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

March 31, 2014

 

or

 

o	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. YES x NO o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o

 

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	o		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

 

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.

 

2,210,086,450 as of March 31, 2014

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The condensed 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, 2014 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,
		2014				2012
ASSETS		(Unaudited)				(Audited)
Current assets
Cash		$	8,551			$	2,463
Prepaid expenses			21,911				–
Total current assets			30,462				2,463
Long-term assets
Exploratory properties			1,753,497				1,753,497
Property and equipment, net			131,029				128,620
Total long-term assets			1,884,526				1,882,117
Total assets		$	1,914,988			$	1,884,580
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities		$	578,432			$	436,543
Notes payable, current portion			121,918				48,085
Convertible debt, net of discount			138,500				128,246
Accrued interest			591,488				537,488
Accounts payable to related parties			10,062				110,944
Derivative liability			–				23,531
Total current liabilities			1,440,400				1,284,837
Total liabilities			1,440,400				1,284,837
Commitments and Contingencies
Stockholders' equity
Common stock, authorized 3,750,000,000 shares, par value $0.001, issued and outstanding on March 31, 2014 and December 31, 2013 is 2,210,086,450 and 2,136,465,762 respectively			2,210,089				2,136,467
Additional paid-in capital			4,595,342				4,580,399
Accumulated deficit during exploration stage			(6,330,843	)			(6,117,123	)
Total stockholders' equity			474,588				599,743
Total liabilities and stockholders' equity		$	1,914,988			$	1,884,580

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

SUNERGY, INC. (An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) 

 

		Three Months Ended March 31,								January 28, 2003 (Inception) to March 31,
		2014				2013				2014
Revenue		$	–			$	–			$	–
Operating expenses
Depreciation and amortization			13,467				12,381				156,860
General and administrative			48,565				70,259				991,532
Management salary			10,500				10,500				804,196
Exploration and development			46,755				19,500				1,021,174
Professional fees			7,311				18,147				1,239,211
Total expenses			126,598				130,787				4,212,973
Loss from operations			(126,598	)			(130,787	)			(4,212,973	)
Other income (expenses)
Interest expense			(87,587	)			(59,417	)			(1,954,224	)
Financing costs			–				(4,000	)			(167,481	)
Derivative expense			–				–				(12,079	)
Gain on change in fair value of derivatives			465				–				6,017
Gain on extinguishment of debt			–				–				8,755
Gain on sale of fixed assets			–				–				1,142
Loss before income taxes			(213,720	)			(194,204	)			(6,330,843	)
Provision for income taxes			–				–				–
Net loss		$	(213,720	)		$	(194,204	)		$	(6,330,843	)
Loss per common share:
Basic & Diluted		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding:
Basic & Diluted			2,172,456,184				1,859,866,761

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

SUNERGY, INC. (An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) 

 

