Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements.
These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology such as "may", "should", "expects",
"plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or
other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties
and other factors, that may cause our or our industry's actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels of
activity, performance or achievements expressed or implied by
these forward-looking statements. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United
States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Our unaudited financial statements are stated in United
States dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles. The following
discussion should be read in conjunction with our financial
statements and the related notes that appear elsewhere in this
quarterly report. The following discussion contains
forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those
discussed in the forward looking statements. Factors that could
cause or contribute to such differences include, but are not
limited to, those discussed below and elsewhere in this
quarterly report.
In this quarterly report, unless otherwise specified, all
dollar amounts are expressed in United States dollars. All
references to "common shares" refer to the common shares in our
capital stock.
As used in this quarterly report, the terms "we", "us",
"our", "our company" and "Sunergy" mean Sunergy, Inc., unless
otherwise stated.
Corporate 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.
On April 10, 2003, we acquired the Humming Bird Property
located in British Columbia from Ashworth Explorations Ltd. We
acquired a total of three mineral claims located in the
Vancouver Mining Division of British Columbia that have the
potential to contain copper, silver and gold mineralization or
deposits. Under the new claim ownership system in British
Columbia, the property has now been reduced and converted into
one claim that totals 15 cells and covers an area of 311
hectares. A cell is a subunit of a claim and measures
approximately 20 hectares. In order to acquire a 100% interest
in these claims, we paid $3,450 to Ashworth Explorations Ltd. In
2005, 2006, 2007 and 2008 we retained an agent, David Heyman of
Vancouver, British Columbia, to re-stake the property and hold
it in trust for us. In 2006, we reduced the size of the property
so that it only covers areas upon which we have discovered
mineralization in our initial exploration program.
On September 12, 2008, Lorne Lilley resigned as treasurer,
secretary and a director of our company and Christian Brule
resigned as president of our company. As a result of these
resignations, George Polyhronopolous and Joseph B. Guerrero were
elected directors of our company. On the same date Mr.
Polyhronopolous was appointed secretary and treasurer of our
company and Mr. Guerrero was elected president. Our board of
directors now consists of Christian Brule, George
Polyhronopolous and Joseph Guerrero.
On September 16, 2008, our board of directors approved a one
(1) old for five
(5) new forward stock split of our authorized and issued and
outstanding shares of common stock. The certificate of change
was filed with the Nevada Secretary of State on September 23,
2008, effective October 7, 2008. Following the stock spilt our
authorized capital has increased from 75,000,000 shares of
common stock with a par value of $0.001 to 375,000,000 shares of
common stock with a par value of $0.001. We have issued five (5)
shares of common stock in exchange for every one (1) share of
common stock issued and outstanding.
On October 31, 2008, we entered into an agreement with
General Metals Corporation (OTCBB:GNMT) for the acquisition of
its 100% owned Nyinahin Mining Concession located in Ghana, West
Africa. The consideration for the acquisition is to consist of
$500,000 in cash, which shall be payable as follows: (i) $50,000
which is to be provided within 5 days of the effective date of
the agreement with General Metals, (ii) $200,000 which is to be
provided by December 31, 2008, and (iii) the balance of $250,000
which is to be provided by April 30, 2009; and 2,000,000
restricted shares of common stock of our company, issued at a
fair value of $0.25 per share.
On October 31, 2008, we provided a partial payment of $12,500
due on the principal payment as noted under the agreement for
the acquisition of the Nyinahin Mining. This $12,500 payment is
to be credited towards the payment due to General Metals
Corporation on April 30, 2009. On December 5, 2008, we amended
the agreement with General Metals Corporation to allow for the
initial $250,000 payment to be made on or before December 31,
2008 with the remainder of the $250,000 payment to be payable on
or before April 30, 2009. As of the date of this quarterly
report, we had not yet made the remainder of the $250,000
payment (being $237,500) due on or before April 30, 2009 to
General Metals Corporation. We are actively negotiating an
extension for this payment with General Metals Corporation.
As of December 31, 2008, we issued 2,000,000 restricted
shares of our common stock to General Metals Corporation at a
fair price of $0.25 per share as noted in the description of the
agreement above.
A shareholder of our company, Global Partners LLC, agreed to
settle the initial payment of $250,000 to General Metals
Corporation. As a result of this, we entered into a promissory
note with Global Capital Partners LLC on December 30, 2008,
wherein we agreed to pay the principal amount of $250,000
including interest at a rate of 8% per annum by December 31,
2009. As a result, we are in compliance with the terms of the
acquisition agreement for the Nyinahin Mining Concession.
Effective October 1, 2008, we entered into a management
agreement with Joseph B. Guerrero, our President and director.
