UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)

[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2011
 
[   ]
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
 
N/A
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
14362 N. Frank Lloyd Wright Blvd., Suite 1000, Scottsdale, AZ
 
85260
(Address of principal executive offices)
 
(Zip Code)
 
Registrant's telephone number, including area code:
 
480.477.5810

Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Name of Each Exchange On Which Registered
N/A
 
N/A

Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $0.001 par value

(Title of class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.  Yes o    No  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act    Yes  o   No  x
 
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 last 90 days.  Yes  o  No  x
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 registration statement was required to submit and post such files). Yes  x  No  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)  is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition 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
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
 
The aggregate market value of Common Stock held by non-affiliates of the Registrant on June 30, 2011 was $14,899,338 based on a $0.0122 closing price per share. For purposes of this computation, all executive officers and directors have been deemed to be affiliates. Such determination should not be deemed to be an admission that such executive officers and directors are, in fact, affiliates of the Registrant.
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
1,567,282,115 as of  June 15, 2012
 
 
 


 
 

 
 
TABLE OF CONTENTS
 
 
PART I
2
Item 1.  Business
2
Item 1A.  Risk Factors
16
Item 1B.  Unresolved Staff Comments
25
Item 2.  Properties
25
Item 3.  Legal Proceedings
25
Item 4.  (Removed and Reserved)
25
   
PART II
26
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
26
Item 6.  Selected Financial Data
27
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 27
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
32
Item 8.  Financial Statements and Supplementary Data
33
Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
54
Item 9A(T).  Controls and Procedures
54
Item 9B.  Other Information
56
   
PART III
57
Item 10.  Directors, Executive Officers and Corporate Governance
57
Item 11.  Executive Compensation
60
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
62
Item 13.  Certain Relationships and Related Transactions, and Director Independence
62
Item 14.  Principal Accounting Fees and Services
63
   
PART IV
63
Item 15.  Exhibits, Financial Statement Schedules
63
   
SIGNATURES
65

 
 
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PART I
 
Item 1.    Business

In this Annual Report on Form 10-K, references to “dollars” and “$” are to the United States dollars and, unless the context otherwise requires, Sunergy, Inc., and its consolidated subsidiaries are referred to in this report as the “Sunergy,”  the “Company,” “we,” “our” or “us.” In addition to historical information, this Annual Report on Form 10-K (“Annual Report”) for Sunergy  contains “forward-looking” statements, including statements regarding the growth of product lines, optimism regarding the business, expanding sales and other statements. Words such as expects, anticipates, intends, plans, believes, sees, estimates, predicts”, “potential” or “continue” or the negative of these terms and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Actual results could vary materially from the description contained herein  based on  (i) the uncertain global economic environment and the timing and strength of a recovery in the markets we serve, and the extent to which adverse economic conditions continue to affect our exploration activities and results, or increase competitive pressures within the mining industry, (ii) the impact of governmental initiatives in Ghana and Sierra Leone West Africa to spur economic activity, including the effects of significant government monetary or other market interventions on inflation, and price control, (iii) our anticipated cash needs in light of our liquidity, (iv) the continued price of gold and rare earth elements, (v) trends and other factors affecting our financial condition or results of operations from period to period, including severe weather conditions or natural disasters and the availability of sufficient labor during the exploration period, (vi)  the impact of foreign currency fluctuations, (vii) our plans for expansion of our business and exploration, (viii) our ability to successfully integrate our mining explorations into the existing natural environment and economic climate of our concessions, and (ix ) the cost and other implications of changes in regulations applicable to our business, including potential legislative or regulatory initiatives in Ghana and Sierra Leone West Africa or elsewhere directed at mining and mineral concessions, currency and the free exchange (including without limitation import and exports) of goods and raw materials (including without limitation gold and rare earth elements)  from one county to another, and  other risk factors listed in the section of this Annual Report titled “Risk Factors” and elsewhere in this Annual Report. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk 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.

Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning our business made elsewhere in this Annual Report, as well as other public reports filed by us with the United States Securities and Exchange Commission. Readers should not place undue reliance on any forward-looking statement as a prediction of actual results of developments. All forward-looking statements in this Annual Report are based on information available to us on the date hereof, and we undertake no obligation to update or revise any forward-looking statement contained in this Annual Report . W e 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 financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares of our capital stock.

As used in this current report and unless otherwise indicated, the terms "we", "us", "our", "our Company" and "Sunergy" mean Sunergy, Inc.


 
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General Overview

We were incorporated in the State of Nevada, USA, on January 28, 2003. We are an exploration stage company engaged in the acquisition and exploration of mineral properties with a view to exploiting any mineral deposits we discover that demonstrate economic feasibility.

Our Current Business

We are an exploration stage mining company engaged in the exploration of minerals on properties located in Ghana, and Sierra Leone West Africa. Our 150 sq.km. Nyinahin mining concession in Ghana and the 140.1 sq. km. Pampana River mining concession in Sierra Leone are the focus of our immediate exploration and development activities. We are constantly evaluating additional potential properties as well with an eye to growing our portfolio.  The two above projects are discussed in detail below. We are in the process of doing advanced mineralogical work on our Pampana River Project to determine the economics of mineral separation which will allow for marketability of the various rare earth’s and precious metals already discovered.

Nyinahin Mining Concession - Ghana, West Africa

Sunergy’s Nyinahin concession is located in Ghana’s Ashanti Region, ca. 50 km southwest of Kumasi. The Kumasi-Bibiani road cuts NE-SW across the northwest part of the concession. The concession is irregularly shaped and is approximately bounded by 6o29’ and 6o37’ North Latitude and 2o01’and 2o12’ West Longitude.  The concession consists of 150 km2 of gently rolling secondary forest and slash-and-burn farming areas containing some cocoa farms and oil-palm plantations. The Offin River valley follows a roughly 10 km meandering NE-SW course through the southeastern part of the concession approximately 60 km upstream from the Central Region town of Dunkwa-on-Offin (also known as Dunkwa).

The Nyinahin concession was originally granted as a reconnaissance license in July 2005. The owner entered into an agreement on in April 2006 to sell its 100% interest in Mineral License including the concession to Mikite Gold Exploration Limited, a Ghana Corporation. The reconnaissance license was converted into a two year renewable Prospecting License in January 2008 by Ghana’s Minister of Lands, Forestry and Mines.  Sunergy acquired Mikite Gold Resources Limited in October 2008 and continues to explore the concession as a wholly-owned subsidiary.

The Prospecting License does not have an expiry date providing the Company remains in good-standing and the every other year license renewal requirements are met.  If we identify commercially viable resources within the concession we may apply for a 30-year mining license to further develop and mine the concession.   The Company and our management currently believe it holds a Prospecting License in good standing with the Ghana Minerals Commission.


Regional Geology

The Nyinahin concession is located between two geological gold belts, the Bibiani Belt to the west and the Asankrangwa to the east.  The license allows for the exploration and mining of gold, silver, base metals and diamonds. About 80% of the Nyinahin Concession lies to the west of the Offin River within the Ashanti Region of Ghana. There are several historical pits and adits with a strong clustering of artisan pits located along the Offin River. Three old gold prospects exist on the concession. The property is accessed via the main Kumasi-Bibiani trunk road. It falls under the jurisdiction of the Atwima Mponua District Assembly with headquarters at Nyinahin.

The Nyinahin concession is comprised of the Nyinahin Mineral Licence LVB 8936/05 and Land Registry No. 1535/2005, and subsequently converted into a Full Prospecting License (LVB 3857/08). The Concession is situated 20km northeast of Bibiani and about 48km Southwest of Kumasi. The concession which covers an approximate area of 172 sq. km. has been reduced to 150 sq. km to conform to statutory requirements regarding the maximum size for Prospecting Licenses by the Minerals Commission.
 
 
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There are numerous forms in which gold occurs in the Birimian system of Ghana. Current field work coupled with other geological report suggest that the Nyinahin concession greatly point to mineralization related to shear system within metase dimentary environment as exhibited at the Bibiani mines of the Ashanti Goldfield Corporation Ltd. Other forms of mineralization include that exhibited on the Ntibia mines, i.e., mineralization associated with granites within intrabasinal environments. The structures on the concession have resemblance to intrabasinal faults represented by the Asankrangwa Fault in the Kumasi basin and the Yamfo trend in the Sunyani basin.

Ghana’s geologic setting can be divided into four major litho-stratigraphic and litho-tectonic complexes:

I – The oldest rocks exposed in Ghana are Paleoproterozoic (Early Proterozoic) meta-sedimentary and meta-volcanic rocks of the Birimian and Tarkwaian systems, which have been intruded by Paleoproterozoic granitic rocks of the Basin and Belt intrusive complexes. The Paleoproterozoic rocks of Ghana have been dated at between 2195 and 2072 Ma,

II – Infra-Cambrian (Neo-Cambrian or Late Proterozoic) to Early Cambrian sedimentary rocks of the Voltaian Supergroup, which are considered as Pan African in age, have been dated between 1000 and 542 Ma.

III – Sedimentary, volcanic, and metamorphic rocks, and tectonites of the Pan-African Dahomeyide orogenic belt, which have been dated between 610 and 570 Ma, and include the Buem and Togo structural units (equivalent in age to units in the Voltaian Supergroup), and the Dahomeyan Supergroup. These units range from unmetamorphosed clastic sedimentary and volcanic rocks to quartzites, serpentenites, schists, and gneisses.

IV – Clastic sedimentary rocks related to the opening of the Atlantic Ocean, that were deposited in restricted basins along Ghana’s coast, and range in age from Ordovician to Cretaceous. The Paleozoic to Cretaceous sedimentary rocks appear in Figure 2 as small basins along the coast of southern Ghana.

Local Geology

The rocks in the Project area consist of clastic meta-sedimentary rocks that were deposited in the Kumasi Basin, just to the west of the somewhat poorly defined zone, referred to as the Asankrangwa-Manso Nkwanta gold belt  The rocks consist of Paleoproterozoic meta-sedimentary rocks of the Birimian Supergroup, which have been dated to between 2195 and 2145 Ma. The Birimian rocks were intruded by Eburnean plutonic rocks of the Basin granitic complex (formerly referred to as the Cape Coast Complex or G1), and dated between 2116 and 2072 Ma. The part of the Nyinahin concession, north of 6 o 30’ was mapped for the Ghana Geological Survey (GGS) by the Bulgarian geologist, Dr. C.N. Dabowski (1971a), and the area south of 6 o 30’ was mapped by the American geologist R.A. Senger (1975a), both at a scale of 1:62,500. The geologic maps of Dabowski (1971b),  and Senger (1975b) indicate northeast-trending exposures of steeply dipping Birimian meta-sedimentary rocks, intruded on the west and north by granitic rocks of Basin affinity.

Dabowski (1971a and 1971b) divided the “Lower Birimian” rocks of Field Sheet 122, Kukuom SE, into four meta-sedimentary flysch units within the area of the Nyinahin Concession: (1) a Sandy-Pelitic formation; (2) a Pelitic formation; (3) a Sandy formation; and (4) an Argillaceous formation, and also indicated that the Birimian meta-sedimentary rocks were intruded by a two-mica granodiorite of the Cape Coast Complex (now Basin Complex) on the west and north. Senger’s map (Senger, 1975b) of Field Sheet 84, Wiawso NE, indicates three meta-sedimentary flysch units in the southeast part of the concession. Senger (1975a) defines these as (1) a Sandy-Pelitic formation; (2) a Pelitic formation; and (3) a Sandy formation. These correspond with the first three mapped units of Dabowski (1971a). D.A. Copeland (1973) also reported on the geology of Field Sheet 84. The two maps disagree as to the location of the boundary between the meta-sedimentary and the granitic rocks, however, this contact lies outside the Project area.

Hirdes and others (1993) geological map of Southwest Ghana, divided the meta-sedimentary rocks of the Project area into three lithofacies units: (1) an Argillite/Volcaniclastic facies; (2) a Volcaniclastic/Argillite facies; and (3) a Wacke facies. These units do not directly correspond with the units mapped earlier by Dabowski (1971a and 1971b) and Senger (1975a and 1975b). The contact between the meta-sedimentary rocks and the granitic rocks of Hirdes and others (1993) also do not exactly agree with similar boundaries on the maps of Dabowski (1971b) and Senger (1975b). However, considering the deep weathering that formed the saprolitic and lateritic cover, and the general lack of outcrops, the maps are in basic agreement as to the essentials of the local geology.
 
