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

March 31, 2013

 

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 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

(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. 

S

YES

£

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).

 

S

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

S

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.

 

1,861,788,983 as of April 30, 2013

 

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 March 31, 2013 are not necessarily indicative of the results that may be expected for the full fiscal year.

 

 

 

 

SUNERGY, INC. (An Exploration Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		March 31,				December 31,
		2013				2012
ASSETS
Current assets
Cash and cash equivalents		$	8,092			$	451
Prepaid expenses			21,875				22,248
Total current assets			29,967				22,699
Long-term assets
Exploratory properties			1,753,497				1,753,497
Property and equipment, net			162,522				174,904
Total long-term assets			1,916,019				1,928,401
Total assets		$	1,945,986			$	1,951,100
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable, current portion		$	131,002			$	100,585
Accounts payable and accrued liabilities			361,889				315,623
Accrued interest			371,700				317,700
Accounts payable to related parties			176,882				139,976
Total current liabilities			1,041,473				873,884
Total liabilities			1,041,473				873,884
Commitments and Contingencies
Stockholders' equity
Common stock, authorized 3,750,000,000 shares, par value $0.001, issued and outstanding on March 31, 2013 and December 31, 2012 is 1,861,788,983 and 1,852,288,983 respectively			1,861,790				1,852,290
Additional paid-in capital			4,437,047				4,425,047
Accumulated deficit during exploration stage			(5,394,324	)			(5,200,121	)
Total stockholders' equity			904,513				1,077,216
Total liabilities and stockholders' equity		$	1,945,986			$	1,951,100

 

The accompanying notes are an integral part of these statements.

 

 

SUNERGY, INC. (An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

										January 28, 2003
										(Inception)
		Three Months Ended March 31,								to March 31,
		2013				2012				2013
Revenue		$	–			$	–			$	–
Operating expenses
Depreciation and amortization			12,381				13,038				102,991
General and administrative			70,259				64,042				789,442
Management salary			10,500				21,000				762,196
Exploration and development			19,500				79,307				881,292
Professional fees			18,147				104,886				1,031,492
Total expenses			130,787				282,273				3,567,413
(Loss) from operations			(130,787	)			(282,273	)			(3,567,413	)
Other income (expenses)
Interest expense			(59,417	)			(63,700	)			(1,659,431	)
Financing costs			(4,000	)			(160,281	)			(167,481	)
(Loss) before income taxes			(194,203	)			(506,254	)			(5,394,324	)
Provision for income taxes			–				–				–
Net (loss)		$	(194,203	)		$	(506,254	)		$	(5,394,324	)
Loss per common share:
Basic & Diluted		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding:
Basic & Diluted			1,859,866,761				1,569,296,949

 

The accompanying notes are an integral part of these statements.

 

 

SUNERGY, INC. (An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

										January 28, 2003
		Three months ended March 31,								(Inception)
										to March 31,
		2013				2012				2013
Operating activities
Net loss		$	(194,203	)		$	(506,254	)		$	(5,394,324	)
Adjustments to reconcile net loss
Depreciation and amortization			12,381				13,038				102,991
Stock-based compensation			11,875				1,250				562,765
Non-cash interest expense			9,416								1,125,743
Incentive shares			–				160,281				165,281
Change in assets and liabilities
(Increase)/decrease in prepaid expenses			1,000				(1,000	)			200,000
Increase/(decrease) in accrued interest payable			54,000				63,700				492,200
Increase/(decrease) in accounts payable and accrued liabilities			46,266				(44,118	)			572,590
Increase/(decrease) in accrued-related party			36,906				176,938				566,496
Net cash used by operating activities			(22,359	)			(136,165	)			(1,606,258	)
Investment activities
Acquisition of property and equipment			–				–				(278,013	)
Cash acquired through acquistion of subsidiary			–				–				39
Net cash provided/(used) by investment activities			–				–				(277,974	)
Financing activities
Repayments of loans from related parties			–				–				(31,915	)
Proceeds from issuance of debt			25,000				–				300,000
Proceeds from the sale of stock			5,000				51,275				1,610,971
Contributed capital			–				–				13,268
Net cash provided by financing activities			30,000				51,275				1,892,324
Net increase / (decrease) in cash			7,641				(84,890	)			8,092
Cash, beginning of period			451				85,515				–
Cash, end of period		$	8,092			$	625			$	8,092
Supplemental Information:
Interest paid		$	–			$	–			$	–
Income taxes paid		$	–			$	–			$	–
Non-cash activities:
Stock issued for service as prepaid expenses		$	–			$	13,750			$	–
Debt issued to acquire assets		$	–			$	–			$	487,500
Stock issued to acquire assets		$	–			$	–			$	500,000
Stock issued as reduction of accrued expenses		$	–			$	–			$	–
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		$	–			$	–			$	–
Stock issued to settle debt		$	–			$	–			$	971,624
Warrants issued to acquire subsidiary		$	–			$	–			$	420,811

 

The accompanying notes are an integral part of these statements.