We pay remuneration for his services at a rate of one thousand
five hundred dollars ($1,500) per month. The agreement is for a
term of one year and will continue thereafter on a month to
month basis unless terminated.
Effective October 1, 2008, we entered into a management
agreement with George Polyhronopolous, our Secretary, Treasurer
and director. We pay remuneration for his services at a rate of
one thousand five hundred dollars ($1,500) per month.
The agreement is for a term of one year and will continue
thereafter on a month to month basis unless terminated.
Effective October 1, 2008, we entered into a director fee
agreement with Christian Brule, a director of our company. We
pay directors fees at a rate of one thousand five hundred
dollars ($1,500) per month. The agreement is for a term of one
year and will continue thereafter on a month to month basis
unless terminated.
On March 23, 2009, we entered into a consulting agreement
with Mark Iacono. The consulting agreement is for a term of one
year and is effective as of the 1st day of March, 2009. Pursuant
to the terms of the consulting agreement we agreed to issue
500,000 restricted shares of our common stock to Mr. Iacono and
to reimburse him for all reasonable out-of-pocket expenses.
Our Current Business
We are an exploration stage mining company engaged in the
exploration of minerals on properties located in British
Columbia and Ghana, West Africa.
Our plan of operation for the twelve months following the
date of this quarterly report is to complete the recommended
grid establishment, line cutting, soil sampling and mapping on
the Hummingbird property, to complete the terms of the
acquisition agreement with General Metals Corporation and to
commence our exploration program on the Nyinahin mining
concession.
Humming Bird Property
Our Hummingbird property is located in the Vancouver Mining
Division approximately 25 kilometers northeast of Powell River,
British Columbia and 100 kilometers northwest of the city of
Vancouver. The property lies on the northwest part of Goat
Island, which is located in Powell Lake.
Future Exploration
Based upon previous work conducted on the Hummingbird
property, we intend to continue exploration on the claim to test
the identified mineralized area in the center of the property,
and to evaluate the potential of the remainder of the claim
area.
In order to accomplish this, we intend to complete an
additional exploration program on the Hummingbird property
consisting of grid establishment over a 15-kilometer area, line
cutting, soil sampling and mapping.
Line cutting involves removing bush from the property in
order to produce straight clearings. This provides grid
boundaries for exploration work.
Typically, the area being explored is divided into small
sections. Results are recorded based on the area of the grid
upon which exploration is being conducted.
Mapping involves recording previous exploration data on the
property based on the grid area upon which the exploration was
conducted.
Soil sampling involves gathering dirt from property areas
with the most potential to host economically significant
mineralization based on past exploration results. Samples are
gathered that appear to contain precious metals such as gold and
silver, or industrial metals such as copper. All samples
gathered are sent to a laboratory where they are crushed and
analyzed for metal content.
Once we obtain results from our planned exploration program,
we intend to conduct magnetometer and VLF-EM surveys over the
grid area.
A magnetometer survey involves measuring the strength of the
earth's magnetic field. Variations in the magnetic readings on
the property may indicate the increased likelihood of precious
or base minerals in the area. VLF-EM surveys consist of two
separate surveys: the very low frequency (VLF) survey and the
electromagnetic survey. Very low frequency surveys use radio
waves to determine whether rocks on a mineral property conduct
electricity. Electromagnetic surveys use electricity and magnets
to determine conductivity. Almost all of the precious and base
metals that the Company seeks are above average conductors of
electricity and will affect the VLF and electromagnetic
readings.
Electromagnetic surveys involve measuring the strength of the
earth's magnetic field. Variations in the magnetic readings on a
property may indicate the increased likelihood of precious or
base minerals in the area.
We completed an initial phase of exploration on the property
in January 2004 at a cost of $3,500. Our follow-up exploration
program at a time to be determined will involve completing
geophysical surveys on the Hummingbird property. We expect this
will cost about an additional $7,500. A follow-up drill program
will cost an estimated $75,000. We will proceed to drilling if
we determine that additional work is warranted based upon the
results of the soil sampling phase of the work program and
geophysical survey readings over these mineralized areas.
We will make a decision whether to proceed with each
successive phase of the exploration program upon completion of
the previous phase and upon our analysis of the results that
program. At the completion of each phase, we will retain a
consulting geologist who will review the results of exploration
with our board of directors. Based upon their review, our
directors will then determine whether to proceed to the next
phase of exploration.
Upon the completion of these preliminary exploration
programs, we will need to spend extensive amounts of money and
time on additional exploration before we are able to determine
whether the Hummingbird property contains economic quantities of
mineralization.
Our recoverability of minerals from the Hummingbird property
will be subject to the confirmation of our interest in the
underlying claim. Such confirmation is required because the
staking of mineral claims can be subject to deficiencies,
including failure to comply with staking rules, failures to
conduct required assessment work or fraud. Usually, at a stage
where a company discovers economically recoverable reserves,
title searches and legal opinions are required to confirm the
interest in the claim.