 
4

 

The geologic map in the Mikite technical report from August 2006 (Adjovu, 2006), did not provide technical reference sources for the geologic mapping. However, the only organization to publish geologic maps of the Concession area was the Ghana Geological Survey (GGS). At the Geological Survey Department, Sunergy geologists met with Geoffrey K. Loh, Deputy Director (Technical) and Head of the Geologic Mapping Division. As Sunergy geologist, Robert A. Levich, is a former GGS geologist, who was involved in geologic mapping programs in western Ghana during the late 1960s and early 1970s, he was provided access to collect reports and examine mapping files. Sunergy, thereby obtained a number of published and unpublished reports and copied several unpublished geologic maps.

MINERALIZATION AND MINING

Alluvial Mining Status

Downstream from Nyinahin, 1.45 million ounces of gold have been produced from the Ofin River valley, more than from any other river system in Ghana. Levich (2010) stated in Sunergy’s Alluvial Gold Deposits Report, that the Ofin River Valley, within the Nyinahin Concession, has vast potential for hosting alluvial gold deposits, and that there is excellent potential for economic recovery of gold from the alluvial deposits in the Ofin River Valley within

In addition, other areas of the Ofin River Valley, downstream (south) from the Nyinahin Concession, have also recently been opened for small licensed concessions.  Presently, there is large-scale alluvial mining taking place in the Ofin River Valley, upstream and close to Nyinahin Concession boundaries. There are miners from Ghana, the United Kingdom, Brazil, and China, and, reportedly Germany, near the boundaries of Sunergy’s Concession. In addition, immediately to the south of the Concession, in the vicinity of the town of Achiase (formerly called Awuokurom), there is an additional area that has been opened to small-scale licensed miners.  As far as I could ascertain, some two miles of Ofin River Valley within the Nyinahin Concession remains a virgin, non-mined area.

Potential of Birimian Meta-Sedimentary Rocks

Immediately adjacent on the east to the Nyinahin Concession are properties held by Keegan Resources of Canada, which purchased the partially mined-out Bonte and Jeni alluvial concessions during the early years of the 21 st Century. The properties that adjoin the Nyinahin Concession are called the Esaase (formerly, the Bonte) and Jeni concessions, and there are continuing programs, begun in 2005, of geochemical sampling, geophysical (aeromagnetic) surveying, and trenching and core drilling. Since 2005, hard rock gold resources have been developed within the Esaase Concession, along a number of northeast-southwest trending structures. Keegan’s recent reports indicate the discovery of significant indicated gold resources. This meta-sediment formation runs directly under the Nyinahin Concession providing a target area for our on-going exploration. The maps available also indicate multiple mineralized fractures or fault zones, running south and southwest from the Jeni Concession into the Nyinahin property.

The recent discoveries of hard rock gold deposits near Esaase, and west of Nyinahin, indicates that a new ore deposit model exists for gold deposits in the Proterozoic meta-sedimentary rocks of the West African Precambrian Shield. These gold deposits were formed in multiple quartz veins or quartz reefs, within the Birimian meta-sedimentary rocks of Lower Proterozoic age of the Kumasi Basin, far from surface exposures of Birimian meta-volcanic greenstones and/or Dix Cove (G2) plutonic granitic rocks of Belt affinity.

The Nyinahin Concession lies in the western part of the Kumasi Basin, straddled between the recent gold discoveries described above. In addition, the known alluvial gold in the area may well be indicative of adjacent hard rock gold deposits. With this in mind, Sunergy geologists have initiated a program of using satellite-gathered remote sensing data to search for anomalous areas and/or indications of potentially favorable structures in the Lower Proterozoic rocks.



 
5

 



 WORK AND PROSPECTING ACTIVITIES COMPLETED

Geologic Field Studies

During 2011, Sunergy geologists made multiple visits to the Nyinahin Prospecting Concession. The Sunergy geologists examined the geology of the Nyinahin area, and compared field sites to the several unpublished geologic maps (Dabowski, 1971b; Senger, 1975b; and Adjovu, 2006) that were obtained by Sunergy, plus the published geologic map of Southwest Ghana (Hirdes and others, 1993). In the course of checking the geologic mapping, Sunergy geologists surveyed the geological features of the Concession and selected samples of rocks and soils that were collected and analyzed for gold.

The Sunergy geologists collected fifteen (15) rock samples and selected three (3) samples of stream sediments. Twelve (12) of the rock samples were from quartz veins and the remaining were identified as phyllite, graywacke, and silicified phyllite.

Remote Sensing Studies

Sunergy geologists have recently conducted comparative studies using LANDSAT 7-BAND satellite imagery of the Nyinahin concession and areas that host nearby known gold deposits, and have identified a number of areas with favorable characteristics. These areas will receive increased scrutiny during the geochemical-geophysical-geological examinations planned for the concession.

Sunergy contracted with the University of Ghana’s Centre for Remote Sensing and Geographic Information Systems (CERSGIS) at Legon to provide seven (7) bands of LANDSAT Satellite-collected Remote Sensing Imagery of the Nyinahin Concession and adjacent areas. Several weeks were required to collect and reduce this Imagery. All the available Imagery bands, plus composites, were examined and evaluated for use by enhanced evaluation. Several Images, which appeared most suitable, were selected, notably Band 6, and a 7 Band False Color Composite.

The areas selected for reduction, enhancement, and examination included both the Nyinahin Concession, and the adjacent Jeni and Esaase (originally Bonte) concessions to the east. As noted above, several northeast-trending vein structures, that have formed economically viable ore zones, containing several million troy ounces of gold were discovered and core drilled in the Birimian meta-sedimentary rocks of the Kumasi Basin. As it lies in the Paleoproterozoic Birimian meta-sedimentary rocks of the Kumasi Basin, close to Sunergy’s concession, the Esaase deposit is an excellent analogue, and is used as a model for potential gold deposits in the Nyinahin area, which is also located in a very similar environment of the Kumasi Basin.

The selected Imagery for Nyinahin was examined for anomalous features, including linear and circular/elliptical structures. These features were all carefully demarcated on tracing film, and compared to the known geology, as well as to similar features visible on the imagery for nearby concessions. In particular, the Imagery was examined for northeast-southwest trending features, similar to the ore-bearing structures discovered in the Esaase concession, as well as the mineralized fault zones recently reported to lie in the Jeni concession, and that extend into the Nyinahin concession. In addition, Sunergy geologists examined the relationship between circular/elliptical features, which possibly represent buried intrusive bodies, hidden collapse structures (e.g., calderas) or similar structures that might be a source for ascending hydrothermal fluids, heat sources, or merely increased areas of porosity and permeability. Hundreds of linear features were identified, and a number of circular or elliptical features were located, defined, and mapped. Of particular interest are intersections between several directions of linear features and between linear features and circular/elliptical features.

Geochemical Prospecting and Sampling

As noted above, Sunergy geologists collected rock samples and selected samples of stream sediments during their examination of the Nyinahin Concession. Many of the collected rock samples were from quartz veins and the remaining were identified in the field as phyllite, graywacke, and silicified phyllite. The Sunergy geologists also identified exposures of granitic rocks in areas adjacent to the Nyinahin Concession, however, no  samples of intrusive rocks were collected from within the Concession boundaries, and no granitic rocks were collected from outside the Concession.
 
 
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 INTERPRETATION & DISCUSSION OF RESULTS

Geology

The recent discoveries of hard rock gold deposits near Esaase, and west of Nyinahin, indicates a new ore deposit model for gold deposits in the Proterozoic meta-sedimentary rocks of the West African Precambrian Shield. These deposits were formed in multiple quartz veins or quartz reefs, within the Paleoproterozoic Birimian meta-sedimentary rocks,of the Kumasi Basin, far from surface exposures of Birimian meta-volcanic greenstones and/or Dix Cove (G2) plutonic granitic rocks of Belt affinity.  The structures indicated on the Esaase maps and the favorable anomalous features discovered from the studies of remotely sensed Landsat data, plus the abundant alluvial gold in the Nyinahin area, indicates a strong possibility that similar deposits are located in the Birimian meta-sedimentary rocks of the Kumasi Basin that underlie the Nyinahin area.

Remote Sensing

Examination of the Landsat Band 6 Imagery revealed a total of 250 linear features within the current boundaries of the Nyinahin Concession, and 26 linear features in the area that was formerly part of the Concession and currently has been opened to small scale licensed mining along the Ofin River Valley. An additional 44 linear features are located adjacent or near to the concession’s boundaries. Several large circular or elliptical patterns are located in the concession, and a total of 18 curvilinear features were plotted within the boundaries of the Concession. An additional 8 curvilinear features lie within the former part of the Concession along the Ofin River. These features were compared to 22 linear features located in the Esaase Concession, and an additional 10 linear features found close to Esaase’s boundaries. Therefore, a total of 378 linear and curvilinear features were plotted and examined on the Landsat Band 6 Remote Imagery for the Nyinahin Concession and adjacent areas.

The composite image of all seven (7) Landsat Remote Imagery Bands was also examined and revealed a total of 240 linear features within the present boundaries of the Nyinahin Concession, and an additional 11 linear features in the area that was formerly part of the Concession, and currently has been opened to small scale licensed mining along the Ofin River Valley. An additional 23 linear features are located adjacent or near to the Concession’s boundaries. Several large circular or elliptical patterns are located in the concession, and a total of 26 curvilinear features were plotted within the boundaries of the Concession. An additional 13 curvilinear features lie within the area that was formerly part of the Concession along the Ofin River. These features were compared to 22 linear features located in the Esaase Concession, and an additional 2 linear features found close to Esaase’s boundaries. Therefore, a total of 337 linear and curvilinear features were plotted and examined on the Landsat Seven (7)-Band Composite Imagery for the Nyinahin Concession and adjacent areas.

Geochemistry

As noted above, Sunergy geologists collected fifteen (15) rock samples and selected three (3) samples of stream sediments. Twelve (12) of the rock samples were from quartz veins and the remaining were identified as phyllite, graywacke, and silicified phyllite.

One third (33%) of the quartz veins, all three (3) rock samples, and all three (3) samples of stream sediments contained measurable gold. 33% of the sampled quartz veins contained measurable gold values, as well as all rock samples, and all soil samples. Quartz vein samples contained up to 77 ppb, gold and the altered rock sample 75 ppb, gold, while the soil samples ranged up to 1,185 ppb gold (1.185 ppm). These are all anomalous values. The sample map of the Nyinahin Concession appears as Figure 8.
 
 
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 FUTURE ACTIVITIES & PLANS

Planned Activities

During 2012, Sunergy/Mikite intends to continue to focus its efforts to accelerate programs to rapidly evaluate the hard rock potential of the Nyinahin area through remote sensing, detailed geological mapping, geochemical sampling, geophysical surveying emphasizing magnetometry, and rock sampling, both during surface examination and the core drilling of geochemical and geophysical anomalies.

The next step is for Sunergy/Mikite to conduct a systematic program to collect stream sediment samples for geochemical analysis, so as to identify all areas of the Nyinahin concession that have anomalous gold content. In parallel with this geochemical sampling, Sunergy geologists will carry out a program of detailed geologic mapping and collection of rock samples. After examination, analysis and plotting the results of the geochemical and geologic studies, Sunergy intends to follow these studies by planning an aeromagnetic survey of appropriate parts of the concession area.

The recent increase in the price of gold has served as a reminder of the great potential of Sunergy’s Nyinahin Concession to host vein deposits in the meta-sedimentary rocks of Ghana’s Precambrian shield, and also host other potential deposits related to the anomalous gold values of the Ofin River Valley. The increased gold price has focused Sunergy’s efforts to accelerate programs for bulk sampling of gold-bearing rocks and increased efforts to rapidly evaluate the hard rock potential of the Nyinahin area through systematic geochemical sampling, geophysical surveying emphasizing airborne magnetometry, and rock sampling during surface examinations, trenching, bulk sampling, and the core drilling of the geochemical/geophysical anomalies.

Beginning, during the second Quarter of 2012, Sunergy/Mikite plans to test and evaluate the gold recovery potential of the Nyinahin Concession, by bulk sampling, both near existing artisan pits along the Ofin River, and excavation of new pits located on a grid, to establish continuity of mineralization, and to evaluate the depth of both overburden and the thickness of gold-bearing resources in the bedrocks. Sunergy/Mikite also plans to test the bedrock in the bottom of each pit and trench, and to selectively drill to depth, to test for gold mineralization in the underlying Precambrian rocks. The program has a planned budget of approximately $400,000.

Geochemical Prospecting Program

As part of Sunergy’s planned 2012 exploration and prospecting program, is a comprehensive geochemical sampling program. All collected samples will be analyzed by fire assay for gold at ALS laboratories in Kumasi, and selected samples may be analyzed for arsenic and/or other “pathfinder” or potentially useful elements, at ALS laboratories outside Ghana.