		Three months ended March 31,								January 28, 2003 (Inception) to March 31,
		2014				2013				2014
Operating activities
Net loss		$	(213,720	)		$	(194,203	)		$	(6,330,843	)
Adjustments to reconcile net loss
Depreciation and amortization			13,467				12,381				156,860
Stock-based compensation			–				–				652,140
Gain on sale of fixed asset			–				–				(1,142	)
Non-cash interest expense			33,587				11,875				1,200,749
Incentive shares			–				9,416				165,281
Gain on extinguishment of debt			–				–				(8,755	)
Change in fair value of derivative liability			(465	)			–				(6,017	)
Derivative expense			–				–				12,079
Change in assets and liabilities
(Increase)/decrease in prepaid expenses			(21,911	)			1,000				178,089
Increase in accrued interest payable			54,000				54,000				711,988
Increase in accounts payable and accrued liabilities			141,889				46,266				919,302
Increase/(decrease) in accrued-related party			(100,884	)			36,906				419,673
Net cash used by operating activities			(94,037	)			(22,359	)			(1,930,596	)
Investment activities
Acquisition of property and equipment			(15,875	)			–				(300,388	)
Proceeds from sale of fixed assets			–				–				1,142
Cash acquired through acquisition of subsidiary			–				–				39
Net cash used by investment activities			(15,875	)			–				(299,207	)
Financing activities
Repayments of loans from related parties			–				–				(98,915	)
Repayments of convertible debit			–				–				(66,970	)
Repayments of debt			(4,000	)			–				(4,000	)
Proceeds from issuance of debt			75,000				25,000				442,000
Proceeds from issuance of convertible debt			–				–				213,500
Proceeds from the sale of stock			45,000				5,000				1,739,471
Contributed capital			–				–				13,268
Net cash provided by financing activities			116,000				30,000				2,238,354
Net increase / (decrease) in cash			6,088				7,641				8,551
Cash, beginning of period			2,463				451				–
Cash, end of period		$	8,551			$	8,092			$	8,551
Supplemental Information:
Interest paid		$	–			$	–			$	–
Income taxes paid		$	–			$	–			$	–
Non-cash activities:
Debt issued to acquire assets		$	–			$	–			$	487,500
Stock issued to acquire assets		$	–			$	–			$	500,000
Stock issued to settle related party payables		$	–			$	–			$	20,000
Assets acquired through acquisition of subsidiary		$	–			$	–			$	753,497
Liabilities assumed through acquisition of subsidiary		$	–			$	–			$	42,725
Shares issued to acquire subsidiary		$	–			$	–			$	290,000
Stock issued to settle accounts payable		$	–			$	–			$	101,669
Stock issued to settle debt		$	15,500			$	–			$	987,124
Warrants issued to acquire subsidiary		$	–			$	–			$	420,811

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

SUNERGY, INC.

(An Exploration Stage Company)

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

March 31, 2014

 

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 CONSOLIDATED FINANCIAL STATEMENTS

 

The accompanying condensed consolidated 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, 2014, 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, 2013 audited financial statements. The results of operations for the period ended March 31, 2014 are not necessarily indicative of the operating results for the full year.

 

The condensed consolidated financial statements include the accounts of Sunergy, Inc. and its subsidiaries, Mikite Gold Resources Limited, a Ghanaian company, Sunergy Liberia Ltd., a Liberia corporation, 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 condensed consolidated 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. The Company had no cash equivalents as of March 31, 2014 and December 31, 2013.

 

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 an active market 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.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s condensed consolidated financial statements.

 

NOTE 3. GOING CONCERN

 

The accompanying unaudited condensed consolidated 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. As of March 31, 2014, the Company had an accumulated deficit of $6,330,843. 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 condensed consolidated financials do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

 

While we have been successful in raising enough capital to pay for professional and administrative fees to file our delinquent financial statements, we have not had the ability to raise any significant additional capital to materially advance our exploration and mining operations. We continue to actively pursue additional sources of capital, however, there is no guarantee these efforts will be successful.

 

NOTE 4. PROPERTY AND EQUIPMENT

 

Property and Equipment consisted of the following at March 31, 2014 and December 31, 2013:

 

		March 31,				December 31,
		2014				2013
Exploration equipment		$	269,634			$	253,759
Rolling stock			13,500				13,500
Office furniture and equipment			4,753				4,753
Subtotal		$	287,887			$	272,012
Less accumulated depreciation			(156,858	)			(143,392	)
Property and equipment – net		$	131,029			$	128,620

 

 

NOTE 5. NOTES PAYABLE

 

During the period ended March 31, 2014 we accrued $54,000 of penalty expense, and $5,000 of financing costs related to shares issuance as an inducement to enter into a short-term commercial financing agreement. As of March 31, 2014, our outstanding notes payable balance was $121,918 and $138,500 in convertible note agreements net of debt discount, of which $48,085 are in default as of March 31, 2014. The individual notes in default carry daily interest penalties between $100 and $500. Balance of notes payable at December 31, 2013 totaled $48,085 and $128,246 of convertible debt, net of discount.

 

On February 20, 2014, the Company entered into a short-term commercial financing agreement for the placement of dredging machinery in country in the amount of $20,000 due and payable in monthly installments of $4,000 per month or 15% of net profit from operations, whichever is greater over the next six months until $24,000 is repaid.