Nyinahin Mining Concession
The 150 square kilometer Nyinahin mining 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 Mining 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.
Future Exploration
We have designed a four-phased exploration program as
detailed below:
We are committed in spending a total of US$286,000 over a two
year period depending on the type and size of any deposit to be
discovered. This estimate includes a 10% contingency cost.
Phases II and III are contingent upon a favorable result from
earlier phases.
Phases I and II (Duration 12 months -end of first year)
Proposed Exploration
�
Geological Mapping
�
Line Cutting
�
Geochemical Soil Sampling
�
Trenching
�
Pitting
�
Geophysical Investigation
The Fieldwork will begin with preliminary geological mapping
and documentation to confirm the general structures and
formations. A review of work done during the reconnaissance
licence period will also be carried out.
Line cutting will be carried out on known mineralized zones
identified within the concession at initial grid spacing of
800m. This will be in-filled with lines spaced at 400m and 200m
over selected grounds. It is expected that about 100km of lines
will be cut in all. Geochemical soil-sampling program will be
conducted at an initial interval of 400 and in-filled at 100m
and 50m along the grid lines.
Trenching, the most cost effective exploration method
available in locating significant in-situ mineralization will be
employed. Preliminary trenching based on results of the
geochemical soil sampling will be carried out. An estimated 800m
of trenches will be excavated.
Pitting will be carried out at some soil location points
along the proposed mineralized trend where trenching is not
merited. Areas without significant gold values along the
mineralized trend will also be pitted to check the possibility
of transported materials.
Geophysical methods (VLF-EM/SP) will be used to identify
mineralized zones/anomalies within the concession area. Other
work to be tackled are clarification of the general forms of the
mineral deposits (or anomalies), the size of the main ore
bodies, their quality, mineralogy and technical problems which
will generally assist in the evaluation of the deposit.
Finally, other geological works will be carried out if
considered necessary. It is hoped that any geophysical work
already conducted in the area by the Geological Survey will help
in the interpretation of the structural problems. At the end of
this phase, an internal report will be prepared. The report will
form the basis of the Annual Report and on which the detailed
prospecting phase will be projected and carried out as the next
phase of the project.
Phase III (Duration up to 6 months - beginning of second
year)
Detailed Prospecting
�
Geochemical Investigations
�
Trenching and Pitting
�
Structural Geological Mapping
�
Assay
�
Survey work
Geochemical samples will be taken along the geophysical
traverses and analyzed to cross check any prospects/anomalies
picked up by the geophysics. All the geochemical anomalies
recorded will be "prioritized".
Detailed soil sampling at a closer grid system of 200 X 50m,
and 100 X 25m will be undertaken when it becomes necessary.
Trenching, pitting, sampling and structural geological
mapping will be tightened up. Any other geological work deemed
necessary would also be carried out.
Assaying of all samples will be carried out locally in the
first instance. Some external cross checking of the assay values
will also be made as and when appropriate.
Survey work -all work from this stage will be performed on a
surveyed grid system. All trench locations from the previous
phase and the subsequent ones will be surveyed and put on plan
and sections. This will enable a more effective picture of the
prospecting work to be viewed and interpreted.
Mineralogical and petrographical studies will be carried out.
A report will be prepared at the end of the period. This will
involve project appraisal and projections for the next phase of
the prospecting program.
Phase IV (Duration up to 6 months - end of second year)
Target Delineation and Resource Estimation
�
Trenching, Pitting and Sampling
�
RC Drilling (1000m)
�
Other Detailed Geological Work
�
Geological Report.
Work will be concentrated in areas, which have shown positive
results during the previous phases and carried out according to
the importance of the results. Area(s), which could be mined
first, will be prospected in more detail. The aim will be to
accurately define the geological structure, forms, attitude of
the ore bodies or the ore deposit.
Trenching will continue at an aggressive rate and at closer
grid spacing than before. Sampling, survey work and structural
geological mapping of all exploration work will be carried out.
RC drilling of the gold deposit for resource estimation will
be carried out. It is estimated that about 800m of RC drilling
will be carried out.
Assay of all samples will be done locally and externally as
and when necessary.
Resource Estimation based on trench and RC drilling will be
carried out
Reserves estimation will be attempted at this stage to
determine the extent of the economic mineral potential of the
concession area.