Active stream sediments samples will be collected at intervals of 0.4 miles (ca. 0.6 km) along every stream within the Nyinahin Concession. The locations for these samples have been pre-selected and plotted using a drainage map. A total of 284 sample locations have been selected, however, it is expected that some additional samples will be collected during the sampling program. Currently, Sunergy is planning to collect and analyze between 300 and 320 active stream sediment samples.

In addition, as noted above, Sunergy’s studies of Remote Sensing Satellite Imagery have yielded several interesting anomalous features. The linear features may be the result of hidden structures, including faults and fracture zones, in the Birimian meta-sedimentary rocks of the West African Precambrian Shield. Also, several elliptical or circular features have been located that may result from underlying features including buried plutons or paleo-collapse structures, including calderas. These features may possibly represent the sources for hydrothermal activity, or they may represent structures that have increased the porosity and permeability of the Birimian rocks. Therefore, these features have interesting potential for hosting ore deposits. Each of the features will be sampled, regardless of their relationship to the planned locations for collecting stream sediment samples. Sampling of the residual soil at these locations will probably require auguring several meters down to weathered lateritic or saprolitic bedrock. A total of 40 sample locations have been chosen for these selected features, and plotted on the drainage map. It is expected that samples from several additional features will be collected during the sampling program. Sunergy is planning to collect and analyze ca. 50 soil samples from selected features.

During the course of the sampling program, samples from all rocks and quartz veins that are discovered during the field programme, will be collected and analyzed, in addition to the 15 quartz veins and rocks that were sampled and analyzed during the 2011 traverses of roads and selected paths. Sunergy expects an additional ca. 20 samples of rocks and quartz veins will be collected and analyzed. We estimate that a total of 340 to 400 samples will be collected and analyzed during this initial geochemical survey.
 
 
8

 

The analyses of the stream sediment samples, plus the concurrent geologic mapping and rock sampling programs will form the basis for the selection of areas to be gridded for close-spaced geochemical sampling, as well as the selection of the areas and locations for flight lines for rotary-wing aeromagnetic surveys.

Geophysical Surveys

Geophysical surveys, particularly aeromagnetics, have proven quite useful for minerals exploration on the West African Precambrian Shield. E.g., the mineralized fault zones on the Esaase Property were located and defined by use of aeromagnetic surveys. Before Sunergy contemplates a drilling program, we intend to fly rotary-wing aeromagnetics over selected parts of the Nyinahin Concession. However, Sunergy geologists plan to complete and analyze the results of the geochemical exploration program before selecting the exact areas for using airborne magnetometry. It is expected that the rotary-wing flight lines for the aeromagnetic survey will probably range in a northwest-southeast or east-west direction, so as to intersect the expected northeast-southwest trending structures, generally found in Birimian meta-sedimentary rocks, or some of the north-south structures located in nearby areas. However, before the exact survey areas and grids are defined, it will require a comprehensive analysis of the results of the planned geochemical survey, and a re-examination of the linear and curvilinear features plotted from the

Remote Sensing Imagery.

If favorable magnetic anomalies are located from the collected aeromagnetic data, Sunergy geologists plan to conduct ground magnetic surveys, following closely spaced grid lines, and using hand-carried proton precession magnetometers. The grid lines will be cut at ca. 90 degrees to the anomalous structures that were located using the airborne magnetic data. During this phase, Sunergy geologists and geophysicists intend to simultaneously conduct ground electromagnetic (EM) surveys of the gridded areas.

The geochemical, geomagnetic, and EM surveys will be followed up by extensive programs of trenching and pitting, to expose and analyze the local bedrock before commencing a program of rotary core drilling.

The collected data, sample analyses, and interpretation of remotely sensed Landsat data have provided Sunergy/Mikite with strong positive indications that the Birrimian meta-sedimentary rocks of the Kumasi basin that underlie the Nyinahin Concession, contain structures that are favorable for the development of gold deposits.

The recent discoveries of hard rock gold deposits to the east near Esaase, and other discoveries to the west of Nyinahin, indicate that a new ore deposit model exists for gold deposits entirely within in the Proterozoic meta-sedimentary rocks of the West African Precambrian Shield. These deposits were formed in multiple quartz veins or quartz reefs, within the Paleoproterozoic Birimian meta-sedimentary rocks of the Kumasi Basin, far from surface exposures of Birimian meta-volcanic greenstones and/or Dix Cove (G2) plutonic granitic rocks of Belt affinity. The structures indicated on the Esaase maps and the favorable anomalous features discovered from the studies of remotely sensed Landsat data, plus the abundant alluvial gold in the Nyinahin area, indicates a high favorability that similar deposits are also located in the Birimian meta-sedimentary rocks of the Kumasi Basin that underlie the Nyinahin area.

 
9

 
  COST ESTIMATE: SUNERGY’S 2012 EXPLORATION PROGRAMME
 
PROPOSED ACTIVITY OR OBJECT
 
US Dollars ($)
   
Ghana Cedis ( Ë )
 
STAFF: Geologist I: Salary
    25,000.00       37,500.00  
STAFF: Geologist II: Salary
    60,000.00       90,000.00  
STAFF: Skilled Assistants (3)
    30,000.00       45,000.00  
STAFF: Unskilled Labor (20)
    48,000.00       72,000.00  
REMOTE IMAGERY: CERSGIS - Additional
    2,000.00       3,000.00  
GEOCHEMISTRY: Collect ca. 400 Samples
    ***       ***  
ASSAYS: ASL Fire Assays - ca. 400 Samples
    7,200.00       10,800.00  
ASL ANALYSES: As + Selected Elements
    3,300.00       4,950.00  
GEOPHYSICS: Aeromagnetic Survey-Helicopter
    40,000.00       60,000.00  
GEOPHYSICS: Ground-based Magnetics Survey
    20,000.00       30,000.00  
MAPPING: Geological studies
    ***       ***  
GRIDDING: Cutting & Surveying Grid Lines
    ***       ***  
BULK SAMPLING: Trenching & Pitting
    ***       ***  
DRILLING: Rotary Coring
    38,000.00       57,000.00  
VEHICLE: Purchase
    -----       -----  
VEHICLE: Rental (1 4x4 Pickup @ $85/day) +++
    30,000.00       45,000.00  
VEHICLE:  Fuel, Lubricant, etc.
    10,000.00       15,000.00  
EQUIPMENT
    5,000.00       7,500.00  
LOGISTICS & CONTINGENCY
    20,000.00       30,000.00  
ADMINSTRATION: Office & Overhead
    2,500.00       3,750.00  
FEES & Community Awareness: Loc./Reg./Nat.
    10,000.00       15,000.00  
ACCOMODATIONS: Hotels & Rentals
    39,000.00       58,500.00  
CONSULTANTS
    -----       -----  
CONTRACTORS
    ###       ###  
COMPENSATION: Farmers – Cocoa, etc.
    10,000.00       15,000.00  
TOTAL
  $ US400,000.00    
GH Ë 600,000.00
 
_____________________
Note: Assumption for Table 1 is that 1 U.S. Dollar ($) = 1.5 Ghana Cedis ( Ë )
*** Collecting samples, mapping, gridding, & bulk sampling costs are covered by the costs allocated for geologists, staff, equipment, ground-based geophysics & transportation
### Contractor costs covered by the costs allocated for geophysics, drilling, & logistics
----- These costs could not be estimated at this time
 
 
10

 
 
Pampana River Concession - Sierra Leone
 
The Pampana River Concession consists of Exploration Licence No. EXPL 5/2009 which was issued to Allied Mining and Supply Ltd. (AMS), a wholly-owned subsidiary of the Company, on 12th August 2009. The license is located in the Kholifa Rowalla, Kafe Simiria and Tane  Chiefdoms in the Tonkolili District of the Northern Province of Sierra Leone covering an area of 141.3 km2. The concession is situated on the western fringes of the southern Sula Mountains greenstone belt and for most of the northern and central part it straddles the Pampana River. On the west of the southern part, the concession runs along the Pampana River.  The property is South of the Sula Mountains in the Greenstone belt, around 120 miles east of the capital, Freetown.

We acquired the Pampana River Concession, originally issued in August 2009 to Allied Mining and Supply Limited (“AMS”) a Sierra Leone corporation, via the acquisition of its U.S. based parent, Allied Mining and Supply LLC in October 2010.
 
The concession and corresponding License required for exploration runs in perpetuity provided the annual renewal payments are made timely.  In the event we identify commercially viable resources we will seek to obtain additional licensing for the development of the concession.
 
The Company believes the concession and License are in good standing with the applicable Sierra Leone government oversight agency.
 
Rare Earth Elements (REEs) were discovered on the Pampana concession during the  2009 - 2010 exploration efforts by AMS. Due diligence on the Pampana concession has shown that substantial Rare Earth Elements (REEs) are contained in the 140.1 sq. km. Pampana river concession. Assays of heavy black sand concentrates containing rare earths (REEs) in 2009 and 2010, showed quantities of rare earths and other valuable minerals in commercially exploitable grades. Recent assays by ALS Chemex in Sparks, Nevada identified several of these rare earths contained in the heavy black sands along with gold as follows: Lanthanum, Scandium, Thallium, Cerium, Dysprosium, Hafnium, Lutetium, Niobium, Neodymium, Praesodymium, Tantalum and Zircon.
 
 
11

 
 
Table: Pampana River Black Sands Analyses                   Results from ALS Chemix, Sparks, NV 2010
 
   
Parts Per
   
Percent
   
Pounds
   
Troy oz
 
Substance
 
Million (ppm)
   
(%)
   
Per Ton
   
Per Ton
 
                         
Au - Gold
    17.21       0.00172 %     0.03443       0.441  
Ce - Cerium
 
>8,748
   
>0.875
 
>17.5
         
Cr - Chrome
    3,932       0.393 %     7.86          
Dy - Dysprosium
    149       0.0149 %     0.295          
Er - Erbium
    83.4       0.83 %     0.167          
Eu - Europium
    42.5       0.42 %     0.085          
Fe - Iron
    -       16.05 %     321          
Gd - Gadolinium
 
>491
   
>0.049
 
>0.983
         
Hf - Hafnium
    1,689       0.169 %     3.38          
Ho - Holmium
    24.6       0.0025 %     0.049          
La - Lanthanum
    6,022       0.602 %     12.04          
Lu - Lutetium
    15.37       0.0015 %     0.031          
Mn - Manganese
    10,160       1.016 %     20.32          
Nb - Niobium
    2,661       0.266 %     5.61          
Nd - Neodymium
    4,523       0.45 %     9.05          
Pr - Praseodymium
 
>864
   
>0.086
 
>1.73
         
Sm - Samarium
 
>557
   
>0.056
 
>1.12
         
Ta - Tantalum
    1,231       0.123 %     2.46          
Tb - Terbium
    42.8       0.0043 %     0.086          
Ti - Titanium
    -       9.63 %     193          
Y - Yttrium
    740       0.074 %     1.48          
Yb - Ytterbium
    83.8       0.0084 %     0.167          
Zr - Zirconium
 
>10,000
   
>1.0
 
>20.0
         

Data indicates gold concentrations ranging from 1 to 18 grams per ton of material. Fire assays conducted in Freetown by the Company show the gold purity at 94%. testing shows continuity.  Zirconium @ 20% and Titanium @ nearly 10% are also value added elements that are highly marketable.

Our primary focus in the Pampana River Concession during the 2011 mining season focused on the discovery and recovery of commercially viable rare earth elements.

Accessibility, Climate, Local Resources, Infrastructure and Physiography

The Pampana concession is a nearly triangular license for the exploration for gold and other base metals located on the Pampana River from where it emerges from the main schist belt in the Kolifa Rowalla, Kafe Simiria and Tane Chiefdoms in the Tonkolili District. The concession, has a series of meanders off the Pampana from the northern part of the concession to the south where the river forms the western limit of the property. Access to the license area is along the tarmacked Freetown- Kono Highway through Magburaka, which is the largest township and District Headquarters, about 240km east of Freetown. Several unpaved roads and foot tracks crisscross the property.

The climate is a wet tropical monsoon, with a single wet season each year. The average annual rainfall is about 2,500 centimeters. The greater part of this rain falls in the west season, from mid-May to mid-November. The wettest month is usually August, but rivers attain maximum discharge at their lowest in March and April, and begin to increase in May. Ground water levels do not rise significantly until late July. Daytime shade temperatures range from 18° to 35°C with 65% humidity in the dry season and up to 95% in the rainy season. The coldest month on average is January when dry winds called ‘Hamattan’ blow from the north east towards the coast.

The traditional mining season in Sierra Leone runs from October to April during the dry season with some regional variance. It is not uncommon for mining claim operators to stockpile excess materials during the dry season for later processing in order to extend the run of annual productive work. Over the course of the last several years the dry and monsoon seasons have deviated somewhat from historical norms.