 

On March 7, 2014, the Company entered into a short-term commercial financing agreement for the placement of dredging machinery in country in the amount of $25,000 due and payable in monthly installments of $5,000 per month or 15% of net profit from operations, whichever is greater over the next six months until $30,000 is repaid. The Company issued 5,000,000 common shares $0.001 as incentive to the lien holder to enter into the financing arrangement.

 

On March 11, 2014, the Company entered into a short-term commercial financing agreement for the placement of dredging machinery in country in the amount of $20,000 due and payable in monthly installments of $4,000 per month or 15% of net profit from operations, whichever is greater over the next six months until $24,000 is repaid.

 

On March 17, 2014, the Company entered into a short-term commercial financing agreement for the placement of dredging machinery in country in the amount of $25,000 due and payable in monthly installments of $5,000 per month or 15% of net profit from operations, whichever is greater over the next six months until $30,000 is repaid. The lender has 30 days from the date of the agreement to provide the full $25,000. As of March 31, 2013, the lender has provided $10,000 of the $25,000 financing agreement to the Company.

 

On January 6, 2014, the remaining unpaid and unconverted principal balance due under the June 2013 convertible note of $15,500 was converted by the note holder into 28,620,690 common shares of the company.  In conjunction with conversion of the note, the Company recognized $846 of interest expense related to the amortization of the debt discount, $24,907 of interest expense on the related conversion of the note from fair value of common shares issued to the principal amount of debt relieved. The Company recognized a gain on the change in the value of the derivative related to the convertible note from December 31, 2013 to the date of conversion of $465.

 

During the three months ended March 31, 2014, the Company recognized $2,833 of interest expense related to the February and March short-term commercial financing agreements noted above.

 

The Company entered in convertible note agreement #3, #4 and #5 in the amounts of $32,500, $53,000, and $53,000 respectively, on October 13, 2013, November 14, 2013, and December 10, 2013 respectively.  As of March 31, 2014, $138,500 principal amounts under convertible note agreements #3, #4, and #5 were outstanding. As of December 31, 2013, total convertible notes outstanding was $128,246 including $25,754 of debt discount related to the remaining principal amount outstanding convertible portion of note #2 of $15,500 that was converted on January 6, 2014.  As of December 31, 2013, the Company carries  a derivative liability related to the potential conversion of the outstanding principal amount remaining unpaid of Note #2 in the amount of $23,531. On January 6, 2014, the holder of the note converted the remaining outstanding principal balance of $15,500 plus accrued interest into 28,620,690 common shares of the Company. The notes are nine month convertible promissory notes from the date of funding and carry an 8% annual interest rate.  The notes may be repaid anytime from the date of funding until 180 days post-funding.  The repayment starts at 120% of the outstanding principal and accrued interest in the first 30 days after funding.  and may be prepaid by the Company for the first six months with an increasing repayment amount that increased by 5% for each 30 day period after funding until repaid or 181 days, whichever comes first. From day 181 till maturity, the note may be converted by the note holder at a 44% discount to the average of the three lowest trading days in the ten days prior to notice of conversion.

 

On Convertible Notes #3 through #5, the Company has recognized accrued interest of $788 through March 31, 2014. Interest is recognized over the life of the note which is 9 months from the date of issuance. As of March 31, 2014, Convertible Note #3 may be converted into approximately 12,000,000 common shares of the Company beginning at day 181 since date of issuance and up until the date maturity of the note. As of March 31, 2014, Convertible Note #4 and Convertible Note #5 may be converted into approximately 19,630,630 common shares per note, for a total of 39,260,260, of the Company beginning at day 181 since date of issuance and up until the date maturity of the note.

 

NOTE 6. STOCKHOLDERS’ EQUITY

 

Common Stock

 

The following provides additional information for certain stock transactions that occurred since January 1, 2014. 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, 2013 and filed with the Securities Exchange Commission on April 15, 2014.

 

A summary of shares issued follows:

 

·

During the quarter ended March 31, 2014, the Company issued 28,620,690 shares upon the conversion of the note payable #2 dated June 2013 for outstanding principal balance of $15,500; 30,000,000 equity units at $0.001 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.002 per share for total cash of $30,000; 9,999,998 equity units at $0.0015 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.003 per share for total cash of $15,000, the Company issued 5,000,000 common shares as an incentive to provide short-term commercial financing in the amount of $25,000 valued at $0.001 per share or $5,000.