 

 

SUNERGY, INC.

(An Exploration Stage Company)

Notes to the Condensed Financial Statements

March 31, 2013

 

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 March 31, 2013, 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, 2012 audited financial statements. The results of operations for the period ended March 31, 2013 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.

 

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 1,025,000,000 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 and certain exploration costs, 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.

 

 

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

 

Property, Plant and Equipment consisted of the following at March 31, 2013 and December 31, 2012:

 

		March 31,				December 31,
		2013				2012
Exploration equipment		$	247,260			$	247,260
Rolling stock			13,500				13,500
Office furniture and equipment			4,753				4,753
Subtotal		$	265,513			$	265,513
Less accumulated depreciation			(102,991	)			(90,609	)
Property, and equipment - net		$	162,522			$	174,904

 

NOTE 5. NOTES PAYABLE

 

During the period ended March 31, 2013 we accrued $54,000 of penalty expense, $5,417 of original issue discount interest expense and $4,000 of financing costs related to shares issuance as an inducement to enter into a short-term commercial financing agreement on the outstanding principal balance of $131,002 of our notes payable as of March 31, 2013, of which $48,085 are in default as of March 31, 2013. Balance of notes payable at December 31, 2012 totaled $100,585. The individual notes in default carry daily interest penalties between $100 and $500.

 

On March 15, 2013, the Company entered into a short-term commercial financing agreement of $25,000 due and payable in 180 days at an amount of $30,000. The Company issued 2,000,000 equity units at $0.002 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.004 per share as incentive to the lien holder to enter into the financing arrangement.

 

NOTE 6. STOCKHOLDERS’ EQUITY

 

Common Stock

 

The following provides additional information for certain stock transactions that occurred since January 1, 2013. 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, 2012 and filed with the Securities Exchange Commission on April 16, 2013.

 

A summary of shares issued follows:

 

·

During the quarter ended March 31, 2013, the Company issued 2,500,000 equity units at $0.002 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.005 per share for total cash of $5,000; , the Company issued 5,000,000 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.; the Company issued 2,000,000 equity units at $0.002 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.004 per share for incentive to provide short-term commercial financing in the amount of $25,000.

 

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 March 31, 2013 the Company had warrants outstanding summarized in the table below:

 

		Warrants				Exercise				Expiration
		Outstanding				Price				Date
		7,142,857				0.007				10-Apr-13
			21,000,000				0.0075			30-May-13
			16,571,428				0.005			30-May-13
			215,071,428				0.005			23-Jun-13
			5,999,998				0.007			23-Jun-13
			14,642,855				0.005			31-Jul-13
			10,000,000				0.006			27-Jul-13
			5,000,000				0.005			31-Aug-13
			24,000,000				0.005			31-Aug-13
			2,000,000				0.005			30-Nov-13
			5,000,000				0.005			15-Aug-13
			5,000,000				0.005			6-Dec-13
			2,500,000				0.005			6-Jan-14
			2,000,000				0.004			15-Mar-14
Total			335,928,566

 

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, 2012

347,092,849

–

0.0053

Plus: Warrants Issued

9,500,000

–

0.0048

Less: Warrants Exercised

–

–

–

Less: Warrants Expired

(20,664,283

)

–

0.0064

Total Warrants outstanding at March 31, 2013

335,928,566

0.0053

 

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. The balance due to related parties was $176,882, and $139,976 as of March 31, 2013 and December 31, 2012, respectively.

 

NOTE 8. SUBSEQUENT EVENTS

 

On April 15, 2013, our CEO, Garrett Hale, loaned the Company $13,000. Additionally on April 22, 2013, the Company entered into a securities purchase agreement in connection with an 8% convertible note in the principal amount of $47,500.

 

 

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, and Allied Mining and Supply, Ltd. a Sierra Leone Corporation, 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:

 

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 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.

 

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.

 

As we announced on January 10, 2013, we sold 27.5 tons of the Pampana black sands for a base price of $1,200.00 US per ton. The agreement called for profit participation in any revenue recovered above costs on a 50/50 basis. The complete results of this transaction have yet to be received and will be published once finalized. This transaction has not appeared on our financial books because the final value has yet to be determined. We have elected to treat this transaction as a bulk sample and proceeds will be booked against exploration expenses rather than as receivables or revenue at this time. We have received the initial payment of $1,200/ton. We expect to report revenue beginning with the next round of product sales.