Results of Operations
Three month Summary ending March 31, 2009 and 2008
Three Months Ended
March 31
2009 2008
Revenue $ Nil $ Nil
Operating Expenses $ 68,452 $ 18,133
Net Loss $ (68,452) $ (18,133)
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Expenses
Our operating expenses for the three month periods ended March 31, 2009 and
March 31, 2008 are outlined in the table below:
Three Months Ended
March 31
2009 2008
Accounting and audit fees $ 12,225 $ 6,244
Bank charges $ 146 $ 51
Consulting fees $ 25,000 $ Nil
Director fees $ 4,500 $ Nil
Filing and transfer agent fees $ 996 $ 3,159
Foreign exchange $ Nil $ Nil
Interest $ 5,000 $ 713
Legal fees $ 10,085 $ 3,000
Office and miscellaneous $ Nil $ Nil
Management fees $ 9,000 $ 3,000
Mineral property costs $ Nil $ 466
Rent $ 1,500 $ 1,500
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Operating expenses for the three months ended March 31, 2009,
increased by 277.50% as compared to the comparative period in
2008 primarily as a result of increases in accounting and audit
fees, consulting fees, director fees, interest and legal fees.
Revenue
We did not earn any revenues during the period ending March
31, 2009. We do not anticipate earning revenues until such time
as we have entered into commercial production on either the
Hummingbird Property or the Nyinahin Mining Concession. We can
provide no assurance that we will discover economic
mineralization on either of our properties, or if such minerals
are discovered, that we will enter into commercial production.
Equity Compensation
We currently do not have any stock option or equity
compensation plans or arrangements.
Liquidity and Financial Condition
Working Capital
At At
March 31, Dec. 31, Increase/
2009 2008 Decrease
Current Assets $ 275,000 $ 648 $ 274,352
Current Liabilities $ 383,066 $ 371,962 $ 11,104
Working Capital (deficit) $ (108,066) $ (371,314) $ 263,248
Cash Flows
Three Months Three Months
Ended Ended
March 31, March 31,
2009 2008
Net Cash Provided (Used in) by Operating Activities $ 32,348 $ 2,203
Net Cash Provided by Investing Activities $ Nil $ Nil
Net Cash Provided by Financing Activities $ 31,700 $ 3,311
Increase in Cash During the Period $ (648) $ 5,514
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On October 10 2008, we issued 600,000 units at a purchase
price of $0.25 per unit for gross proceeds of $150,000 to three
subscribers. Each unit consists of one common share and one
common share purchase warrant. Each warrant entitling the holder
to purchase one share of our common stock at a price of $0.25
per share for a period of 24 months from the date of issuance.
An aggregate of 400,000 units were issued to two U.S. persons
(as that term is defined in Regulation S of the Securities Act
of 1933) relying upon Rule 506 of Regulation D of the Securities
Act of 1933 and 200,000 units were issued to one non-U.S. person
(as that term is defined in Regulation S promulgated under the
Securities Act of 1933) relying on the exemption from
registration provided by Regulation S and/or Section 4(2) of the
Securities Act of 1933.
As at March 31, 2009, we received $36,700 in respect of share
subscriptions for 146,800 units at $0.25 per unit. Each unit
consists of one common share and one common share purchase
warrant. Each warrant entitles the holder to purchase an
additional common share $0.25 per share for a period of 24
months from the date of the closing of offering. These shares
have not yet been issued.
Subsequent to March 31, 2009, we received $25,000 in respect
of share subscriptions for 100,000 units at $0.25 per unit. Each
unit consists of a common share and one common share purchase
warrant entitling the holder to purchase an additional common
share at $0.25 per share for a period of 24 months from the date
of closing of the offering. These units have not yet been
issued.
Contractual Obligations
As a "smaller reporting company", we are not required to
provide tabular disclosure obligations.
Going Concern
In their audit report relating to our financial statements
for the period ended December 31, 2008, our independent
accountants indicated that there are a number of factors that
raise substantial doubt about our ability to continue as a going
concern. Such factors identified in the report are our net loss
position, our failure to attain profitable operations and our
dependence upon obtaining adequate financing. All of these
factors continue to exist and raise doubt about our status as a
going concern.
We anticipate that additional funding will be required in the
form of equity financing from the sale of our common stock. At
this time, we cannot provide investors with any assurance that
we will be able to raise sufficient funding from the sale of our
common stock or through a loan from our directors to meet our
obligations over the next twelve months. We do not have any
arrangements in place for any future debt or equity financing.
Off-Balance Sheet Arrangements
We have no 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 is material to stockholders.
Critical Accounting Policies
The discussion and analysis of our financial condition and
results of operations are based upon our financial statements,
which have been prepared in accordance with the accounting
principles generally accepted in the United States of America.
Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue, and expenses. These estimates and
assumptions are affected by management's application of
accounting policies. We believe that understanding the basis and
nature of the estimates and assumptions involved with the
following aspects of our financial statements is critical to an
understanding of our financial statements.