 

 

Outstanding Warrants

 

On March 31, 2014, the Company had warrants outstanding summarized in the table below:

 

					Warrants				Exercise			Expiration
					Outstanding				Price			Date
					1,333,333				0.003			24-Apr-14
					15,000,000				0.004			22-Apr-14
					1,666,666				0.003			30-Apr-14
					30,000,000				0.003			21-May-14
					2,500,000				0.003			19-May-14
					1,333,333				0.003			25-May-14
					1,333,000				0.003			27-May-14
					6,700,000				0.003			23-May-14
					5,000,000				0.003			31-May-14
					10,000,000				0.003			1-Jul-14
					6,400,000				0.003			19-Jul-14
					3,333,333				0.003			24-Jul-14
					40,000,000				0.003			1-Aug-14
					8,000,000				0.003			1-Aug-14
					13,333,333				0.003			1-Aug-14
					13,333,333				0.003			1-Aug-14
					30,000,000				0.002			13-Sep-14
					5,000,000				0.002			18-Sep-14
					25,000,000				0.002			22-Nov-14
					7,500,000				0.002			23-Jul-14
					25,000,000				0.002			26-Nov-14
					20,000,000				0.002			7-Mar-15
					10,000,000				0.002			13-Mar-15
					1,666,666				0.003			17-Mar-15
					1,666,666				0.003			24-Mar-15
					6,666,666				0.003			28-Mar-15
	Total				291,766,329

 

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, 2013

256,266,331

–

0.0023

Plus: Warrants Issued

39,999,998

–

0.0022

Less: Warrants Exercised

–

–

–

Less: Warrants Expired

(4,500,000

)

–

0.0046

Total Warrants outstanding at March 31, 2014

291,766,329

0.0026

 

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. Certain amounts for unpaid officer and director fees were classified as accounts payable to related parties in prior periods and have been reclassified for the current periods as accounts payable as they relate to normal operating business expenses of the Company. The balance due to related parties was $10,062, and $110,944 as of March 31, 2014 and December 31, 2013, respectively.

 

As of March 31, 2014, Garrett Hale, our CEO, is due $49,000 in  wages due from the time he became our CEO in February 2013.  Additionally, Mr. Hale incurs expenses in his role as CEO related to payment of expenses in country and travel.  As of March 31, 2014, Mr. Hale is owed $82,476 for unpaid reimbursement requests.  As these are incurred in the normal course of our business operations, these amounts are included in accounts payable.  As of December 31, 2013, Mr. Hale was owed $89,914 for related wages and expenses which is included as accounts payable.  Additionally at December 31, 2013, Mr. Hale provided short-term funding in the amount of $22,915 that was included in accounts payable to related party payables.

 

As of March 31, 2014, Mr. Robert Levich, a member of our Board of Directors and former Africa Country manager, is owed $83,967 for wages due to his time as our country manager or fees earned as a member of the Board of Directors.  As these are incurred in the normal course of our business operations, these amounts are included in accounts payable. As of December 31, 2013, Mr. Levich was owed $77,967 which was included in accounts payable to related parties.  No repayments were made to Mr. Levich during the first quarter of 2014.  The amounts due Mr. Levich were reclassified to accounts payable due to the incurring of the wages and fees as a normal course of our operating business.

 

 

NOTE 8. SUBSEQUENT EVENTS

 

Since March 31, 2014, our Company received the remaining $15,000 due under the short-term commercial financing agreement from March 17, 2014. Additionally, we have raised $179,815 in funding from private placements with investors, with the purpose of funding operations and repaying amounts due under the November 2013 convertible note.

 

On April 16, 2014 and April 23, 2104, the holder of the convertible note dated October 12, 2013, converted 7,692,308 and 4,312,500 shares respectively on the full outstanding principal amount of $32,500.

