UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended |
September 30, 2015 |
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 o
NO o
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. 2,776,319,963 as of November 11,
2015.
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 September 30, 2015 are
not necessarily indicative of the results that may be expected for the full fiscal year.
SUNERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | |
September 30, | |
December 31, |
| | |
2015 | |
2014 |
| | |
(Unaudited) | |
(Audited) |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| Current assets | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 537 | | |
$ | 521 | |
| Accounts receivable | |
| 61,064 | | |
| 12,490 | |
| Prepaid expenses | |
| — | | |
| 202 | |
| | |
| | | |
| | |
| Total current assets | |
| 61,061 | | |
| 13,213 | |
| | |
| | | |
| | |
| Long-term assets | |
| | | |
| | |
| Exploratory properties | |
| — | | |
| — | |
| Property and equipment, net | |
| 98,621 | | |
| 179,924 | |
| Other assets | |
| 104,158 | | |
| 70,303 | |
| | |
| | | |
| | |
| Total long-term assets | |
| 202,779 | | |
| 250,227 | |
| | |
| | | |
| | |
| Total assets | |
$ | 264,380 | | |
$ | 263,440 | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT |
| | |
| |
|
| Current liabilities | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 755,092 | | |
$ | 697,201 | |
| Notes payable, current portion | |
| 401,410 | | |
| 266,336 | |
| Convertible debt, net of discount | |
| 74,000 | | |
| 67,500 | |
| Accrued interest | |
| 942,136 | | |
| 776,205 | |
| Accounts payable to related parties | |
| 34,416 | | |
| 43,753 | |
| Derivative liability | |
| 109,538 | | |
| — | |
| | |
| | | |
| | |
| Total current liabilities | |
| 2,316,592 | | |
| 1,850,995 | |
| | |
| | | |
| | |
| Total liabilities | |
| 2,316,5922 | | |
| 1,850,995 | |
| | |
| | | |
| | |
| Commitments and Contingencies | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders' deficit | |
| | | |
| | |
| Common stock, authorized 3,750,000,000 shares, par value $0.001, issued and outstanding on September 30, 2015 and December 31, 2014 is 2,776,319,963 and 2,573,976,770 respectively | |
| 2,776,322 | | |
| 2,573,979 | |
| | |
| | | |
| | |
| Additional paid-in capital | |
| 5,112,833 | | |
| 5,010,180 | |
| Accumulated deficit | |
| (9,941,367 | ) | |
| (9,171,714 | ) |
| | |
| | | |
| | |
| Total stockholders' deficit | |
| (2,052,212 | ) | |
| (1,587,555 | ) |
| | |
| | | |
| | |
| Total liabilities and stockholders' deficit | |
$ | 264,380 | | |
$ | 263,440 | |
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
SUNERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(Unaudited)
| | |
Three Months Ended September 30, | |
Nine Months Ended September 30, |
| | |
2015 | |
2014 | |
2015 | |
2014 |
| Revenue | |
$ | 53,964 | | |
$ | — | | |
$ | 101,531 | | |
$ | — | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses | |
| | | |
| | | |
| | | |
| | |
| Depreciation and amortization | |
| 27,101 | | |
| 13,467 | | |
| 81,302 | | |
| 40,402 | |
| General and administrative | |
| 14,000 | | |
| 34,404 | | |
| 50,605 | | |
| 193,017 | |
| Management salary | |
| 10,500 | | |
| 10,500 | | |
| 31,500 | | |
| 31,500 | |
| Exploration and development | |
| 70,700 | | |
| 28,122 | | |
| 136,612 | | |
| 147,422 | |
| Professional fees | |
| 16,889 | | |
| 35,641 | | |
| 105,555 | | |
| 126,308 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total expenses | |
| 139,190 | | |
| 122,134 | | |
| 405,574 | | |
| 538,649 | |
| | |
| | | |
| | | |
| | | |
| | |
| (Loss) from operations | |
| (85,226 | ) | |
| (122,134 | ) | |
| (304,043 | ) | |
| (538,649 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (78,924 | ) | |
| (64,177 | ) | |
| (297,473 | ) | |
| (302,697 | ) |
| Derivative expense | |
| (88,107 | ) | |
| — | | |
| (101,618 | ) | |
| (32,846 | ) |
| Gain/(Loss) on change in fair value of derivatives | |
| 8,569 | | |
| — | | |
| (66,519 | ) | |
| 15,047 | |
| | |
| | | |
| | | |
| | | |
| | |
| (Loss) before income taxes | |
| (243,688 | ) | |
| (186,311 | ) | |
| (769,653 | ) | |
| (859,145 | ) |
| Provision for income taxes | |
| — | | |
| — | | |
| — | | |
| — | |
| Net (loss) | |
$ | (243,688 | ) | |
$ | (186,311 | ) | |
$ | (769,653 | ) | |
$ | (859,145 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Loss per common share: | |
| | | |
| | | |
| | | |
| | |
| Basic & Diluted | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
| Weighted average shares outstanding: | |
| | | |
| | | |
| | | |
| | |
| Basic & Diluted | |
| 2,774,113,441 | | |
| 2,428,081,732 | | |
| 2,710,872,192 | | |
| 2,305,679,964 | |
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
SUNERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
| | |
Nine Months Ended September 30, |
| | |
| |
|
| | |
2015 | |
2014 |
| Operating activities | |
| | | |
| | |
| Net loss | |
$ | (769,653 | ) | |
$ | (859,145 | ) |
| Adjustments to reconcile net
loss net cash used in operating activities | |
| | | |
| | |
| Depreciation and amortization | |
| 81,302 | | |
| 40,402 | |
| Stock-based compensation | |
| 9,000 | | |
| 15,500 | |
| Non-cash interest expense | |
| 294,022 | | |
| 65,686 | |
| Gain/Loss on change in fair value of derivative liability | |
| 66,518 | | |
| (15,047 | ) |
| Derivative expense | |
| 101,618 | | |
| 32,846 | |
| Change in assets and liabilities | |
| | | |
| | |
| (Increase)/decrease in accounts receivable | |
| (48,574 | ) | |
| — | |
| (Increase)/decrease in prepaid expenses | |
| 202 | | |
| (505 | ) |
| Increase/(decrease) in accrued interest payable | |
| — | | |
| 182,086 | |
| Increase/(decrease) in accounts payable and accrued liabilities | |
| 57,891 | | |
| 251,306 | |
