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