 

On May 12, 2014, under terms of the convertible note agreement dated November 2014, we issued payment in full of $78,884 to the holder of the convertible note dated November 14, 2014 with a principal amount of $53,000 plus accrued interest.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, Allied Mining and Supply LLC, a Nevada limited liability, which wholly owns Allied Mining and Supply Limited, a Sierra Leone Company and our newly incorporated wholly owned subsidiary Sunergy Sierra Leone, Limited a Sierra Leone Company, 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. We are embarking on our development stage of operations by pursuing direct mining operations in Ghana, Sierra Leone and this year, Liberia geared to producing cash flow from the extraction of Gold, Diamonds and Black Sands wherever available in our operations.

 

Nyinahin Concession, Ghana:

 

We continue to seek a reliable and substantial Joint Venture partner to handle alluvial gold extraction and recovery, but have not been able to finalize any contract to date. Additional licensing and permitting are required to do so, and we have not had adequate funding to do so.

 

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. In July 2013, we have submitted an application for the renewal of such license with the Sierra Leone Ministry of Mines. During this process of renewal, we were required to identify certain areas that could be shed from the exploration licenses as part of the requirement of renewal. We identify approximately 25 sq km of non-river and non-gold bearing land that was shed in the pending application.

 

 

The renewable exploration 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 115 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 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.

 

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.

 

Sunergy Sierra Leone Limited: Work End of 2013 through First Quarter 2014

 

Our work in 2013 consisted of focusing our efforts in the renewal of the exploration license in Sierra Leone with the Ministry of Mines and furthering and deploying available equipment to currently operating projects. We have three dredges that we own in Sierra Leone, two vehicles and a medium sized wash plant suitable for handling up to 100 ton/hour of feed material. Two dredges are currently operating on projects, with the third being modified in Sierra Leone and reading for deployment on a new proposed project in Kono district. We also have a land based operation we operate as well. We now have 4 licensed opportunities in Sierra Leone and plan to grow our fleet to accommodate this activity. Our expenditures for the next 12 months are projected to be approximately $250,000 inclusive of operations and equipment purchases.

 

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.

 

Liberia, Sunergy Liberia Limited:

 

In addition, we continue our development work of relationships across the African region which included the opening of a wholly-owned subsidiary in Liberia, Sunergy Liberia Ltd. We started visiting Liberia in October 2013, pursuant to an invitation by a local businessman to come and see what mining and business opportunities were available. Since that time and subsequent to December 31, 2013 we have entered into formal agreements to engage in support of existing artisanal (Class C) licensed operations. We now have two dredges that we own operating in Liberia, one vehicle and a larger wash plant capable of processing from 50 tons/hour up to 300tons/hour. Our immediate plan is to move the Liberian wash plant to Kono District, Sierra Leone, where more gravels are available for washing on a year round basis. We now have 3 licensed opportunities in Liberia and plan to grow our fleet of dredges to accommodate this growth. We may move the smaller wash plant to Liberia to handle our own year round operations there. Our expenditures for the next 12 months are budgeted to be $250,000 inclusive of operations and equipment purchases.

 

Liquidity and Capital Requirements

 

As we do not have all 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.

 

Management is currently working on closing certain finance commitments that have been made to advance our operations plan immediately. Details will follow in an appropriate 8-K.

 

Results of Operations – Three months Ended March 31, 2014 and 2013

 

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, 2014. 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.

 

Our operating expenses for the three months ended March 31, 2014 and 2013 are outlined in the table below:

 

		Three Months Ended March 31,
		2014				2013				Change
Depreciation and amortization		$	13,467			$	12,381			$	1,086
General and administrative		$	48,565			$	70,259			$	(21,694	)
Management salary		$	10,500			$	10,500			$	–
Exploration and development		$	46,755			$	19,500			$	27,255
Professional fees		$	7,311			$	18,147			$	(10,836	)

 

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, 2014, compared to the same period in fiscal 2013, was mainly due to a decrease in general and administrative expenses as the Company continued to focus on exploration and operations in country during the first quarter of 2014 as compared to 2013. During the period, members of the Company’s exploration team were able to visit operations in Sierra Leone and Liberia and expended funds to further exploration operations.