| Increase/(decrease) in accrued-related party | |
| (9,337 | ) | |
| (75,282 | ) |
| | |
| | | |
| | |
| Net cash used in operating activities | |
| (217,009 | ) | |
| (362,153 | ) |
| | |
| | | |
| | |
| Investment activities | |
| | | |
| | |
| Investment in Global Building Group | |
| (33,855 | ) | |
| — | |
| Acquisition of property and equipment | |
| — | | |
| (45,000 | ) |
| | |
| | | |
| | |
| Net cash used in investment activities | |
| (33,855 | ) | |
| (45,000 | ) |
| | |
| | | |
| | |
| Financing activities | |
| | | |
| | |
| Repayments of convertible debt | |
| — | | |
| (106,000 | ) |
| Proceeds from issuance of debt | |
| 201,080 | | |
| 115,000 | |
| Repayments of debt | |
| (88,000 | ) | |
| (20,000 | ) |
| Proceeds from issuance of convertible debt | |
| 84,000 | | |
| 106,500 | |
| Proceeds from the sale of stock | |
| 53,800 | | |
| 310,200 | |
| | |
| | | |
| | |
| Net cash provided by financing activities | |
| 250,880 | | |
| 405,700 | |
| | |
| | | |
| | |
| Net increase / (decrease) in cash | |
| 16 | | |
| (1,453 | ) |
| | |
| | | |
| | |
| Cash, beginning of period | |
| 521 | | |
| 2,463 | |
| | |
| | | |
| | |
| Cash, end of period | |
$ | 537 | | |
$ | 1,010 | |
| | |
| | | |
| | |
| Supplemental Information: | |
| | | |
| | |
| Interest paid | |
$ | 3,450 | | |
$ | 54,424 | |
| Income taxes paid | |
$ | — | | |
$ | — | |
| | |
| | | |
| | |
| Non-cash activities: | |
| | | |
| | |
| Stock issued to settle debt | |
$ | 67,500 | | |
$ | 73,000 | |
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
SUNERGY, INC.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
September 30, 2015
NOTE 1. GENERAL ORGANIZATION AND
BUSINESS
Sunergy,
Inc. (The Company) was organized in the state of Nevada on January 28, 2003 and is an exploration phase mineral and mining company.
The
Company has mineral properties located in the Republic of Ghana and has not yet determined whether these properties contain reserves
that are economically recoverable. The recoverability of amounts from these properties will be dependent upon the discovery of
economically recoverable reserves located within the property interests held by the Company, the ability of the Company to obtain
necessary financing to satisfy the expenditure requirements under the property agreements to complete the development of the properties
and upon future profitable production or proceeds for the sale thereof.
On
October 18, 2010, the Company acquired Allied Mining and Supply LLC., a Nevada limited liability company. Allied Mining and Supply
LLC also has one subsidiary, a Sierra Leone company, Allied Mining and Supply Ltd. As part of the acquisition the Company now has
a concession in Sierra Leone. The Company has been in the exploration phase of this concession since the purchase. The Company
has three subsidiaries, Allied Mining and Supply, LLC a Nevada Limited Liability Company and Mikite Gold Resources, LTD,
a Ghana corporation, and Sunergy Liberia LTD, a Liberia corporation which was formed in December 2013. During the nine months ended
September 30, 2015, we generated revenue of $101,531 from the delivery of our second, third and fourth parcels of diamonds as we
continue to focus on generating positive cash flows. Regular sales and delivery of diamond parcels will continue as our core business.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited 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 September 30, 2015, 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 (“GAAP”) have been condensed or
omitted. It is suggested that these unaudited condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 2014 audited financial statements filed with SEC on April 15, 2015. The results of
operations for the period ended September 30, 2015 are not necessarily indicative of the operating results for the full
year.
The unaudited 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 inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements
in conformity with GAAP 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. Significant estimates and assumptions
included in our condensed consolidated financial statements relate to the valuation of long-lived assets, accruals for potential
liabilities, and valuation assumptions related to derivative liability, equity instruments and share based compensation.
Cash
Cash 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 September 30,
2015 and December 31, 2014.
Mineral Property Costs
Mineral property
acquisition costs are capitalized. Exploration and development costs are expensed as incurred. When it has been determined that
a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to
develop such property, are capitalized. Such costs will be amortized using the units-of-production method over the estimated life
of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to
operations.
Environmental Costs
Environmental
expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally,
the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company’s commitments
to plan of action based on the then known facts.
Property and Equipment
Property and equipment are recorded
at historical cost. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized
and depreciated over their estimated useful lives. When property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations
for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line
method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where
appropriate. The estimated useful life for property and equipment held at September 30, 2015 and December 31, 2014 is five years.
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.
Derivative Financial Instruments
The Company evaluates all of its financial
instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations.