Having descended the steep valleys of the Sula Mountains and entering the subdued granitic terrain surrounding the Sula Mountain, the Pampana River becomes a series of meanders with several rock bars exposed across the river. These rock boulders and series of meanders have become locations for the deposition of heavy minerals and have become the locus for alluvial gold mineralization and therefore alluvial mining.

 
 
12

 
 
History

Historically, the Pampana River and its tributaries supported some of the richest alluvial gold workings in the Sula Mountains. The entire stretch of the Pampana River along the southern boundary of the license was dredged for gold in the 1940s and ‘50s. The United Nations Development Program (UNDP) conducted a joint geochemical survey with the Sierra Leone Geological Survey in 1987. The work located gold anomalies in streams along the Pampana River.

Gold placers have been mined from the entire greenstone belt with the exception of the Maranda. The most productive has been the largest belt - the Sula Mountains/ Kangari Hills. Virtually all production records have been from this belt. Amongst the most productive areas have been from rivers in the Lake Sonfon area, the Tebenko River (Makong, Makele) the Mokeke River and Maranda, the Yirisen River and Pampana River. The largest production has come from the dredging of the Pampana River but one of the dredge tails which was sampled was estimated at 0.2gm per cubic yard. The most lucrative section of river has revealed grades of 1gm per cubic yard with an average 0.5gm per cubic yard in the river which is 60m wide with rock exposures. Dredging was successfully done by the Pampana Mining Company for at least 20 miles along the river.

Geological Setting

The Pampana River drains large areas of known gold occurrences hosted in Archean greenstone belts. The Pampana North region is believed to contain significant reserves of high value gold and other precious metals. The region also features high quality alluvial gravels and hard rock quartz vein systems, situated near Sierra Leone’s largest known hard rock vein deposit.  Past sampling and ongoing assaying results have indicated the presence of lode gold reserves.

The northeastern section of the property spans 1,200 feet and is situated nine kilometers from the prolific Yirisen Gold deposit. Past sampling and ongoing assaying results have indicated the presence of lode gold reserves.

Deposit Type

Hard rock gold mineralization was first noted at Yirisen by the Geological Survey of Sierra Leone in 1958 as part of a program of mapping and sampling of the country's major hard rock artisanal gold mines. The Survey identified seven north easterly trending sub-vertical lodes of gold mineralized quartz veining, averaging 150m in length. Sampling by the Survey returned numerous gold intersections in trenches. Yirisen is one of the most advanced gold projects in Sierra Leone, historic work returning a best trench intersect of 6.4m@23g/t Au. The Yirisen gold system, as defined by a combination of mapped sites of in situ mineralization, artisanal workings and soil geochemical anomalies, trends north-northeast with a current inferred strike length of 3.75 km, open in both directions. Independent consultants ACA Howe International Ltd reported from a recent visit to Yirisen that several bands of high-grade gold mineralization occur over a total width of up to 200m. Artisanal workings, extending to depths of up to 5m, confirm that gold is not solely restricted to the high-grade veins and that within both the oxide and sulphide zones, is partially free milling. Reports indicate recoverable alluvial gold on the Pampana North section (40.1sq/km) at over 500,000 oz., with average grades of 0.12 ounces per ton qualifying as superior grade deposits as defined by the US Bureau of Mines. AMS Ltd was granted a boundary modification by the Sierra Leone Mines Ministry to include an adjacent 100 square kilometers.

Much of the historic trench and channel sampling was selective in nature, with disseminated mineralization between high grade zones of veining and sulphides appearing to have not been adequately tested, despite reports by local miners that gold is won from this material. An aggressive drilling program must be designed to thoroughly test the mineralization and permit the estimation of a preliminary resource.


 
13

 


Mineralization

A compilation of field mapping, Landsat and air photo interpretation to assist the prioritization of targets indicated by the initial regional geochemical results was also conducted. It is concluded from this that the area has potential for primary gold in veins and iron formation, volcanic-associated base metal mineralization, nickel laterite, and granite-hosted molybdenum mineralization. Gold targets exist within an extensive zone of imbricated tectonic rock slices at the intersection of four crustal scale shear zones. Historically the Pampana River and its tributaries supported some of the richest alluvial gold workings in the Sula Mountains. Structural features known to host gold and base metal mineralization are exposed within the Pampana EPLs including that for AMS Ltd. Gold is considered to be derived from sericitic quartz vein lodes and tourmaline bearing pegmatites, the host rock being predominantly sheared ultramafic rocks, now serpentinized and talc-tremolite schist. In many other schist belt gold deposits in West Africa, for instance at Mano's KGL and Weaju projects in Liberia, the host rock is also a strongly sheared, mylonitised and therefore silicified talc-tremolite schist.

Metallurgical Testing

During prospecting undertaken by AMS in 2009, samples collected from five sites along the Pampana River were sent for analysis at the ALS Chemex Laboratory in the USA. Assays of these heavy mineral concentrates including black sand proved quantities of rare earth metals and other valuable minerals such as Tantalum, Thallium, Zirconium, etc. in grades that could be considered commercially exploitable. Documented information and history on the hard rock areas within and immediately north of the AM&S Pampana prospect provide the opportunity for the Company to pursue an aggressive exploration program parallel with the planned gold and mineral sands production.

Currently, Hazen Research, Inc, of Denver Colorado, is providing a brief description and cost estimate for a metallurgical evaluation of samples from the heavy mineral occurrence within the Pampana River Concession. They recommended a phased program with Phase 1 consisting of chemical and mineralogical analyses of the samples to determine the general mineralogical characteristics, with emphasis on the presence of niobium–tantalum and particularly the precious metal values.

As recommended we began the following procedure of Phase 1 in April of 2012:

1. Sample Preparation and Assays

Depending on the particle size of the as-received sample, size reduction may be necessary.  Subsamples would be split out for the mineralogical work and assay pulp preparation.  The samples would be analyzed by inductively coupled plasma (ICP) spectrometry for niobium, tantalum, iron, all rare earth metals, thorium, uranium, and zirconium. Precious metals including platinum group metals (PGMs) would be analyzed by standard fire assay with ICP finish on the bead for the PGMs. In addition, a semi quantitative x-ray fluorescence analysis, equivalent to whole rock analysis, would be run.

2. Mineralogical Characterization

The mineralogical characterization would consist of an initial x-ray diffraction analysis to identify the major mineral constituents. For further evaluation, polished sections would be prepared for incident light microscopic examination and electron microprobe analyses by energy and wavelength dispersive spectrometry. QEMSCAN analyses (trace mineral mode) for specific occurrences, such as ultrafine gold, would be used as required.  During all mineralogical work, the emphasis would be on features pertinent to processing such as particle size distribution, intergrowth and textural characteristics, and specific associations. The results of the study, which have been received prior to the date of this report, would be presented in a report including graphs, diagrams, and photographic documentation.  Based on the results of Phase 1, expected to be received in the third quarter of 2012, a second phase of process development studies would be proposed.

 
14

 

2011 Exploration  and Operations Activities

Allied Mining & Supply Ltd., (AMS), recently completed its initial alluvial testing program on a section of the Sierra Leone property with promising results. The program was carried out in coordination with local mining authorities, Sierra Leone-based geologists and AMS staff, using dredges and portable exploration wash plants. Areas sampled included river beds, flats and terraces using random sampling, satellite images and historical data for site selection.

Verified grades on river bank pits approached 10g/t; however more typical grades using random sampling were in the 1-2g/t range. The Company expects future drilling and bulk sampling to also reveal grades in that with occasional heavy mineralization. Stripping ratios should fall within 2:1 to 5:1  range making recovery highly cost effective. Heavy mineral sands were encountered throughout the prospect and in all gravel deposits. Previous assays on these sand types recovered from nearby AMS locations proved them to be a valuable secondary resource in commercially exploitable grades. Current samples have been processed at the RMS Ross Lab in Canada (Laboratory analytical results attached). Gold purity averages 90%+. The historical data estimates the potential value of the prospect to be in excess of $500,000,000 at gold’s current value holding steady at well over $1,000 per ounce.
A Mahdi of Geo Resources (SL) Ltd. did an analysis of previous work conducted on the Pampana River in areas within the AMS concession. He came to the following conclusion: “In determining the possible volume of auriferous gravels within EXPL 7/94, gravels within the present Pampana channel are discussed separately from those developed in the flats and terraces flanking the Pampana river bank.” River Bank Deposits:

A study of the contours on Topographic Sheets 44 and 55 and the assumption that the gravels laid by the Pampana would not spread more than 1,500 meters from edge of the present river channel, have allowed possible gravel retention sites to be outlined and measured. The area of these retention sites total 11.7888Km2 (11,788,800sq.metres) The thickness of the gravel is taken as the average of the gravel thicknesses as in all areas tested by NDMC (SL) Ltd., in its A2 and A3 development sampling program.  This approximated to 2.0 meters.
The volume is therefore 23,577,600cu.metre (47,155,200cuyds.) Pampana Channel Deposit:

Total length of river under consideration approximates 24 kilometers, with a mean width of the about 100 meters.

The following assumptions are made in computing a possible volume of gravels in the channel.
(i) only about 30% of the river is dredgeable.
(ii) Gravel thickness in the channel is 1.5 meters.

Possible gravel volume in channel:
8000 x 100 x 1.5 = 1,200,000cu.metres (1,569,540cu.yds.)

Gold Content Identified in the Concession

(a) In the Pampana Channel:

(i) Assume the grade of 0.811 gm/m3 recovered by 1950 Dredge for a section of south of the concession holds good for dredgeable sections, then the gold content is 973,200gms or 31,293oz.
(ii) Assume that depletion due to illicit mining over the years is set at 30% then the gold content is reduced to 21,905ozs

(b) In the Flanking Flats and Terraces:

Weighted Mean grade = 0.0098oz/yd3 Gravel Volume = 47,155,200yd3 Assume 70% of gravel would be economic, volume is reduced to = 33,008,640yd3 Gold content = 323,485ozs
Depletion of 15% Gold due to previous mining - lawful and illicit, Gold content is reduced to = 274,962ozs

Other Relevant Data and Information

Development of the prospect area can occur in two phases: phase one will define both alluvial and lode reserves for mining; phase 2 will be its reserve development and commercial mining program. Testing and existing data indicate gold concentrations ranging from 1 to 18 grams per ton of material. Fire assays conducted in Freetown by AMS show the gold purity at 89%. Assays of black sand concentrates by AMS in 2009 proved quantities of rare earth metals and other valuable minerals in commercially exploitable grades. Of particular interest are the values of the ten of the lanthanide elements, as well as thorium, tantalum, yttrium, zirconium and chromium. These sands are consistent and verified in the river channel and along the banks and benches. Based on the exploration program of March 2011, AMS geologists estimate 50kg/tonne rich black sands easily recoverable by dredging and land-based mining, suggesting the likelihood of highly profitable and immediate placer mining. Inspection of artisanal mining and prospecting sites within the license area show black sands throughout the claim.

 
15

 
Conclusions and Recommendations – Geo Resources (SL) Ltd.

The potential for alluvial gold mineralization has been established in the concession area based on the deposition of gold bearing sediments eroded from the primary gold mineralization of the neighboring Sula Mountains greenstone belt. The Sula Mountains has had a long history of gold mining, having produced gold from its primary sources (lodes and veins) and alluvial deposits from the terraces of the rivers that drain the schist belt.

The AMS concession which is located around the Pampana River provides a target for the exploration and eventual exploitation of these gold deposits. Dredging of the Pampana River has indicated an estimated average 0.2gm of gold per cubic metre but grades between 1gm per cubic metre and a median of 0.5gm per cubic metre in areas of the river 60m wide where rock exposures abound such as in the concession area is not uncommon. Much of the historic sampling by trench and channel that has been conducted has been selective in nature, with disseminated mineralization between high grade zones of veining and sulphides appearing to have not been adequately tested, despite reports by local miners that gold is won from these materials.

An aggressive first phase drilling program needs to be designed to thoroughly test the mineralization and permit the estimation of a preliminary resource. It is considered that the Yirisen target represents a potentially significant gold deposit in terms of size and grade, and that further gold targets are likely to exist within Pampana due to the favorable geological and structural setting.

It is recommended therefore that a careful and detailed study of the geomorphology of the concession be conducted to determine the distribution of terraces in the concession, the overburden and gravel thicknesses of the deposits. This can be done by a grid system over the deposit and pits located at regular intervals on the grid. This will enable grade measurement and reserve calculation to define a mining model of the deposit. While this is being done, a small scale dredging of the river channel can commence production to support the prospecting of the terrace deposits. In addition to the investigation of the alluvial potential, a detailed geological mapping (at a scale of 1:10,000) of hard rock could be conducted. This will be correlated to the adjoining hard rock potential of the surrounding concession and may indicate hard rock mineralization within the AMS concession. Drilling of any target could then be followed.