 

Other Expenses

 

		Three Months Ended March 31,
		2014				2013				Change
Interest expense		$	87,587			$	63,417			$	24,170
Gain on change in fair value of derivatives		$	(465	)		$	–			$	(465	)

 

Interest and financing expenses increased by $24,170 primarily relating to the recognition of the discount on debt of the convertible note agreement dated June 2013 remaining unpaid principal balance of $15,500 that was converted in early 2014. Correspondingly, the gain on derivative related to the change in the fair value of the convertible instrument as of the date of conversion.

 

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, 2014				December 31, 2013				Change
Current assets		$	30,462			$	2,463			$	27,999
Current liabilities		$	1,440,400			$	1,284,837			$	155,563
Working Capital		$	(1,409,938	)		$	(1,282,374	)		$	(127,564	)

 

Cashflow

 

		Three Months Ended March 31,
		2014				2013				Change
Net cash used in operating activities		$	(94,037	)		$	(22,359	)		$	(71,687	)
Net cash provided/(used) in investing activities		$	(15,875	)		$	–			$	(15,875	)
Net cash provided/(used) by financing activities		$	116,000			$	30,000			$	86,000
Net increase/(decrease) in cash during period		$	6,088			$	7,641			$	(1,562	)

 

Our total assets at March 31, 2014 were $1,914,988. Our financial statements report a net loss of $213,720 for the three months ended March 31, 2014 and a net loss of $6,330,843 for the period from January 28, 2003 (date of inception) to March 31, 2014. We had a cash balance of $8,551 as of March 31, 2014.

 

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 deploying available equipment within Liberia and Sierra Leone to mining concessions available to the Company under contract with the mineral concession owner or under our own license. 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

 

The Company has on occasion issued equity and equity linked instruments to non-employees in lieu of cash to various vendors for the receipt of goods and services and, in certain circumstances the settlement of short-term loan arrangements. The applicable GAAP establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

 

In these transactions, we issue unregistered and restricted equity instruments along with equity-linked instruments (warrants) that are convertible into unregistered and restricted shares of our common stock.

 

When unregistered common shares and equity-linked instruments convertible into unregistered common shares are issued for the settlement of short-term financing arrangements (that are not initially convertible), the reacquisition price of the extinguished financing arrangement is determined by the value of the debt which is more clearly evident, and no additional inducement expense is recognized.

 

 

In situations in which we issue unregistered restricted common shares and equity-linked instruments in exchange for goods and services, and the value of the goods and services are not the most reliably measurable, we recognize the fair value of the unregistered restricted equity instruments based on the value of similar instruments issued in private placements in exchange for cash in the most recent transactions (a Level 2 input within the GAAP hierarchy). We have determined this methodology reflects the risk adjusted fair value of our unregistered restricted equity instruments using a commercially reasonable valuation technique.

 

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, 2013 filed on April 15, 2014.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The following provides additional information for certain stock transactions that occurred during the months ended March 31, 2014.  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, 2013 and filed with the Securities Exchange Commission on April 15, 2014.

 

During the quarter ended March 31, 2014, the Company issued 28,620,690 shares upon the conversion of the note payable #2 dated June 2013 for outstanding principal balance of $15,500; 30,000,000 equity units at $0.001 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.002 per share for total cash of $30,000; 9,999,998 equity units at $0.0015 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.003 per share for total cash of $15,000, the Company issued 5,000,000 common shares as an incentive to provide short-term commercial financing in the amount of $25,000 valued at $0.001 per share or $5,000.

 

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 our company and Allied Mining and Supply, LLC. (incorporated by reference from our Current Report on Form 8-K filed on February 4, 2011)
(14)	Code of Ethics
14.1	Code of Ethics and Business Conduct (incorporated by reference to our Annual Report on Form 10-K filed on April 20, 2009)
(21)	Subsidiaries of the Registrant
21.1	Allied Mining and Supply, LLC, a Nevada limited liability company Mikite Gold Resources Limited, a Ghanaian company
(31)	Rule 13a-14(a)/15d-14(a) Certifications
31.1*	Certification of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)	Section 1350 Certifications
32.1*	Certification of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer filed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive Data Files
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

 

*

Filed herewith

 

 

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 20, 2014	By:	/s/ Garrett Hale
		Name:	Garrett Hale
		Title:	Chief Executive Officer, President, Director
		Title:	Chief Financial Officer (Principal Financial and Accounting Officer)