For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes option pricing model to value
the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement
of the derivative instrument could be required within 12 months of the balance sheet date.
Recently Issued Accounting Pronouncements
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 unaudited condensed consolidated financial statements.
Revenue Recognition
In accordance with ASC 605 – Revenue Recognition, the Company recognizes revenue for our sales of diamond parcels when
each of the following four criteria is met: Established an arrangement with customer which confirmed the price and delivery
method and estimated delivery date; diamond parcel has been delivery to a receiving party designated by the customer; and
collectability is reasonable assured.
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 September 30, 2015, the Company
had an accumulated deficit of $9,941,367. The Company has now begun regular delivery and sales of diamond parcels, with three sold
to date and a fourth in transit. We continue 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 our mineral exploration and general and administrative fees, we have also had the ability to raise additional
capital to finance our diamond parcel sales and delivery operations which are stably ongoing with our foreign buyer(s). We continue
to actively pursue additional sources of capital, however, there is no guarantee these efforts will be successful.
NOTE 4. PROPERTY AND EQUIPMENT,
NET
Property and Equipment consisted of
the following at September 30, 2015 and December 31, 2014:
| | |
September 30, | |
December 31, |
| | |
2015 | |
2014 |
| | |
(Unaudited) | |
(Audited) |
| Exploration equipment | |
$ | 373,759 | | |
$ | 373,759 | |
| Rolling stock | |
| 13,500 | | |
| 13,500 | |
| Office furniture and equipment | |
| 4,753 | | |
| 4,753 | |
| Subtotal | |
$ | 392,012 | | |
$ | 392,012 | |
| Less accumulated depreciation | |
| (293,391 | ) | |
| (212,088 | ) |
| Property and equipment – net | |
$ | 98,621 | | |
$ | 179,924 | |
NOTE 5. NOTES PAYABLE
During
the period ended September 30, 2015 we accrued $163,800 of penalty expense, we accrued $5,897 of interest on convertible notes
issued from 2014 and converted in early 2015, we paid $3,450 of interest on notes payable,we recorded $24,794 accretion of debt
discount related to financing costs on notes payable issued during 2014, we recorded $15,798 accretion of debt discount related
to shares or warrants issued related to financing costs on notes issued during 2015, we recorded an additional $23, 333
accretion of original issue discount related to convertible notes issued during 2015 and $60,400 of additional interest related
to the discount stock price on convertible notes issued during 2014 and converted in early 2015. These amounts are recorded as
part of our interest expense reported for the nine months then ended. As of September 30, 2015, our outstanding notes payable
balance was $401,410 and $74,000 in convertible note agreements net of debt discount and $109,537 in derivate liability related
to convertible note agreements, of which $48,085 are in default as of September 30, 2015. The individual notes in default carry
daily interest penalties between $100 and $500. Balance of notes payable at December 31, 2014 totaled $266,336 and $67,500 of
convertible debt, net of discount, respectively.
Transactions relating to short-term
financing are as followings:
On February 9, 2015, the Company entered
into a short-term commercial financing agreement for furthering the housing and diamond projects in the amount of $30,000 due and
payable in full in one year. As of September 30, 2015, we have repaid $3,000 of this note.
On February 26, 2015, the Company entered
into a short-term commercial financing agreement for the furtherance of diamond parcel shipments in the amount of $10,080 due and
payable in one year.
On March 26, 2015, the Company entered
into a short-term commercial financing agreement for the furtherance of work with Global Builders Group on housing projects within
Africa in the amount of $25,000 due and payable in 180 days with interest of 15% annualized. Additionally, as an inducement to
enter into the agreement, the Company issued 2,000,000 restricted shares of our common stock and 2,000,000 one year warrants at
an exercise price of $0.0025. The Company allocated proceeds of $4,400 to the stock issued and $2,936 to the warrants issued as
a discount to the principal amount due under the note. For the nine months ended September 30, 2015, the Company recognized $7,336
of accretion of interest related to this discount.
On April 30, 2015, the Company entered
into a short-term commercial financing agreement in the amount of $10,000 for the funding of the second diamond delivery parcel
due and payable in 60 days. The agreement carries no interest but the note holder is entitled to a prorated share of the net profit
of the diamond parcel after applicable expenses related directly to the acquisition and disposition of the parcel. Additionally,
as an inducement to enter into the agreement, the Company issued 1,500,000 restricted shares of our common stock. The Company allocated
proceeds of $3,000 to the stock issued as discount to the agreement but which was fully accreted during the period ended June 30,
2015 due to the maturity of the note on that date. This note was paid on July 1, 2015.
On May 2, 2015, the Company entered
into a demand note payable that carries no interest and no due date for acquisition and disposition of the second diamond parcel
in the amount of $10,000.
On May 11, 2015, the Company entered
into a short-term commercial financing agreement in the amount of $10,000 for the funding of travel costs between operations in
Sierra Leone due and payable in the earlier of 90 days or completion of the second diamond parcel shipment. The agreement carries
no interest. Additionally, as an inducement to enter into the agreement, the Company issued 1,500,000 restricted shares of our
common stock and 1,500,000 one year warrants at an exercise price of $0.0015. The Company allocated proceeds of $2,850 to the stock
issued and $2,062 to the warrants issued as a discount to the principal amount due under the note. For the nine months ended September
30, 2015, the Company recognized $4,912 of accretion of interest related to this discount. This note was repaid in full on September
21, 2015.
On August 17, 2015, the Company entered
into a short-term commercial financing agreement in the amount of $5,000 for the funding certain mineral licenses in Sierra Leone
due and payable in the earlier of 30 days or completion of the next diamond parcel shipment. The agreement carries no interest.