Competition

We are a mineral resource exploration company. We compete with other mineral resource exploration companies for financing and for the acquisition of new mineral properties. Many of the mineral resource exploration companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford more geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration. This competition could adversely impact on our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral properties.

Compliance with Government Regulation

We are committed to complying with and are, to our knowledge, in compliance with, all governmental and environmental regulations applicable to our company and our properties. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. We cannot predict the extent to which these requirements will affect our company or our properties if we identify the existence of minerals in commercially exploitable quantities. In addition, future legislation and regulation could cause additional expense, capital expenditure, restrictions and delays in the exploration of our properties.

 
16

 
Employees

Currently, we do not have any employees. Our directors and certain contracted individuals play an important role in the running of our company. We do not expect any material changes in the number of employees over the next 12 month period. We do and will continue to outsource contract employment as needed.

We engage contractors from time to time to consult with us on specific corporate affairs or to perform specific tasks in connection with our exploration programs.  During the mining season in Sierra Leone we typically employ in excess of 50 local people.

Subsidiaries

We have two subsidiaries, Allied Mining and Supply, LLC a Nevada Limited Liability Company and Mikite Gold Resources, LTD, a Ghana corporation. Allied Mining and Supply, LLC has one subsidiary, Allied Mining and Supply Ltd, a Sierra Leone Corporation.

Intellectual Property

We do not own, either legally or beneficially, any patent or trademark.

Item 1A.    Risk Factors

Our business operations are subject to a number of risks and uncertainties, including, but not limited to those set forth below:

Risks Associated With Mining

Our properties are in the pre-exploration stage. There is no assurance that we can establish the existence of any mineral resource on our properties in commercially exploitable quantities. Until we can do so, we cannot earn any revenues from operations and if we do not do so we will lose all of the funds that we expend on exploration. If we do not discover any mineral resource in a commercially exploitable quantity, our business could fail.

Despite pre-exploration work on our mineral properties, we have not established that they contain any mineral reserve, and there can be no assurance that we will be able to do so. If we do not, our business could fail.

A mineral reserve is defined by the Securities and Exchange Commission in its Industry Guide 7 (which can be viewed over the Internet at h ttp://www.sec.gov/divisions/corpfin/forms/industry.htm#secguide7 ) as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. The probability of an individual prospect ever having a "reserve" that meets the requirements of the Securities and Exchange Commission's Industry Guide 7 is extremely remote; in all probability our mineral resource property does not contain any 'reserve' and any funds that we spend on exploration will probably be lost.

Even if we do eventually discover a mineral reserve on one of our properties, there can be no assurance that we will be able to develop our properties into producing mines and extract those resources. Both mineral exploration and development involve a high degree of risk and few properties which are explored are ultimately developed into producing mines.

The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade and other attributes of the mineral deposit, the proximity of the resource to infrastructure such as a smelter, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral resource unprofitable.
 
 
17

 

Mineral operations are subject to applicable law and government regulation. Even if we discover a mineral resource in a commercially exploitable quantity, these laws and regulations could restrict or prohibit the exploitation of that mineral resource. If we cannot exploit any mineral resource that we might discover on our properties, our business may fail.

Both mineral exploration and extraction require permits from various foreign, federal, state, provincial and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance that we will be able to obtain or maintain any of the permits required for the continued exploration of our mineral property or for the construction and operation of a mine on our property at economically viable costs. If we cannot accomplish these objectives, our business could fail.

We believe that we are in compliance with all material laws and regulations that currently apply to our activities but there can be no assurance that we can continue to remain in compliance. Current laws and regulations could be amended and we might not be able to comply with them, as amended. Further, there can be no assurance that we will be able to obtain or maintain all permits necessary for our future operations, or that we will be able to obtain them on reasonable terms. To the extent such approvals are required and are not obtained, we may be delayed or prohibited from proceeding with planned exploration or development of our mineral properties.

If we establish the existence of a mineral resource on one of our properties in a commercially exploitable quantity, we will require additional capital in order to develop the property into a producing mine. If we cannot raise this additional capital, we will not be able to exploit the resource, and our business could fail.

If we do discover mineral resources in commercially exploitable quantities on our property, we will be required to expend substantial sums of money to establish the extent of the resource, develop processes to extract it and develop extraction and processing facilities and infrastructure. Although we may derive substantial benefits from the discovery of a major deposit, there can be no assurance that such a resource will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis. If we cannot raise the necessary capital or complete the necessary facilities and infrastructure, our business may fail.

Gold exploration is highly speculative, involves substantial expenditures, and is frequently non-productive.

Gold exploration, including the exploration of the Nyinhin Mining Concession and the Pampana River Concession and other projects, involves a high degree of risk. Exploration projects are frequently unsuccessful. Few prospects that are explored are ultimately developed into producing mines. The Company cannot be certain that its gold exploration efforts will be successful. The success of gold exploration is dependent in part on the following factors:
 
 
·
unanticipated adverse geotechnical conditions;
 
·
incorrect data on which engineering assumptions are made;
 
·
costs of constructing and operating a mine in a specific environment;
 
·
cost of processing and refining;
 
·
availability of economic sources of power;
 
·
availability of qualified staff;
 
·
adequacy of water supply;
 
·
adequate access to the site including competing land uses (such as agriculture and illegal mining);
 
·
unanticipated transportation costs and shipping incidents and losses;
 
·
significant increases in the cost of diesel fuel, cyanide or other major components of operating costs;
 
·
government regulations (including regulations relating to prices, royalties, duties, taxes, permitting, restrictions on production, quotas on exportation of minerals, as well as the costs of protection of the environment and agricultural lands);
 
·
fluctuations in gold prices;
 
·
accidents, labor actions and force majeure events;
 
·
the identification of potential gold mineralization based on superficial analysis;
 
·
availability of prospective land;
 
·
availability of government-granted exploration and exploitation permits;
 
·
the quality of our management and our geological and technical expertise; and
 
·
the funding available for exploration and development.
 
Substantial expenditures are required to determine if a project has economically mineable mineralization. It could take several years to establish Proven and Probable Mineral Reserves and to develop and construct mining and processing facilities. As a result of these uncertainties, the Company cannot guarantee that current and future exploration programs will result in the discovery of Mineral Reserves, the expansion of existing Mineral Reserves and the development of mines.

 
 
18

 
Mineral exploration and development is subject to extraordinary operating risks. We do not currently insure against
these risks. In the event of a cave-in or similar occurrence, our liability may exceed our resources, which would have an adverse impact on our company.

Mineral exploration, development and production involve many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Our operations will be subject to all the hazards and risks inherent in the exploration for mineral resources and, if we discover a mineral resource in commercially exploitable quantity, our operations could be subject to all of the hazards and risks inherent in the development and production of resources, including liability for pollution, cave-ins or similar hazards against which we cannot insure or against which we may elect not to insure. Any such event could result in work stoppages and damage to property, including damage to the environment. We do not currently maintain any insurance coverage against these operating hazards. The payment of any liabilities that arise from any such occurrence would have a material adverse impact on our company.

Mineral prices are subject to dramatic and unpredictable fluctuations.

We expect to derive revenues, if any, either from the sale of our mineral resource property or from the extraction and sale of precious and base metals. The price of those commodities has fluctuated widely in recent years, and is affected by numerous factors beyond our control, including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new extraction developments and improved extraction and production methods. The effect of these factors on the price of base and precious metals, and therefore the economic viability of any of our exploration properties and projects, cannot accurately be predicted.

If price for gold declines, Sunergy may not be able to raise the additional financing required to fund its exploration and potential development activities for the Nyinahin Mining Concession and the   Pampana River Concession .

The ability of Sunergy to raise financing to fund its activities and, if warranted, development of the Nyinahin Mining Concession especially, will be significantly affected by changes in the market price of the metals it mines or for which it explores. The price of gold is volatile, and is affected by numerous factors beyond Sunergy’s control. The level of interest rates, the rate of inflation, the world supplies of and demands for gold and the stability of exchange rates can all cause fluctuations in these prices. Such external economic factors are influenced by changes in international investment patterns and monetary systems and political developments. The price of gold has fluctuated in recent years, and future significant price declines could cause investors to be unprepared to finance exploration of gold.
 
The mining industry is highly competitive and there is no assurance that we will continue to be successful in acquiring mineral claims. If we cannot continue to acquire properties to explore for mineral resources, we may be required to reduce or cease operations.

The mineral exploration, development, and production industry is largely un-integrated. We compete with other exploration companies looking for mineral resource properties. While we compete with other exploration companies in the effort to locate and acquire mineral resource properties, we will not compete with them for the removal or sales of mineral products from our properties if we should eventually discover the presence of them in quantities sufficient to make production economically feasible. Readily available markets exist worldwide for the sale of mineral products. Therefore, we will likely be able to sell any mineral products that we identify and produce.

In identifying and acquiring mineral resource properties, we compete with many companies possessing greater financial resources and technical facilities. This competition could adversely affect our ability to acquire suitable prospects for exploration in the future. Accordingly, there can be no assurance that we will acquire any interest in additional mineral resource properties that might yield reserves or result in commercial mining operations.

 
19

 
Risks Related To Our Company

We have a limited operating history on which to base an evaluation of our business and prospects.

We have been in the business of exploring mineral resource properties since 2003 and we have not yet located any mineral reserve. As a result, we have never had any revenues from our operations. In addition, our operating history has been restricted to the acquisition and exploration of our mineral properties and this does not provide a meaningful basis for an evaluation of our prospects if we ever determine that we have a mineral reserve and commence the construction and operation of a mine. We have no way to evaluate the likelihood of whether our mineral property contains any mineral reserve or, if it does that we will be able to build or operate a mine successfully. We anticipate that we will continue to incur operating costs without realizing any revenues during the period when we are exploring our properties. We therefore expect to continue to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from mining operations and any disposition of our property, we will not be able to earn profits or continue operations. At this early stage of our operation, we also expect to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the start up stage of their business development. We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure to do so could have a materially adverse effect on our financial condition. There is no history upon which to base any assumption as to the likelihood that we will prove successful and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations.

The fact that we have not earned any operating revenues since our incorporation raises substantial doubt about our ability to continue to explore our mineral properties as a going concern.

We have not generated any revenue from operations since our incorporation and we anticipate that we will continue to incur operating expenses without revenues unless and until we are able to identify a mineral resource in a commercially exploitable quantity on our mineral property and build and operate a mine. We will have to raise additional funds to meet our currently budgeted operating requirements for the next 12 months. As we cannot assure a lender that we will be able to successfully explore and develop our mineral property, we will probably find it difficult to raise debt financing from traditional lending sources. We have traditionally raised our operating capital from sales of equity and debt securities, but there can be no assurance that we will continue to be able to do so. If we cannot raise the money that we need to continue exploration of our mineral property, we may be forced to delay, scale back, or eliminate our exploration activities. If any of these were to occur, there is a substantial risk that our business would fail.

These circumstances led our independent registered public accounting firm, in their report dated June 27, 2012, to comment about our company’s ability to continue as a going concern.  Management has plans to seek additional capital through private placements of our capital stock, however, we currently have no firm commitments.  Although there are no assurances that management’s plans will be realized, management believes that our company will be able to continue operations in the future.

Risks Associated with Our Common Stock

Our common stock is quoted on the Pink Sheets. Trading in stock quoted on the Pink Sheets  is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the Pink Sheets  is not a stock exchange, and trading of securities on the Pink Sheets  is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like Amex.
 
 
20

 

Trading on the Pink Sheets may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares .    Since December 15, 2010 we have been classified under Caveat Emptor status by the Pink Sheets.

We are a fully reporting company and our financials are not yet fully up to date.  Once our 10-K for December 31, 2011 and our Form 10-Q for the applicable periods of 2012 are filed timely, we will be compliant in our required filings and can apply for removal of the Caveat Emptor status.

The Caveat Emptor status prevents any shares, restricted or unrestricted to be deposited for trading in the brokerage system.  Caveat Emptor status, coupled with the fact that our shares trade at less than $0.01, makes it impossible to get any shares deposited for trading.  We had 619,504,339 unrestricted common shares available for sale in the system as of December 31, 2011.  Should the Caveat Emptor be successfully removed and the market price rise above $0.01, significantly more shares may be made available for sale by being allowed to be deposited in the market system. This could have an adverse effect on our market.

The market price of Sunergy’s common shares is subject to high volatility and could cause investor loss.

