance that we will generate any operating revenues or ever achieve
profitable operations.
THE FACT THAT WE HAVE NOT EARNED ANY OPERATING REVENUES SINCE OUR INCORPORATION
RAISES SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE TO EXPLORE OUR MINERAL
PROPERTIES AS A GOING CONCERN.
We have not generated any revenue from operations since our incorporation and we
anticipate that we will continue to incur operating expenses without revenues
unless and until we are able to identify a mineral resource in a commercially
exploitable quantity on either of our mineral properties and build and operate a
mine. We had cash in the amount of $15,841 as of September 30, 2011. At
September 30, 2011, we had a working capital deficit of $365,201. We incurred a
net loss of $965,560 for the nine months ended September 30, 2011 and $3,324,630
since inception. We will have to raise additional funds to meet our currently
budgeted operating requirements for the next 12 months. As we cannot assure a
lender that we will be able to successfully explore and develop our mineral
properties, we will probably find it difficult to raise debt financing from
traditional lending sources. We have traditionally raised our operating capital
from sales of equity and debt securities, but there can be no assurance that we
will continue to be able to do so. If we cannot raise the money that we need to
continue exploration of our mineral property, we may be forced to delay, scale
back, or eliminate our exploration activities. If any of these were to occur,
there is a substantial risk that our business would fail.
These circumstances lead our prior independent registered public accounting
firm, in their report dated December 15, 2011, to comment about our company's
ability to continue as a going concern. Management has plans to seek additional
capital through a private placement of our capital stock. These conditions raise
substantial doubt about our company's ability to continue as a going concern.
Although there are no assurances that management's plans will be realized,
management believes that our company will be able to continue operations in the
future.
23
RISKS ASSOCIATED WITH OUR COMMON STOCK
TRADING ON THE PINK SHEETS MAY BE VOLATILE AND SPORADIC, WHICH COULD DEPRESS THE
MARKET PRICE OF OUR COMMON STOCK AND MAKE IT DIFFICULT FOR OUR STOCKHOLDERS TO
RESELL THEIR SHARES. WE ARE CURRENTLY UNDER THE CAVEAT EMPTOR STATUS ON THE PINK
SHEETS, SINCE DECEMBER 15, 2010, DUE TO THE FACT THAT WE ARE A FULLY REPORTING
COMPANY AND OUR FINANCIALS ARE NOT YET FULLY UP TO DATE. WE HAVE SUCCESSFULLY
FILED THE 10K FOR DECEMBER 31, 2009, Q'S 1,2,3 AND THE 10K FOR 2010AND Q'S 1,2
AND 3 FOR 2011. ONCE OUR 10K FOR DECEMBER 31, 2011 AND OUR Q 1 FOR 2012 ARE
FILED, WE WILL BE COMPLIANT IN OUR REQUIRED FILINGS AND CAN APPLY FOR REMOVAL OF
THE CAVEAT EMPTOR STATUS.
THE CAVEAT EMPTOR STATUS PREVENTS ANY SHARES, RESTRICTED OR UNRESTRICTED TO BE
DEPOSITED FOR TRADING IN THE BROKERAGE SYSTEM. COUPLED WITH THE FACT THAT THE
COMPANY'S SHARES TRADE AT LESS THAN $0.01, MAKES IT IMPOSSIBLE TO GET ANY SHARES
DEPOSITED FOR TRADING. WE HAD 591,198,629 UNRESTRICTED COMMON SHARES AVAILABLE
FOR SALE IN THE SYSTEM AS OF SEPTEMBER 30, 2011. SHOULD THE CAVEAT EMPTOR BE
SUCCESSFULLY REMOVED AND THE MARKET PRICE RISE ABOVE $0.01 SIGNIFICANTLY MORE
SHARES MAY BE MADE AVAILABLE FOR SALE BY BEING ALLOWED TO BE DEPOSITED IN THE
MARKET SYSTEM. THIS COULD HAVE AN ADVERSE EFFECT ON OUR MARKET.
Our common stock is quoted on the Pink Sheets . Trading in stock quoted on the
Pink Sheets is often thin and characterized by wide fluctuations in trading
prices, due to many factors that may have little to do with our operations or
business prospects. This volatility could depress the market price of our common
stock for reasons unrelated to operating performance. Moreover, the Pink Sheets
is not a stock exchange, and trading of securities on the Pink Sheets is often
more sporadic than the trading of securities listed on a quotation system like
NASDAQ or a stock exchange like Amex. Accordingly, shareholders may have
difficulty reselling any of their shares.