Additionally, as an inducement to enter into the agreement, the Company issued 500,000 restricted shares of our common stock. The
Company allocated proceeds of $9,450 to the debt and $550 to the stock issued as a discount to the principal amount due under the
note. For the nine months ended September 30, 2015, the Company recognized $550 of accretion of interest related to this discount.
This note was repaid in full on September 21, 2015.
On September 22, 2015, the Company entered
into a short-term commercial financing in the amount of up to $50,000 for the funding of the next parcel shipment due and
payable within 30 days or completion of the next diamond parcel shipment. The Lender forwarded two tranches of $20,000 for a total
of $40,000 under this agreement for the period ended September 30, 2015. The agreement carries no interest but the note holder
is entitled to a prorated share of the net profit of the diamond parcel after applicable expenses related directly to the acquisition
and disposition of the parcel. If not paid in full by maturity, the carries a 1% penalty per business day the principal remains
outstanding. As of November 11, 2015, this note is in default as the Company has repaid $15,000 of the outstanding principal. Additionally,
as an inducement to enter into the agreement, the Company issued 2,000,000 restricted shares of our common stock. The Company allocated
proceeds of $2,800 to the stock issued as discount to the agreement which was not accreted due to issuance and funding of the note
as of September 30, 2015.
On September 25, 2015, the Company entered
into a demand note payable that carries no interest and no due date for acquisition and disposition of diamond parcels in the amount
of $31,000.
On September 28, 2015, the Company entered
into a short-term commercial financing in the amount of $10,000 for the funding travel and other costs related to the next parcel
shipment due and payable within 30 days. The agreement carries interest charge of $1,500 due at the date of maturity. If not
paid in full by maturity, the carries a 1% penalty per business day the principal remains outstanding. As of October 25, 2015,
this note has been repaid in full including imputed interest.
During the nine months ended September
30, 2015, the Company recognized $24,794 of interest expense related accretion of debt discount to the short-term commercial financing
agreements issued in 2014.
Transactions related to convertible
debt are as follows:
In January 2015, the unpaid and unconverted
principal balance due under the July 2014 convertible note of $32,500 was converted by the note holder into 56,333,333 common shares
of the company. In conjunction with conversion of the note, the Company recognized $1,296 of interest expense related to the amortization
of the debt discount, $12,180 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 loss on the change in the value of the derivative related to
the convertible note from the date the note was convertible till the date of conversion of $31,393.
In May 2015, the unpaid and unconverted
principal balance due under the November 2014 convertible note of $35,000 was converted by the note holder into 63,367,003 common
shares of the company. In conjunction with conversion of the note, the Company recognized $1,450 of interest expense related
to the amortization of the debt discount, $12,180 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 loss on the change in the value of the
derivative related to the convertible note from the date the note was convertible till the date of conversion of $43,694.
On June 24, 2015, the Company
entered into a $400,000 Convertible Note. The note carries an original issue discount of $40,000. The note holder can make
payments totaling up to $400,000 at its discretion. Each payment would constitute a separate effective date under this
agreement and carries a two year maturity date from the effective date of each payment. Each payment is interest free if paid
with 90 days from the effective date. The issuer of the note must still pay the prorata share of the original issue discount
related to the payment amount. If not paid in full within 90 days, the payment amount will incur a one-time interest charge
of 12% of the outstanding principal amount. The note holder can convert the outstanding principal amount due under each
effective date after 90 days from such effective date at 60% of the lowest trade price in the previous 25 trading days
subject to certain additional discounts. On June 24, 2015, the Company received the first payment under the convertible note
in the amount of $30,000. On September 22, 2015, the principal sum and any original issue discount of $3,333 and one-time
interest charge of $3,600 became convertible at the discretion of the note holder. In conjunction with the ability to convert
the note as of that date, the Company calculated the fair market value of the conversion feature using a Black Scholes model
with a stock price of $0.0015, an exercise price of $0.00042 based upon $0.0007 the lowest trading price in the prior
25 trading days multiplied by 60%, expected life of 1.75 years, risk-free rate of 0.01%, 188% volatility, and 0% dividend
rate resulting in a fair market value of $0.0013431 per share. As of the September 22, 2015, the note was convertible
into 87,936,508 common shares resulting in a derivate liability of $118,107.
The Company subsequently revalued the
derivative liability as of September 30, 2015 using a stock price of $0.0014, exercise price of $0.00042, expected life of 1.75
years, risk free rate of 0.01%, 187% volatility and 0% dividend rate resulting in a fair market value $0.00124565 per share. As
of September 30, 2015, the note is still convertible into 87,936,508 shares resulting in a derivative liability of $109,538 and
recognizing a gain on change in value of the derivative from the date it was convertible to the end of the reporting period of
$8,569.
On June 26, 2015, the Company entered
into a $74,000 convertible note. The note carries an original issue discount of $20,000. The note carries no interest rate on the
original balance if paid in full by the maturity date of six months from the date of issuance. In the event of default, the note
accrues interest at the lesser of 18% or the maximum allowed by law. The Company may repay the note at any time up until 90 days
from the date of issuance in the sum of $64,000. The note holder may convert the outstanding principal amount due at any time after
an event of default which includes failing to pay principal and interest at the date of maturity which is six months from the date
of issuance. When the note becomes convertible, the note may be converted at 65% of the average of the two lowest closing bid prices
in the previous 10 trading days immediately prior to conversion subject to certain additional discounts. The Company recognized
an original issue discount of $20,000 at the effective date of the agreement. For the nine months ended September 30, 2015, the
Company recognized an accretion of interest of $20,000 related to the original issue discount under this note. As of September
30, 2015, the total principal outstanding, net of discounts, under terms of this agreement are $74,000.