The market price of a publicly traded stock, especially a resource issuer like Sunergy, is affected by many variables in addition to those directly related to exploration successes or failures. Such factors include the general condition of market for resource stocks, the strength of the economy generally, the availability and attractiveness of alternative investments and the breadth of the public market for the stock. The effect of these and other factors on the market price of Sunergy’s common shares suggests Sunergy’s shares will continue to be volatile. Therefore, investors could suffer significant losses if Sunergy’s shares are depressed or illiquid when an investor seeks liquidity and needs to sell Sunergy shares.

We may issue shares of our capital stock or debt securities to complete a transaction, which would reduce the equity interest of our stockholders or subject our company to risks upon default.   

We may issue our securities to acquire companies or assets, such as other concessions.  If we issue additional shares of our common stock, the equity interest of our existing stockholders may be reduced significantly, and the market price of our common stock may decrease.  If we issue debt securities as part of a transaction and we are unable to generate sufficient operating revenues to pay the principal amount and accrued interest on that debt, we may be forced to sell all or a significant portion of our assets to satisfy our debt service obligations, unless we are able to refinance or negotiate an extension of our payment obligation.  Even if we are able to meet our debt service obligations as they become due, the holders of that debt may accelerate payment if we fail to comply with, and/or are unable to obtain waivers of, covenants that require us to maintain certain financial ratios or reserves or satisfy certain other financial restrictions.  In addition, financial and other covenants in the agreements we may enter into to secure debt financing may restrict our ability to obtain additional financing and our flexibility in operating our business.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC's penny stock regulations and FINRA's sales practice requirements, which may limit a stockholder's ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.

In addition to the "penny stock" rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the Financial Industry Regulatory Authority believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The Financial Industry Regulatory Authority requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
 
 
21

 

Other Risks

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.

Risks Related To Assets and Operations in Ghana and Sierra Leone, Africa.

Substantially all of our assets and our operations are located outside of the United States, and all of our current exploratory activities are conducted outside of the United States subjecting us to risks associated with doing business in Ghana and Sierra Leone, Africa.

Our operations in Ghana and Sierra Leone subject us to the laws and regulations of Ghana and Sierra Leone.  In addition, we are subject to risks inherent in international business activities, including:
 
 
·
changes in overseas economic conditions,

 
·
fluctuations in currency exchange rates,

 
·
potentially weaker intellectual property protections,

 
·
changing and conflicting local laws and other regulatory requirements,

 
·
trade agreements,

 
·
political and economic instability,

 
·
war, civil war, acts of terrorism or other hostilities,

 
·
potentially adverse tax consequences, or

 
·
Difficulties in staffing and managing foreign operations.

However, Ghana is Africa's second largest gold producer after South Africa and the world's second largest producer of cocoa, and its economy is one of the fastest growing in Africa.  Ghana became independent from England in 1957. According to an article in BBC's World News on June 19, 2012, Ghana is " A well-administered country by regional standards, Ghana is often seen as a model for political and economic reform in Africa."
 
 
22

 

According to the web site of U.S.' Central Intelligence Agency last updated on June 20, 2012, Sierra Leone:

" ... is an extremely poor nation with tremendous inequality in income distribution. While it possesses substantial mineral, agricultural, and fishery resources, its physical and social infrastructure has yet to recover from the civil war, and serious social disorders continue to hamper economic development. Nearly half of the working-age population engages in subsistence agriculture. Manufacturing consists mainly of the processing of raw materials and of light manufacturing for the domestic market. Alluvial diamond mining remains the major source of hard currency earnings, accounting for nearly half of Sierra Leone's exports. The fate of the economy depends upon the maintenance of domestic peace and the continued receipt of substantial aid from abroad, which is essential to offset the severe trade imbalance and supplement government revenues. The IMF completed a Poverty Reduction and Growth Facility program that helped stabilize economic growth and reduce inflation and in 2010 approved a new program worth $45 million over three years. Political stability has led to a revival of economic activity such as the rehabilitation of bauxite and rutile mining, which are set to benefit from planned tax incentives. A number of offshore oil discoveries were announced in 2009 and 2010. The development on these reserves, which could be significant, is still several years away."

We have limited financial resources which prevents us from securing our mining concessions in Ghana and Sierra Leone from bandits and other detrimental threats, particularly during the rainy season when we have minimal exploration activities.

We do not have the financial resources to adequately protect our African mining concessions from potential “claim jumping” and other threats to the betterment of our concessions predominantly due to the respective land size of these concessions of approximately 150 sq. km each. We attempt to mitigate these threats through relationships with local tribal Chiefs who report intruders to local Assembly officials trying to mine in the area without a License, in addition to reporting the threat to our Country Directors. 

The minerals commissions in both countries do not police or enforce the propriety of these concessions.  It is the sole responsibility of the concession owner.

Significant unauthorized mining or other unauthorized activities may result in our inability to develop any commercially viable resources in Africa.

Limitations on Ghana and Sierra Leone economic market reforms may discourage foreign investment in Ghana and Sierra Leone businesses.

The value of investments in Ghana and Sierra Leone mining concession businesses could be adversely affected by political, economic and social uncertainties in Ghana and Sierra Leone.

Any material change in policy by the Ghana and Sierra Leone governments could adversely affect investments in our business operations.

As developing nations, Ghana's and Sierra Leone's economies are more volatile than that of developed Western industrial economies.   There differ significantly from that of the U.S. or a Western European country in such respects as structure, level of development, capital reinvestment, legal recourse, resource allocation and self-sufficiency.

Actions by the central governments of Ghana and Sierra Leone could have a significant adverse effect on economic conditions in the country as a whole and on the economic prospects for our operations. Changes in policy could result in imposition of restrictions on currency conversion, imports or the source of supplies, as well as new laws affecting joint ventures and foreign-owned enterprises doing business in Ghana and/or Sierra Leone. Accordingly, there can be no assurance that reforms to Ghana 's and/or Sierra Leone's economic systems will occur or that we will not be adversely affected by changes in their political, economic, and social conditions and by changes in policies of those governments, such as changes in laws and regulations, measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and remittance abroad, imposition of restrictions on mining concessions and reduction in tariff protection and other import restrictions.
 
 
23

 

Uncertainties with respect to the legal systems in Ghana and Sierra Leone could limit the legal protections available to you and us.
 
We conduct substantially all of our business through our operating subsidiaries in Ghana and Sierra Leone, Africa. Our operating subsidiaries are generally subject to laws and regulations applicable to foreign investments in Ghana and Sierra Leone and, in particular, laws applicable to foreign-invested enterprises. The legal systems are based on written statutes, and prior court decisions may be cited for reference but may have limited precedential value. However, since the legal systems continue to evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in either Ghana or Sierra Leone may be protracted and result in substantial costs and diversion of resources and management attention.  

The legal system in Ghana is based on British common law, customary (traditional) law, and the 1992 constitution. Court hierarchy consists of the Supreme Court of Ghana (its highest court), courts of appeal, and high courts of justice. Beneath these bodies are circuit, magisterial, and traditional courts. Extrajudicial institutions include public tribunals.  Since independence in 1957, courts have been relatively independent. Lower courts are being redefined and reorganized under the Republic.  Customary (traditional) law is a type of legal system that serves as the basis of, or has influenced, the present-day laws in approximately 40 countries - mostly in Africa, but some in the Pacific islands, Europe, and the Near East. Customary law is also referred to as "primitive law," "unwritten law," "indigenous law," and "folk law." There is no single history of customary law such as that found in Roman civil law, English common law, Islamic law, or the Napoleonic Civil Code. The earliest systems of law in human society were customary, and usually developed in small agrarian and hunter-gatherer communities. As the term implies, customary law is based upon the customs of a community. Common attributes of customary legal systems are that they are seldom written down, they embody an organized set of rules regulating social relations, and they are agreed upon by members of the community. Although such law systems include sanctions for law infractions, resolution tends to be reconciliatory rather than punitive.

The legal system in Sierra Leone is a mixed legal system of English common law and customary law.

Restrictions under Ghana and Sierra Leone laws which may limit or restrict our ability to make dividends and other distributions from Ghana and/or Sierra Leone to the U.S. could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses.

Substantially all of our revenues, if any, will be earned in Ghana and Sierra Leone, Africa.   Any limitations on our ability to transfer funds to the U.S from Ghana and Sierra Leone could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

Our results of operations may be adversely impacted by currency fluctuations.
 
Substantially all of our operations are in Ghana and Sierra Leone West Africa .  Because our financial statements are reported in United States dollars, fluctuations in currencies in Ghana and Sierra Leone against the United States dollar may cause us to recognize foreign currency translation gains and losses, which may be material to our operations and impact our reported financial condition and results of operations.
 
 
24

 

As a U.S. public company we are subject to the Foreign Corrupt Practices Act of 1977.

The anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) make it unlawful for a U.S. person, and certain foreign issuers of securities, to make a payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person.  There is no materiality to the FCPA, thus making it illegal to offer anything of value as a bribe, including cash or non-cash items. The government focuses on the intent of the bribery rather than on the amount.

The FCPA also requires companies whose securities are listed in the U. S. to meet its accounting provisions, such as those set forth in 15 U.S.C. §78.  These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations covered by the provisions to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.

We do not have a written compliance program, but our Code of Ethic is designed, in part, to prohibit conduct that is made unlawful under the FCPA.  We believe we are in full compliance with the FCPA.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

Executive Offices

Our executive office is located at 14362 N. Frank Lloyd Wright Blvd., Suite 1000, Scottsdale, Arizona, 85260 .  We rent an executive suite at a cost of $284 per month.

Mineral Properties

As of the date of this annual report on Form 10-K, we have two mining concessions, the Nyinahin Mining Concession in Ghana West Africa and the Pampana River Concession in Sierra Leone Africa.

Item 3.    Legal Proceedings

We know of no material, existing or pending legal proceedings against us, 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 company.

Item 4.    Mine Safety Disclosure

Not applicable at our current phase of exploration.
 
 
25

 

PART II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common shares are quoted under the symbol “SNEY.PK” on the OTC Pink market operated by OTC Markets Group Inc.  The following quotations, obtained from Market Watch, reflect the high and low bids for our common shares based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
The high and low bid prices of our common stock for the periods indicated below are as follows:
OTC Markets (1) (2) (3)

Quarter Ended
High
Low
December 31, 2010
$0.007
$0.0066
September 30, 2010
$0.0023
$0.0016
June 30, 2010
$0.0460
$0.0460
March 31, 2010
$0.0550
$0.0450
December 31, 2011
$0.0085
$0.0060
September 30, 2011
$0.0140
$0.011
June 30, 2011
$0.0230
$0.0070
March 31, 2011
$0.0165
$0.0037
_________________
(1)         Over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.
(2)         Our common stock was quoted on the Over-the-Counter Bulletin Board on October 22, 2007.
(3)         The first trade in our common stock occurred on October 29, 2008.
 
Our common shares are issued in registered form. Clear Trust, LLC 16540 Pointe Village Drive, Suite 201, Lutz, Florida 33558, Tel (813) 235-4490, Fax (813) 388-4549 is the registrar and transfer agent for our common shares.

On June 15 , 2012, our shareholders' list showed 124 registered shareholders and 1,567,282,115 common shares of stock outstanding of which 838,729,858 were considered free trading.  Also, as of December 31, 2011 the public float consisted of 619,504,339.

Dividend Policy

We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our board of directors.

Equity Compensation Plan Information

We currently do not have any formal stock option or equity compensation plans or arrangements; however, from time to time we issue equity instruments as compensation to both contract employees and non-employees.  These issuances are approved by our Board of Directors.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

Other than as set out below, we did not sell any equity securities which were not registered under the Securities Act during the year ended December 31, 2011 that were not otherwise disclosed on our quarterly reports on Form 10-Q or our current reports on Form 8-K filed during the year ended December 31, 2011.

On December 17, 2011 the Company issued 2,000,000 common shares for cash in the exercise of warrants at $0.005 per share.

During December 2011, the Company issued 22,299,998 units for cash at $0.0035 per unit with each unit consisting of one common share and one 12 month share purchase warrant with 14,642,855 exercisable at $0.005.

During December 2011, the Company issued 5,900,000 shares in the exercise of warrants at $0.0025 per share.

During December 2011, the Company issued 1,500,000 common shares in the exercise of warrants at $0.025 per share and 14,800,000 common shares in the exercise of warrants at $0.005 per share.
 
 
26

 

During December 2011, the Company issued 40,571,428 units at $0.0035 to settle debt with each unit consisting of one common share and one 12 month share purchase warrant exercisable at $0.005.

During the first quarter of 2012, the Company issued 36,100,000 shares in the exercise of warrants at $0.0025 per share and 4,000,000 shares in the exercise of warrants at $0.005 per share.

During the first quarter of 2012, the Company issued 2,428,570 units for cash at $0.0035 per unit, with each unit consisting of one common share and one 12 month share purchase warrant exercisable at $0.007 per share

During the first quarter of 2012, the Company issued 6,000,000 units at $0.0025 per share for consulting services with each unit consisting of one common share and one 12 month share purchase warrant exercisable at $0.005 per share.