 

This dredging season is focused on two operations. The first has been to collect fresh samples up and down the Pampana, under the supervision of a geologist, to establish reportable results designed to establish resources and reserves to verify continuity of the concentration of minerals. The second is to stockpile black sand/gold concentrates until the Pilot Plant can be set up and becomes operational.

Once the Pilot Plant is installed and operational, the dredging operation will be up scaled to achieve production levels in the 800-1,000 ton/month range. The resource/ reserve information obtained (the science) coupled with the Pilot operation recovery results (evidence of value) should attract a potential Major buyer or Joint Venture partner which should make more money for our shareholders. This stage may require a Mining License to be obtained from the Minerals Commission in Sierra Leone. License renewal is tied to the Mining License and is a process that we are pursuing at this time. Our current business plan envisions growing our operations from the $500,000 capital level through $10,000,000 over 5 years and the growing of our operations to a 2,000+ ton/ month level with three operating recovery plants and a central processing facility either operating on our own or with Joint Venture partner(s).

 

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.

 

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 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 March 31, 2013. 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 three months ended March 31, 2013 and 2012 are outlined in the table below:

 

		Three Months Ended March 31,
		2013				2012				Change
Depreciation and amortization		$	12,381			$	13,038			$	(657	)
General and administrative		$	70,259			$	64,042			$	6,217
Management salary		$	10,500			$	21,000			$	(10,500	)
Exploration and development		$	19,500			$	79,307			$	(59,807	)
Professional fees		$	18,147			$	104,886			$	(86,739	)

 

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 three months ended March 31, 2013, compared to the same period in fiscal 2012, was mainly due to a decrease in exploration which related to decreased funding available to further exploration work at the concessions. Management salary decreased $10,500 due to the change in management during the first quarter of 2013 at reduced compensation rates and having only a single officer. Professional fees decreased $86,739 primarily related to the finalization of auditing and accounting expenses that occurred in the prior year in getting company filings up-to-date.

 

Other Expenses

 

Interest and financing expenses decreased by $160,564 with 82% primarily related to the non–recurring incremental cost associated with the modification of the warrant expiration date that occurred in the first quarter of 2012. The remaining decrease is the result of a decrease in the amount of notes payable outstanding during the period with the related interest or penalty expenses on such notes.

 

 

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

 

		March 31, 2013				December 31, 2012				Change
Current assets		$	29,967			$	22,699			$	7,268
Current liabilities			1,041,473				873,884				(167,589	)
Working Capital		$	(1,011,506	)		$	(851,185	)		$	(160,321	)

 

Cashflow

 

		Three Months Ended March 31,
		2013				2012				Change
Net cash used in operating activities		$	(22,359	)		$	(136,165	)		$	113,806
Net cash provided/(used) in investing activities			–				–				–
Net cash provided/(used) by financing activities			30,000				51,275				(21,275	)
Net increase/(decrease) in cash during period		$	7,641			$	(84,890	)		$	92,531

 

Our total assets at March 31, 2013 were $1,945,986. Our financial statements report a net loss of $194,203 for the three months ended March 31, 2013 and a net loss of $5,394,324 for the period from January 28, 2003 (date of inception) to March 31, 2013. We had a cash balance of $8,092 as of March 31, 2013.

 

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 first three months, the Company has focused its efforts on maintaining compliance with all applicable filing requirements and further explore funding opportunities to progress completion of the work and start of operations at our properties in Ghana and Sierra Leone. The company has been successful in covering our 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.

 

Critical Accounting Policies

 

There have not been any material changes to the critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

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.

 

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, 2012 filed on April 16, 2013.

 

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 March 31, 2013.  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, 2012 and filed with the Securities Exchange Commission on April 16, 2013.

 

During the quarter ended March 31, 2013, the Company issued 2,500,000 equity units at $0.002 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.005 per share for total cash of $5,000; , the Company issued 5,000,000 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.; the Company issued 2,000,000 equity units at $0.002 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.004 per share for incentive to provide short-term commercial financing in the amount of $25,000.

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. [Removed and Reserved]

 

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 ourcompany 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

 

 

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 17, 2013	By:	/s/ Garrett Hale
		Name:	Garrett Hale
		Title:	Chief Executive Officer, President, Director
		Title:	Chief Financial Officer (Principal Financial and Accounting Officer)