As of September 30, 2015, the second
convertible note in the amount of $74,000 remains outstanding. $74,000 Convertible Note may be converted into approximately 81,318,681
common shares of the Company since effective date and up until the date maturity of the note which is six months after June 28,
2015.
NOTE 6. STOCKHOLDERS’ EQUITY
Common Stock
The following provides additional information
for certain stock transactions that occurred since January 1, 2015. 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, 2014 and filed with the Securities Exchange Commission on April 16, 2015.
A summary of shares issued follows:
| |
· |
During the three months ended March 31, 2015, the Company issued 56,833,333 shares upon the conversion of the note payable #3 dated July 2014 for outstanding principal balance of $32,500; 50,000,000 equity units at $0.0008 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.0016 per share for total cash of $40,000; 8,000,000 equity units at $0.0011 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.0022 per share for total cash of $8,800. |
| |
· |
During the three months ended June 30, 2015, the Company issued 2,000,000 equity units at $0.0022 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.0025 per share as inducement to enter into a financing agreement; 1,500,000 shares at $0.0002 as inducement to enter into a financing agreement; 1,500,000 equity units at $0.0015 with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.0015 per share as inducement to enter into a financing agreement; 63,367,003 shares upon the conversion of the note payable #4 dated November 2014 for outstanding principal balance of $35,000; 10,000,000 shares at $0.0009 as part of a services agreement valued at $9,000; 7,142,857 shares at $0.0007 per share for total cash of $5,000. |
| |
· |
During the three months ended September
30, 2015, the Company issued 500,000 shares at $0.0011 as inducement to enter into a financing agreement; and 2,000,000 shares
at $0.0014 as inducement to enter into a financing agreement.
|
Outstanding Warrants
On September 30, 2015, the Company had
warrants outstanding summarized in the table below:
| |
|
|
|
|
Warrants |
|
|
|
Exercise |
|
|
Expiration |
| |
|
|
|
|
Outstanding |
|
|
|
Price |
|
|
Date |
| |
|
|
|
|
5,000,000 |
|
|
|
0.0025 |
|
|
24-Oct-15 |
| |
|
|
|
|
5,000,000 |
|
|
|
0.003 |
|
|
5-Nov-15 |
| |
|
|
|
|
2,000,000 |
|
|
|
0.003 |
|
|
26-Nov-15 |
| |
|
|
|
|
5,000,000 |
|
|
|
0.003 |
|
|
17-Dec-15 |
| |
|
|
|
|
5,000,000 |
|
|
|
0.002 |
|
|
15-Jan-16 |
| |
|
|
|
|
16,250,000 |
|
|
|
0.0016 |
|
|
13-Feb-16 |
| |
|
|
|
|
10,000,000 |
|
|
|
0.0016 |
|
|
27-Feb-16 |
| |
|
|
|
|
18,750,000 |
|
|
|
0.0016 |
|
|
3-Mar-16 |
| |
|
|
|
|
8,000,000 |
|
|
|
0.0022 |
|
|
12-Mar-16 |
| |
|
|
|
|
2,000,000 |
|
|
|
0.0025 |
|
|
31-Mar-16 |
| |
|
|
|
|
1,500,000 |
|
|
|
0.0015 |
|
|
10-May-16 |
| |
Total |
|
|
|
78,500,000 |
|
|
|
|
|
|
|
Information relating to warrant activity
during the reporting period follows:
| | |
| |
Weighted |
| | |
| |
Average |
| | |
Number of | |
Exercise |
| | |
Warrants | |
Price |
| Total Warrants outstanding at December 31, 2014 | |
| 262,523,472 | | |
| 0.0026 | |
| Plus: Warrants Issued | |
| 61,500,000 | | |
| 0.00174 | |
| Less: Warrants Exercised | |
| — | | |
| — | |
| Less: Warrants Expired | |
| (245,523,472 | ) | |
| 0.00259 | |
| Total Warrants outstanding at September 30, 2015 | |
| 78,500,000 | | |
| 0.00198 | |
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 $34,416, and $43,753 as of September 30, 2015 and December 31, 2014, respectively.
As of September 30, 2015, Garrett Hale,
our CEO, is due $112,000 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 September 30, 2015, Mr. Hale is owed $99,494 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, 2014, Mr. Hale was owed $156,393 for related wages and expenses which is included
as accounts payable. Additionally at as of September 30, 2015 and December 31, 2014, Mr. Hale provided short-term funding in the
amount of $34,416 and $43,753 respectively that was included in accounts payable to related party payables.
As of September 30, 2015, Mr. Robert
Levich, a member of our Board of Directors and former Africa Country manager, is owed $119,967 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, 2014, Mr. Levich was owed $101,967 which was included
in accounts payable to related parties. No repayments were made to Mr. Levich during the period ended September 30, 2015. 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.
As of September 30, 2015, Mr. Larry
Bigler, a member of our Board of Directors and former CEO, is owed $59,500 for wages due to his time as our CEO 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, 2014, Mr. Bigler was owed $41,500 which was included in accounts payable to related
parties. No repayments were made to Mr. Bigler during the period ended September 30, 2015.
NOTE 8. MINERAL PROPERTIES
Nyinahin Mining Concession
Through its
wholly-owned subsidiary, Mikite Gold Resources Limited, the Company holds a 100% interest in a mineral concession located in the
Ashanti region of Ghana, known as the Nyinahin concession. The Company acquired the concession for total consideration of $1,000,000
in 2008.