During the second quarter of 2012, the Company issued 7,592,857 units for cash at $0.0035 per unit with each unit consisting of one common share and one 12 month share purchase warrant.  Of the warrants issued 7,142,857 are exercisable at $0.007 and 450,000 are exercisable at $0.005 per share.

During the first quarter of 2012, the Company issued 29,850,000 shares for the exercise of warrants at $0.0025 per share and 4,000,000 shares in the exercise of warrants at $0.005 per share.

During the first quarter of 2012, the Company issued 2,428,570 units for cash at $0.0035 per unit with each unit consisting of one common share and one 12 month share purchase warrant exercisable at $0.007 per share.

During the first quarter of 2012, the Company issued 6,000,000 units at $0.0025 per share for consulting services with each unit consisting of one common share and one 12 month share purchase warrant exercisable at $0.005 per share.

During the second quarter of 2012, the Company issued 13,307,141 units for $46,575 cash at $0.0035 per unit with each unit consisting of one common share and one 12 month share purchase warrant.  Of the warrants issued 7,142,857 are exercisable at $0.007 per share and 6,164,284 exercisable at $0.005 per share.

Item 6.    Selected Financial Data

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD-LOOKING STATEMENTS
 
This annual and audited 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 audited 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 annual 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 annual  report.
 
 
27

 
In this annual and audited 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 annual and audited report, the terms "we", "us", "our", "our company" and "Sunergy" mean Sunergy, Inc. and our wholly owned subsidiaries, Mikite Gold Resources Limited, a Ghanaian company and Allied Mining and Supply LLC, a Nevada limited liability, unless otherwise stated.

Overview and Current Business

We were incorporated in the State of Nevada, USA, on January 28, 2003. We are an exploration stage company engaged in the acquisition, exploration and development of mineral properties with a view to exploiting any mineral deposits we discover that demonstrate economic feasibility.  Our current exploration efforts are focused on our two properties; one of which is located in Sierra Leone, Africa and the other is located in Ghana, Africa.

Nyinahin Concession, Ghana:

We have commenced the exploration stage of our operations on Nyinahin but can provide no assurance that we will discover economic mineralization on the property, or if such minerals are discovered, that we will enter into commercial production. This year’s exploration is designed to confirm initial discoveries of gold on our concession contained in a report that accompanied the purchase of the property. A budget of $50,000 was committed to initiate this sampling program.  The program commenced in the third quarter beginning July 2011 and ended in November 2011 with a Technical Report filed in December with the Minerals Commission in Ghana.  The results indicate further exploration involving geochemical and geophysical work which, if successful, should set the stage for drilling in the bedrock that is a direct extension of the Keegan Esaase-Jeni Project.

Alluvial mining operations for gold have sprung up along the Offin River which runs through the eastern portion of our concession, and surround this area of our concession.   Immediately adjacent on the east to the Nyinahin concession are the Esaase-Jeni (Gyeni) properties, held by Keegan Resources of Canada. Prior to Keegan's acquisition of the Bonte (now called Esaase) and the Jeni (Gyeni) concessions, they were mined for alluvial gold by Bonte Gold Mines, a subsidiary of Akrokeri-Ashanti Gold Mines of Canada.  This recent alluvial activity suggests the strong viability of the alluvial opportunity on our concession and a lluvial Joint Venture partners are being sought at this time.

The Nyinahin concession is located between two geological gold belts, the Bibiani Belt to the west and the Asankrangwa to the east.  The license allows for the exploration and mining of gold, silver, base metals and diamonds. About 80% of the Nyinahin concession lies to the west of the Offin River within the Ashanti region of Ghana. There are several historical pits and adits with a strong clustering of artisan pits located along the Offin River. Three old gold prospects exist on the concession. The property is accessed via the main Kumasi-Bibiani trunk road. It falls under the jurisdiction of the Atwima Mponua District Assembly with headquarters at Nyinahin. The Offin River area offers strong alluvial operations potential as well as the underlying bedrock is a continuation of the Keegan Esaase-Jeni Project.  The large area west of the Offin River area contain some significant geological anomalies that warrant additional exploration activities. In the overall, this concession represents a significant future development opportunity for our Company.

Pampana River Concession, Sierra Leone:

The Pampana River concession is an alluvial mining concession consisting of Exploration License No. EXPL 5/2009 which was issued to Allied Mining and Supply Ltd. (AMS) on August 12, 2009. The license is located in the Kholifa Rowalla, Kafe Simiria and Tane Chiefdoms in the Tonkolili District of the Northern Province of Sierra Leone covering an area of 141.3 km2. The concession is situated on the western fringes of the southern Sula Mountains greenstone belt and for most of the northern and central part it straddles the Pampana River. On the west of the southern part, the concession runs along the Pampana River.  The property is south of the Sula Mountains in the Greenstone belt, around 120 miles east of the capital, Freetown.
 
 
28

 

When we purchased the Pampana River concession in 2010, Allied Mining and Supply had been conducting exploration there for two years and had laid out a program to exploit the newly discovered rare earth elements in the heavy mineral sands that exist in association with the gold. To further that program, we contracted to purchase approximately $200,000 worth of dredges and associated support equipment to deploy on the Pampana River directly to establish our ability to recover the gold and other valuable minerals, commonly referred to as rare earth elements (REE), associated with the heavy mineral sands (HMS).

Rare earth elements are a unique group of chemical elements that exhibit a range of special electronic, magnetic, optical and catalytic properties. REEs are used in a wide range of alloys and compounds, and can greatly affect the performance of complex engineered systems. They occur in a variety of chemical forms and have a wide variety of applications, including the processing of materials. REEs are used in components in engineered products, and their uses include fluid cracking catalysts, automotive catalytic convertors, polishing materials, permanent magnets, energy storage, phosphors, and glass additives. In modern society, many of these uses are critical for high tech devices including electronics, jet planes and rocks, and vital engineered components.

The REEs include the 15 elements of the lanthanide series, (Atomic Numbers 57 through 71), and consist of lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium. In addition, several non-lanthanides, which have similar or related properties and uses, are sometimes classified with the REEs, and these include yttrium, niobium, and tantalum.

In furtherance of the exploration activities carried out by Allied in 2010, and based on the preliminary results of their prior efforts, we commenced our initial dredging April 16, 2011, well into the mining season which generally ends with the beginning of rainy season (July).  The dredging took place in the Masanga Area that is believed to have limited overburden and has good river accessibility.  Shortly after deployment in April 2011, the two Allied dredges were producing daily quantities of heavy mineral sands (HMS). The early estimate range of 400 to 500 pounds of HMS per dredge per 10 hour day, were validated. The process involved regular performance evaluation and modifications and adjustments of the dredges and support equipment in order to maximize the efficiency of the advanced exploration activity. Multiple areas along the river were sampled involving considerable de-staging, repositioning and deployment in order to generate target appraisals and gauge future recovery potential. Operations were suspended in July 2011 during the rainy season. Results of 2011 operations will be discussed once finally tallied in an upcoming report to be filed with the Minerals Commission in Sierra Leone.

Due to the complex nature and broad range of apparent minerals of the Pampana sands, additional mineralogy is required in order to prove their full mineralogical and elemental content, and to accurately describe the economical value and overall potential of the Allied EXPL.

Once additional mineralogical studies are completed under the control and supervision of Sunergy board advisor, Alexander Beckmann, are completed, Allied stands ready and committed to opening up an entirely new area in the mining sector in Sierra Leone. Allied is currently in conversation with development partners who have the capacity and experience to design, build and operate the necessary processing equipment for the heavy mineral sands. Markets for the variety of recoverable mineral fractions are actively being investigated with the goal of securing off-take agreements in the near term.

Allied/Sunergy's steadfast commitment to community development has led to our current standing in the district of Tonkolli which has never been higher. Our employees, some of whom have been with us for three years, are capable, hard working and well respected among the villages on our concession. Allied has typically employed 70 to 80 men and women each year during the mining season. Most are full-time, while others are part-time or temporary help. This effort is important to maintain a high level of confidence in the communities and the country of Sierra Leone, which gives Sunergy a strong foundation to develop additional business in the Country.
 
 
29

 

Results of Operations

The following discussion should be read in conjunction with our audited financial statements and the related notes contained in this 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 in this annual report.

Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Operations for Year Ended December 31, 2011 and 2010 as follows:
 
   
Year Ended
 
   
December 31,
 
   
2011
   
2010
 
Revenue
  $ -     $ -  
Operating Expenses
    1,201,916       691,341  
Interest Expense
    265,490       1,043,627  
Net Loss
  $ 1,467,406     $ 1,734,968  
 
Expenses
 
Our operating expenses for the year ended December 31, 2011 and December 31, 2010 are outlined in the table below:
 
   
Year Ended
 
   
December 31,
 
   
2011
   
2010
 
General and administrative
  $ 225,763     $ 143,043  
Depreciation
    38,007       -  
Management salary
    141,000       368,500  
Professional fees
    262,298       71,809  
Exploration costs
    534,848       107,989  

Operating expenses for the year ended December 31, 2011, increased by approximately 74% as compared to the comparative period in 2010 primarily as a result of an increase in exploration costs and administrative expense.  Our exploration efforts increased predominantly because we implemented a dredging operation on the Pampana River Concession in Sierra Leone with our 8” dredges purchased for this purpose. The material recovered is now being tested at Hazen Research Laboratory in Denver Colorado to determine the specific mineralogical content and to design a pilot plant for separation of the most marketable precious and rare earth minerals. Exploration and development cost are expected to go up substantially over the next three years as we ramp up pilot and small scale production operations. With over 40 KM of river on our concession, future exploration designed to develop resources and reserves will be undertaken limited only by our future financial capabilities.

Revenue

We did not earn any revenues during the year ended December 31, 2011 or since our inception. We do not anticipate earning revenues until such time as we have entered into commercial production on the Nyinahin or Pampana River concessions. We have not concluded the exploration stage of our business and can provide no assurance that we will discover economic mineralization on the property, or if such minerals are discovered, that we will enter into commercial production.
 
 
30

 

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

Working Capital
 
At
   
At
       
   
December 31,
   
December 31,
   
Increase/
 
   
2011
   
2010
   
(Decrease)
 
Current Assets
  $ 85,515     $ 147,251     $ (61,736 )
Current Liabilities
    544,576       91,592       452,982  
Working Capital (deficit)
  $ (459,061 )   $ 55,659     $ (514,718 )

Cash Flows

   
Year Ended
 
   
December 31,
 
   
2011
   
2010
 
Net Cash (used) in Operating Activities
  $ (761,112 )   $ (173,048 )
Net Cash (used) in Investing Activities
    (210,759 )     (52,215 )
Net Cash Provided by Financing Activities
    960,135       322,460  
Increase/(decrease) in Cash During  the Period
  $ (11,736 )   $ 97,197  

 
Our ability to raise capital since we received the Caveat Emptor status on December 13, 2010 has been restricted.  While we have been successful in raising enough capital to buy and pay for the dredge equipment and the 2011 exploration operations and to pay for audit and accounting fees to file our delinquent financial statements which are now nearly complete, we have not had the ability to raise any significant additional capital to advance our exploration and mining operations. We do, however, have a substantial amount of existing warrants that if “in the money” could be exercised which could inject more than $1,000,000 of new capital which will enable us to ramp up operations in both Ghana and Sierra Leone with an eye to developing sustainable cash flow. There is no guarantee that any of these warrants will be exercised in the future, but we have received exercise notices for over 25,000,000 in the last 18 months.

We expect to have the Caveat Emptor status removed as soon as practicable which we expect to occur upon getting our ’34 Act filings current.  Upon removal of the Caveat Emptor status, it is anticipated that the increased liquidity potential for our investors will have a positive impact on our ability to raise additional capital from private placements and future warrant exercises, however, there can be no guarantee that this will be so as we currently do not have any outstanding firm commitments to purchase our equity and equity linked instruments.

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.
 
 
31

 

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.

While we have 619,504,339 shares of freely-traded stock with a quoted market price (a Level 1input within the GAAP hierarchy).  The fair value of the unregistered and restricted shares issued from December 13, 2010 through the present 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.   We made this determination based upon the significant liquidity restrictions placed upon our unregistered restricted equity instruments since December 13, 2010 with the issuance of the Caveat Emptor  For additional specific discussion related to these restrictions, see Item – 1A Risk Factors.

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

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

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.
 
 
32

 
Item 8.    Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
  Sunergy, Inc.