OUR STOCK IS A PENNY STOCK. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S
PENNY STOCK REGULATIONS AND FINRA'S SALES PRACTICE REQUIREMENTS, WHICH MAY LIMIT
A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
Our stock is a penny stock. The Securities and Exchange Commission has adopted
Rule 15g-9 which generally defines "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. Our securities are
covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and "accredited investors". The term "accredited investor" refers
generally to institutions with assets in excess of $5,000,000 or individuals
with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document in a form prepared
by the SEC which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in, and limit the marketability of, our common stock.
In addition to the "penny stock" rules promulgated by the Securities and
Exchange Commission, the Financial Industry Regulatory Authority has adopted
rules that require that in recommending an investment to a customer, a
broker-dealer must have reasonable grounds for believing that the investment is
suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
24
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, the Financial Industry Regulatory Authority believes that there
is a high probability that speculative low-priced securities will not be
suitable for at least some customers. The Financial Industry Regulatory
Authority requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your ability to buy
and sell our stock.
OTHER RISKS
TRENDS, RISKS AND UNCERTAINTIES
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 3, 2011 we issued 1,000,000 shares of common stock for $5,000 cash in the
exercise warrants at $0.005 per share. These securities were issued pursuant to
an exemption from registration relying on Regulation D of the Securities Act of
1933.
On June 22, 2011 we issued 13,300,000 units consisting of one common share and
one 12 month warrant with 13,000,000 warrants exercisable at $0.005 and 300,000
warrants exercisable at $0.0075 per share in satisfaction of subscriptions
payable of $34,550. These securities were issued pursuant to an exemption from
registration relying on Regulation D of the Securities Act of 1933.
On June 22, 2011 we issued 7,714,285 units consisting of one common share and
one 12 month warrant exercisable at $0.006 to satisfy subscriptions payable of
$27,000 shares. These securities were issued pursuant to an exemption from
registration relying on Regulation D of the Securities Act of 1933.
On June 22, 2011 we issued 900,000 units consisting of one share of common stock
and one 12 month warrant exercisable at $0.0075 per share as incentive to enter
into various loan agreements with the company at the current market price of
$0.0035 per share. These securities were issued pursuant to an exemption from
registration relying on Regulation D of the Securities Act of 1933.
On June 22, 2011 we issued 129,128,604 units for $450,750 cash. Each unit
consists of one share of common stock and one 12 month warrant. Of the total
warrants issued 1,200,000 are exercisable at $0.005; 100,000,000 exercisable at
$0.007 and 27,928,604 exercisable at $0.006. These securities were issued
pursuant to an exemption from registration relying on Regulation D of the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Of the outstanding loans, $105,500 were collateralized by 34,000,000 shares of
common stock, 14,000,000 one year share purchase warrants exercisable at $0.005
per share, 15,000,000 one year purchase warrants exercisable at $0.0075, and
5,000,000 one year share purchase warrants exercisable at $0.007 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 June 30, 2011, the company
was in default on $52,500 of the above notes, including $7,500 in accrued
interest. As such, the Company has recorded $1,300 in penalty fees. As of the
June 30, 2011, none of the note holders have converted any of the 19,000,000
collateralized shares of common stock or warrants related to the notes.
25
ITEM 4. MINE SAFETY DISCLOSURES
None.
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
26
(31) RULE 13A-14(A)/15D-14(A) CERTIFICATIONS
31.1* Certification of the Principal Executive Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of the 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 filed pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of the 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
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
----------
* Filed herewith
** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the
Interactive Data Files on Exhibit 101 hereto are deemed not filed or part
of any registration statement or prospectus for purposes of Sections 11 or
12 of the Securities Act of 1933, are deemed not filed for purposes of
Section 18 of the Securities and Exchange Act of 1934, and otherwise are
not subject to liability under those sections.
27
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: May 25, 2012 By: /s/ Bryon Miller
------------------------------------------------
Name: Bryon Miller
Title: Chief Executive Officer, President, Director
Date: May 25, 2012 By: /s/ Mark Shelley
------------------------------------------------
Name: Mark Shelley
Title: Chief Financial Officer (Principal Financial
and Accounting Officer)
28