As of Septmber
30, 2015, the Company has not identified any proven or probable reserves within the Nyinahin Concession, correspondingly, all exploration
activities since the acquisition have been expensed.
Additionally,
the prior concession owner retained a 5% net smelter royalty for future production from the property, if any.
During 2014, management
evaluated the feasibility of sufficient funds to either finance further development and exploration or feasibility in receiving
funds from a joint venture partner or acquirer to recover our acquisition costs and determined based upon the remote likelihood
of the aforementioned factors that the property was impaired from its current carrying value and has recorded a charge to impairment
against the exploratory property for $1,000,000.
Pampana River Concession
On October
18, 2010, the Company entered into a membership purchase agreement with Allied Mining and Supply, LLC for the purchase of 100%
of the issued and outstanding membership interest of Allied Mining, a Nevada Limited Liability company, which owns the rights to
Exploration License #EXPL 5/2009 on the 140 sq km Pampana River concession in Sierra Leone, West Africa.
The Company
issued 100,000,000 equity units for total consideration of $753,497 to acquire the Pampana River concession. The warrants issued
in conjunction with the purchase were not exercised and have since expired.
As of September
30, 2015 the Company has not identified any proven or probable reserves within the Pampana River Concession, correspondingly, all
exploration activities since the acquisition have been expensed.
During 2014,
management evaluated the ability to provide ongoing exploration and operations funding and for the achievement of positive cash
flows from operations on the Pampana Concession and determined that the future cash flows were less than the current carrying value
of the project. As such, Management recorded a charge to impairment for $753,497 as of the end of the year. The Company continues
to seek alternatives to trade into a diamond bearing concession as it reenergizes its focus on generating cash flow to continue
to fund operations.
NOTE 9. SUBSEQUENT EVENTS
Between October 6, 2015 and October
29, 2015, we received $44,464 of monies due for shipment of previous and current diamond parcels.
On October 19, 2015, we received $20,000
in a demand note payable for acquisition and disposition of diamond parcels.
On October 26, 2015, we repaid the September
28, 2015 $10,000 note payable and the accrued interest of $1,500 due without incurring the 1% penalty per business day interest.
On October 26, 2015, we made an initial
payment of $5,000 against the September 25, 2015 $40,000 note payable. On October 29, 2015 we made a second payment of $10,000
against the same note. As of the date of this filing, we have $25,000 of the balance that is in default and carries a 1% penalty
interest per business day.
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 subsidiaries, Sunergy Sierra Leone, Limited a Sierra Leone Company and Sunergy Liberia, Limited, a Liberian 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 mining company engaged in the exploitation of minerals on properties
located in Liberia and Sierra Leone, West Africa. In mid 2013, due to the fact that exploration funding was virtually non-existent
for small mining companies, we changed our focus and operating model from solely engaging in exploration activities, to pursuing
cash flow from placing our existing equipment, 3 dredges, vehicles and our wash plant in Sierra Leone to work in licensed mining
activities capable of generating cash flow (exploitation activities). These licensed activities involve cooperative relationships
with local artisanal miners and Chiefs where we use our equipment, trained personnel and financial support and earn an interest
in their operations. We pursue the same business model in Liberia and we where we have operations.
Sierra Leone: Sunergy Sierra Leone,
Limited
With the efforts of our local on
ground management team and from Sunergy, Inc. managements continued efforts, relations with the NMA in Sierra Leone , we are
now undertaking official licensing arrangements involving cooperative sponsorships of local artisanal miners in the Kono and
Kenema mining districts most known for diamond recovery in Sierra Leone. In addition, we are considering a new EXPL license
suitable for early bulk sample testing where diamonds and gold are already known to exist in economic quantities. These
regions continue to produce the parcels which Sunergy has provided for sale to date. As of the date of filing, we have sold
and awaiting final payment on the sale of parcel #5 of diamonds to our foreign buyer at this time. Since we began selling
diamond parcels in late 2014, we have generated revenue of $114,021 in three parcels to date. We are relocating our wash plant
and loader from Liberia to Sierra Leone and will operate under license in support of our diamond washing activities in Sierra
Leone. As the next dry season rapidly approaches, we will be fully prepared to maximize operations by washing
substantial amounts of diamond bearing gravels. Our budget for operations over the next 12 months for Sierra Leone will be
approximately $250,000 US.
Liberia: Sunergy Liberia Limited
Our 2 dredges remain in Liberia pending
relocation to more productive operations areas with the start of the next dry season. We are currently evaluating a couple of
locations, that post Ebola have become available for exploitation and appear very promising. On August 4th, 2015, we announced
that Sunergy Liberia Limited and our independent power producer partner from northern California, USA had on August 3rd submitted
our official Expression of Interest to build, finance, operate and own solar power projects in Liberia over the next 1 ½
years. The funding required for the project is approximately $100 million US dollars. A more detailed cost analysis will be confirmed
during preparation of the project feasibility study. We continue to pursue solar projects in Liberia as our recent announcements
in November 2015 describe our involvement and application for USAID
funding
On August 3rd, 2015 we submitted an
official Expression of Interest to the Ministry of Lands, Mines and Energy to build, finance, own and operate a utility scale solar
power project with the government of Liberia. This is done with our consortium IPP developer and is estimated to cost about $100
million US. The financing will not have any dilutive effect on our stock and will be provided by The Obama Power Africa Fund, which
Liberia qualifies and potentially from private institutional investors. Financing will be secured by a form of Power purchase Agreement
yet to be defined.
Our Consortium is prepared to offer
development and financing for the project thru a Power Purchase Agreement (“PPA”) and sovereign guarantee or implementation
agreement, contingent on the project location and requirements, the competency of design and construction contract documents as
well as mutually agreeable terms and conditions. The financing has the added benefit that it is fast to procure and is done without
any dilutive effect on Sunergy’s shares.