We have audited the accompanying consolidated balance sheet of Sunergy, Inc. (an exploration stage company) as of December 31, 2011 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended and from inception (January 28, 2003) to date. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sunergy, Inc. as of December 31, 2011, and the results of its consolidated operations and cash flows for the year then ended and inception to date, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 of the accompanying consolidated financial statements, the Company has incurred losses, has not generated any revenue, and has negative operating cash flows since the inception of the exploration activities. These factors, and the need for additional financing in order for the Company to meet its business plans, raise substantial doubt about its ability to continue as a going concern. Management’s plan to continue as a going concern is also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s:/ Ingenium Accounting Associates

Reno, Nevada
June 27, 2012
 
 
33

 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Sunergy, Inc.

We have audited the accompanying consolidated balance sheet of Sunergy, Inc. (the "Company") (A Exploration Stage Company) as of December 31, 2010 and the related consolidated statements of operations, stockholders' deficit and cash flows for the period then ended and from inception (January 28, 2003) through December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Sunergy, Inc. for the year ended December 31, 2009 and from inception (January 28, 2003) to December 31, 2009. Those statements were audited by other auditors whose report has been furnished to us and our opinion, in so far as it relates to the amounts included in the year ended December 31, 2009 and from inception (January 28, 2003) to December 31, 2009, is based solely on the report of other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sunergy, Inc. (A Exploration Stage Company) as of December 31, 2010 and the results of its operations and cash flows for the year then ended and from inception (January 28, 2003) through December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ De Joya Griffith & Company, LLC
Henderson, Nevada
December 15, 2011
 
 
34

 
 
SUNERGY, INC.
(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS
 
   
December 31,
   
December 31,
 
 
 
2011
   
2010
 
             
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 85,515     $ 97,251  
Deposits
    -       50,000  
     Total current assets
    85,515       147,251  
                 
Long-term assets:
               
Exploratory properties
    1,753,497       1,753,497  
Property and equipment, net
    225,007       2,254  
     Total assets
  $ 2,064,019     $ 1,903,002  
                 
Liabilities and stockholders' equity
               
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 205,089     $ 7,601  
Accrued interest
    101,700       -  
Accounts payable-related parties
    172,202       83,991  
Notes payable
    65,585       -  
     Total current liabilities
    544,576       91,592  
                 
     Total liabilities
    544,576       91,592  
                 
Commitments and contingencies
    -       -  
                 
Stockholders' equity:
               
Common Stock, authorized 3,750,000,000 shares, par value $0.001, issued and outstanding on December 31, 2011 and December 31, 2010 is 1,557,717,831 and 1,046,197,880, respectively
    1,557,718       1,046,198  
Additional paid in capital
    3,787,902       2,709,122  
Subscriptions payable
    -       414,861  
Deficit accumulated during exploration stage
    (3,826,177 )     (2,358,771 )
     Total stockholders' equity
    1,519,443       1,811,410  
                 
     Total liabilities and stockholders' equity
  $ 2,064,019     $ 1,903,002  
 
The accompanying notes are an integral part of these statements.
 
35

 



SUNERGY, INC.
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

               
From Inception
 
   
Year Ended
   
January 28, 2003
 
   
December 31,
   
to December 31,
 
   
2011
   
2010
   
2011
 
                   
Income
  $ -     $ -     $ -  
                         
Operating Expenses
                       
General and administrative
    225,763       143,043       459,801  
Management salary
    141,000       368,500       662,500  
Depreciation
    38,007       -       38,007  
Professional fees
    262,298       71,809       647,217  
Exploration costs
    534,848       107,989       681,457  
Total expenses
    1,201,916       691,341       2,488,982  
                         
Net loss from operations
    (1,201,916 )     (691,341 )     (2,488,982 )
                         
Other expenses
                       
Interest expense
    (265,490 )     (1,043,627 )     (1,337,195 )
Total other expenses
    (265,490 )     (1,043,627 )     (1,337,195 )
                         
Net loss
  $ (1,467,406 )   $ (1,734,968 )   $ (3,826,177 )
                         
Loss per share-basic
  $ (0.00 )   $ (0.00 )        
 
                 
Weighted average number of shares-basic and diluted
    1,361,932,928       723,220,692          

The accompanying notes are an integral part of these statements.

 
36

 
 
SUNERGY, INC.
(An Exploration Stage Company)

 Consolidated Statement of Stockholders' Equity (Deficit)
 
                         
Deficit
       
                         
Accumulated
       
                         
During the
       
   
Common Stock
   
Paid in
   
Subscriptions
   
Exploration
   
Total
 
 
 
Shares
   
Amount
   
Capital
   
Payable
   
Stage
   
Equity
 
Balance at inception, J anuary 28, 2003
    -     $ -     $ -     $ -     $ -     $ -  
Common shares issued for cash
    500,000,000       500,000       (490,000 )     -       -       10,000  
Common shares issued for cash
    6,975,000       6,975       6,975       -       -       13,950  
Net Loss
    -       -       -       -       (30,313 )     (30,313 )
                                                 
Balance, December 31, 2003
    506,975,000       506,975       (483,025 )     -       (30,313 )     (6,363 )
Contributed Capital
    -       -       401       -       -       401  
Net Loss
    -       -       -       -       (41,362 )     (41,362 )
                                                 
Balance, December 31, 2004
    506,975,000       506,975       (482,624 )     -       (71,675 )     (47,324 )
Contributed Capital
    -       -       938       -       -       938  
Net Loss
    -       -       -       -       (26,093 )     (26,093 )
                                                 
Balance, December 31, 2005
    506,975,000       506,975       (481,686 )     -       (97,768 )     (72,479 )
Contributed Capital
    -       -       1,959       -       -       1,959  
Net Loss
    -       -       -       -       (39,746 )     (39,746 )
                                                 
Balance, December 31, 2006
    506,975,000       506,975       (479,727 )     -       (137,514 )     (110,266 )
Net Loss
    -       -       -       -       (55,103 )     (55,103 )
                                                 
Balance, December 31, 2007
    506,975,000       506,975       (479,727 )     -       (192,617 )     (165,369 )
Common shares issued for cash
    6,000,000       6,000       144,000       -       -       150,000  
Common shares issued to acquire mineral property
    20,000,000       20,000       480,000       -       -       500,000  
Common shares subscribed
    -       -       -       5,000       -       5,000  
Net Loss
    -       -       -       -       (98,445 )     (98,445 )
                                                 
Balance, December 31, 2008
    532,975,000       532,975       144,273       5,000       (291,062 )     391,186  
Common shares subscribed
    -       -       -       138,400       -       138,400  
Common shares issued for services
    5,000,000       5,000       195,000       -       -       200,000  
Contributed Capital
    -       -       1,010       -       -       1,010  
Net Loss
    -       -       -       -       (332,741 )     (332,741 )
                                                 
Balance, December 31, 2009
    537,975,000       537,975       340,283       143,400       (623,803 )     397,855  
Contributed Capital
    -       -       8,960       -       -       8,960  
Common shares issued for services
    20,000,000       20,000       110,000       -       -       130,000  
Common shares issued to settle debt
    75,000,000       75,000       357,500       -       -       432,500  
Common shares issued for subscriptions
    40,992,880       40,993       102,407       (143,400 )     -       -  
Common shares issued for services
    25,000,000       25,000       142,500       -       -       167,500  
Common shares issued to settle debt
    39,980,000       39,980       135,810       -       -       175,790  
Common shares issued to  settle debt
    14,700,000       14,700       44,100       -       -       58,800  
Common shares issued to  settle debt
    17,650,000       17,650       52,950       -       -       70,600  
Common shares issued to  settle debt
    150,000,000       150,000       574,000       -       -       724,000  
Common shares issued for services
    10,800,000       10,800       32,400       -       -       43,200  
Common shares issued to  settle debt
    14,100,000       14,100       197,401       -       -       211,501  
Common shares and warrants issued to  acquire exploration property and assets
    -       -       420,811       -       -       420,811  
Common shares subscribed
    -       -       -       313,500       -       313,500  
Common shares to be issued  to settle debt
    -       -       -       47,500       -       47,500  
Common shares to be issued for services
    -       -       -       53,861       -       53,861  
Common shares and warrants issued to acquire exploration property and assets
    100,000,000       100,000       190,000       -       -       290,000  
Net Loss
    -       -       -       -       (1,734,968 )     (1,734,968 )
                                                 
Balance, December 31, 2010
    1,046,197,880       1,046,198       2,709,122       414,861       (2,358,771 )     1,811,410  
                                                 
Common shares and warrants issued to payable
    125,400,000       125,400       188,100       (313,500 )     -       -  
Common shares issued to  settle debt
    19,000,000       19,000       28,500       (47,500 )     -       -  
Common shares issued for services
    18,779,960       18,780       28,170       (43,861 )     -       3,089  
Common shares issued for services
    4,000,000       4,000       6,000       (10,000 )     -       -  
Common shares issued to settle operational advances
    15,440,000       15,440       23,160       -       -       38,600  
Common shares issued for services
    2,500,000       2,500       3,750       -       -       6,250  
Common shares issued for services
    10,000,000       10,000       15,000       -       -       25,000  
Common shares issued for exercise of warrants
    1,000,000       1,000       4,000       -       -       5,000  
Common shares issued for financing costs
    13,300,000       13,300       21,250       -       -       34,550  
Common shares and warrants issued for cash
    7,714,285       7,714       19,286       -       -       27,000  
Common shares and warrants issued for cash
    1,200,000       1,200       1,800       -       -       3,000  
Common shares and warrants issued for cash
    27,928,567       27,929       69,821       -       -       97,750  
Common shares and warrants issued for cash
    100,000,000       100,000       250,000       -       -       350,000  
Common shares issued for financing costs
    900,000       900       2,250       -       -       3,150  
Common shares issued for exercise of warrants
    18,000,000       18,000       47,000       -       -       65,000  
Common shares issued for services
    3,000,000       3,000       7,500       -       -       10,500  
Common shares and warrants issued for cash
    10,357,142       10,357       25,893       -       -       36,250  
Common shares and warrants issued  to settle debt
    22,000,000       22,000       47,000       -       -       69,000  
Common shares and warrants issued  to settle debt
    7,000,000       7,000       17,500       -       -       24,500  
Common shares and warrants issued for cash
    1,428,571       1,429       3,571       -       -       5,000  
Common shares issued for warrant exercise
    5,000,000       5,000       7,500       -       -       12,500  
Common shares issued for services
    4,500,000       4,500       11,250       -       -       15,750  
Common shares and warrants issued for services
    6,000,000       6,000       15,000       -       -       21,000  
Common shares issued for warrant exercise
    2,000,000       2,000       8,000       -       -       10,000  
Common shares issued for cash
    28,199,998       28,200       64,600       -       -       92,800  
Common shares issued for warrant exercise
    16,300,000       16,300       61,450       -       -       77,750  
Common shares and warrants issued  to settle debt
    40,571,428       40,571       101,429       -       -       142,000  
Net Loss
    -       -       -       -       (1,467,406 )     (1,467,406 )
                                                 
Balance, December 31, 2011
    1,557,717,831     $ 1,557,718     $ 3,787,902     $ -     $ (3,826,177 )   $ 1,519,443  
 
The accompanying notes are an integral part of these statements.
 
 
 
37

 


SUNERGY, INC.
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

                   
               
From Inception
 
   
Year Ended
   
January 28, 2003
 
   
December 31,
   
to December 31,
 
   
2011
   
2010
   
2011
 
                   
Operations
                 
Net loss
  $ (1,467,406 )   $ (1,734,968 )   $ (3,826,177 )
Adjustments to reconcile net loss to cash used in operating activities:
                       
     Depreciation
    38,007       -       38,007  
     Stock based compensation
    120,188       297,500       460,889  
     Non cash interest expense
    82,700       1,033,627       1,116,327  
     Amortized prepaid expense
    -       33,333       200,000  
Changes in assets and liabilities
                       
     Increase in accounts payable and accruals
    197,488       136,419       415,788  
     Increase in accrued interest payable
    179,700               179,700  
     Increase in accounts payable-related party
    88,211       61,041       172,202  
                         
Net cash used in operations
    (761,112 )     (173,048 )     (1,243,264 )
                         
Investing
                       
Acquisition of property and equipment
    (210,759 )     (2,254 )     (225,513 )
Deposit for purchase of dredge
    -       (50,000 )     (50,000 )
Cash acquired through acquisition of subsidiary
    -       39       39  
                         
Net cash used in investing
    (210,759 )     (52,215 )     (275,474 )
                         
Financing
                       
Proceeds from sale of common stock
    782,050       313,500       1,412,900  
Proceeds from notes payable
    210,000       -       210,000  
Repayment of related party notes
    (31,915 )             (31,915 )
Contributed capital
    -       8,960       13,268  
                         
Net cash provided by financing
    960,135       322,460       1,604,253