Our partner has offices in Northern
California, (USA) and Washington, DC (USA) is an Independent Power Producer (“IPP”) with the mission to develop, finance,
own, and manage (operations and maintenance) World-class solar energy facilities. They are actively developing responsible energy
projects across the USA, Mexico, Japan and Africa with the flexibility to apply best-of-breed solar energy solutions to specific
locations and requirements. They contribute the essential development expertise with regional market knowledge to apply proven
solar technologies, EPC management with optimal project financing, and on-going asset management for each location and customer.
They mindfully develop projects for environmental responsibility with optimal local community benefits.
The finance offer is a total development
solution encompassing development of existing feasibility studies, finance, and project development through the engineering, procurement
and construction model. The offer also includes operation and maintenance. Our partner is an active supporter of the White House
Power Africa Initiative. US President Barack Obama announced the initiative whose goal is to double access to electricity in sub-Saharan
Africa. The United States government has made an initial commitment of more than $7 billion to finance projects, which has been
matched by more than $9 billion of US private industry investment. Our Consortium is actively engaged with the Power Africa leadership
and will utilize these funds for any project financing strategy pursued in Liberia.
The infrastructure development will
be undertaken through a Liberia special purpose vehicle (SPV) with both foreign and local shareholding. This latter vehicle will
be responsible for financing the projects and debt repayment. LEC will be responsible for debt repayment through power purchase
arrangements. We also propose building a solar training institute (“Solar Academy”) as a stand-alone institution or
in conjunction with an existing education facility.
The opportunity to present such a proposal
was provided to the Company due to its history within the region and the relationships and contacts that have been developed. If
successful, the agreement would provide an opportunity to obtain an additional source of cash flow that would assist in the ongoing
exploration, mining, and diamond parcel operations that the Company is currently pursuing. At this time, the Company does not anticipate
having to fund any portion of such project as funding would be through the Obama Power Africa Fund, institutional investors and/or
Power Purchase Agreements. The Company may receive a fee for facilitation of such agreements and contacts provided.
Our budget for mining operations over
the next 12 months is approximately $60,000. The budget for the solar power project will be the responsibility of the Consortium
and will be provided by project financing without any dilution to Sunergy shares or shareholders.
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 and our scheduled diamond parcel sales and deliveries.
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 diamond parcel sales and deliveries, 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.
To date we have been able to make suitable financial arrangements to continue to operate our business.
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.
Results of Operations – Nine
months Ended September 30, 2015 and 2014
The following discussion should be read
in conjunction with our unaudited financial statements and the related notes contained in this report for the nine months ended
September 30, 2015. 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 nine
months ended September 30, 2015 and 2014 are outlined in the table below:
| | |
Nine Months Ended
September 30, |
| | |
2015 | |
2014 |
| Depreciation and amortization | |
$ | 81,302 | | |
$ | 40,402 | |
| General and administrative | |
$ | 50,605 | | |
$ | 193,017 | |
| Management salary | |
$ | 31,500 | | |
$ | 31,500 | |
| Exploration and development | |
$ | 136,612 | | |
$ | 147,422 | |
| Professional fees | |
$ | 105,555 | | |
$ | 126,308 | |
Revenue
We are an exploration stage entity but
have commenced a renewed focus on the acquisition and disposition of diamond parcels in order to fund and expand our mineral property
activities within the region. For the nine months ended September 30, 2015, we generated $101,531 in revenue related to diamond
parcel sales. We anticipate earning revenues through the regular sale and delivery of diamond parcels through our operations activities.
Expenses
The decrease
in operating expenses for the nine months ended September 30, 2015, compared to the same period in fiscal 2014, was mainly due
to a decrease in general and administrative costs as we reduced our expenditures as we focus on generating revenue through the
sale of diamond parcels.
Other Expenses
| | |
Nine Months Ended
September 30, |
| | |
2015 | |
2014 |
| Interest expense/financing cost | |
$ | (297,473 | ) | |
$ | (302,697 | ) |
| Gain/(Loss) on change in fair value of derivatives | |
$ | (66,519 | ) | |
$ | 15,047 | |
| Derivative expense | |
$ | (101,618 | ) | |
$ | (32,846 | ) |
Interest and financing expenses increased
primarily relating to accounting for convertible debt and accretion of discount on notes issued during the last six months of 2014
for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014.
Results of Operations – Three
months Ended September 30, 2015 and 2014
Our operating expenses for the three
months ended September 30, 2015 and 2014 are outlined in the table below:
| | |
Three Months Ended
September 30, |
| | |
2015 | |
2014 |
| Depreciation and amortization | |
$ | 27,101 | | |
$ | 13,467 | |
| General and administrative | |
$ | 14,000 | | |
$ | 34,404 | |
| Management salary | |
$ | 10,500 | | |
$ | 10,500 | |
| Exploration and development | |
$ | 70,700 | | |
$ | 28,122 | |
| Professional fees | |
$ | 16,889 | | |
$ | 35,641 | |
Revenue
We are an exploration stage entity but
have commenced a renewed focus on the acquisition and disposition of diamond parcels in order to fund and expand our mineral property
activities within the region. For the three months ended September 30, 2015, we generated $53,964 in revenue related to diamond
parcel sales. We anticipate earning revenues through the regular sale and delivery of diamond parcels through our operations activities.
Expenses
The decrease
in operating expenses for the three months ended September 30, 2015, compared to the same period in fiscal 2014, was mainly due
to a decrease in general and administrative costs as we reduced our expenditures as we focus on generating revenue through the
sale of diamond parcels.
Other Expenses
| | |
Three Months Ended
September 30, |
| | |
2015 | |
2014 |
| Interest expense/financing cost | |
$ | (75,324 | ) | |
$ | (64,177 | ) |
| Gain/(Loss) on change in fair value of derivatives | |
$ | 8,569 | | |
$ | — | |
| Derivative expense | |
$ | (88,107 | ) | |
$ | — | |
Interest and financing expenses decreased
primarily relating to accounting for convertible debt that was paid in cash incurring a 145% payment rate for the three months
and accretion of discount on notes issued during the last six months of 2014 for the nine months ended September 30, 2015 as compared
to the nine months ended September 30, 2014.
Equity Compensation
We currently do not have any formalized
stock option or equity compensation plans or arrangements however; from time to time we settle obligations via the issuance of
equity and equity-linked instruments.
Liquidity and Financial Condition
| | |
September 30,
2015 | |
December 31,
2014 |
| Current assets | |
$ | 61,601 | | |
$ | 13,213 | |
| Current liabilities | |
$ | 2,316,591 | | |
$ | 1,850,995 | |
| Working Capital | |
$ | (2,254,990 | ) | |
$ | (1,837,782 | ) |
Cashflow
| | |
Nine Months Ended
September 30, |
| | |
2015 | |
2014 |
| Net cash used in operating activities | |
$ | (217,009 | ) | |
$ | (362,153 | ) |
| Net cash used in investing activities | |
$ | (33,855 | ) | |
$ | (45,000 | ) |
| Net cash provided by financing activities | |
$ | 250,880 | | |
$ | 405,700 | |
| Net increase/(decrease) in cash during period | |
$ | 16 | | |
$ | (1,453 | ) |
Our total assets at September 30, 2015
were $264,380. Our financial statements report a net loss of $769,653 for the nine months ended September 30, 2015 and an accumulated
deficit of $9,941,367. We had a cash balance of $537 as of September 30, 2015.
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. We are now also regularly
selling and delivering diamond parcels.
During the first nine months, the Company
has focused its completing diamond parcel sales to generate cash to further its efforts on deploying available equipment within
Sierra Leone to mining concessions available to the Company under contract with the mineral concession owner or under our own license
and focusing efforts on the continuation of diamond parcel sales to further funding of exploration activities. 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.
Mineral Property Costs
Mineral property acquisition costs are
capitalized. Exploration and development costs are expensed as incurred. When it has been determined that a mineral property can
be economically developed as a result of establishing proven and probable reserves, the costs incurred to develop such property,
are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve.
If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.
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, 2014 filed on April 16, 2015.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
The following
provides additional information for certain stock transactions that occurred during the nine months ended September 30, 2015. 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, 2014 and filed with the Securities Exchange Commission on
April 16, 2015.
During the
three months March 31, 2015, the Company issued 56,833,333 shares upon the conversion of the note payable #3 dated July 2014 for
outstanding principal balance of $32,500; 50,000,000 equity units at $0.0008 with each unit consisting of one common share of stock
and one 12 month share purchase warrant exercisable at $0.0016 per share for total cash of $40,000; 8,000,000 equity units at $0.0011
with each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.0022 per share
for total cash of $8,800.
During the
three months ended June 30, 2015, the Company issued 2,000,000 equity units at $0.0022 with each unit consisting of one common
share of stock and one 12 month share purchase warrant exercisable at $0.0025 per share as inducement to enter into a financing
agreement; 1,500,000 shares at $0.0002 as inducement to enter into a financing agreement; 1,500,000 equity units at $0.0015 with
each unit consisting of one common share of stock and one 12 month share purchase warrant exercisable at $0.0015 per share as inducement
to enter into a financing agreement; 63,367,003 shares upon the conversion of the note payable #4 dated November 2014 for outstanding
principal balance of $35,000; 10,000,000 shares at $0.0009 as part of a services agreement valued at $9,000; 7,142,857 shares at
$0.0007 per share for total cash of $5,000.
During the
three months ended September 30, 2015, the Company issued 500,000 shares at $0.0011 as inducement to enter into a financing agreement;
and 2,000,000 shares at $0.0014 as inducement to enter into a financing agreement.
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 |
| |
|
To be filed by amendment. |
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
| |
|
SUNERGY, INC. |
| |
|
|
|
| Date: |
November 23, 2015 |
By: |
/s/ Garrett Hale |
| |
|
Name: |
Garrett Hale |
| |
|
Title: |
Chief Executive Officer, President, Director |
| |
|
Title: |
Chief Financial Officer
(Principal Financial and Accounting
Officer) |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Garrett Hale, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Sunergy, Inc.;
2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and |
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting. |
Date: November 23, 2015
| /s/ Garrett Hale |
| Garrett Hale |
| President, Chief Executive Officer, Chief Financial Officer and Director |
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
| Sunergy, Inc. |
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I, Garrett Hale, hereby certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Quarterly Report on Form 10-Q of Sunergy, Inc. for the quarter ended September 30, 2015 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of Sunergy, Inc.. |
| Dated: November 23, 2015 |
|
|
| |
|
|
| |
|
|
| |
|
/s/ Garrett Hale |
|
|
| |
|
Garrett Hale |
| |
|
President, Chief Executive Officer, Chief Financial Officer and Director |
| |
|
(Principal Executive Officer, Principal Financial Officer, and Principal Accounting officer) |
| |
|
Sunergy, Inc. |
A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed
form within the electronic version of this written statement required by Section 906, has been provided Sunergy, Inc. and will
be retained by Sunergy, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.