svxae_8ka-11122008.htm

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 8-K/A
Amendment #1

Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

 
Date of report (Date of earliest event reported): November 12, 2008

SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)
 
Utah
333-29903
 30-0123229
     
(State or other jurisdiction of
incorporation or organization)
(Commission File Number)
(I.R.S. Employer
Identification No.)

110 South State Street, Suite 200
Newtown, Pennsylvania 18940

(Address of principal executive offices and zip code)

Registrant's telephone number, including area code: 215-968-0200


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
r
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

r
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

r
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

r
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Report

On January 13, 2004, the Registrant notified the SEC of its election to be treated as a business development company.  All subsequent quarterly and annual reports were prepared using accounting principals applicable to a business development company.

On September 21, 2006, the Registrant withdrew its election to be treated as a business development company, thus no longer subjecting the financial statements to be presented that of a business development company pursuant to the 1940 Act.

On October 12, 2007, Registrant filed its Annual Report on Form 10-KSB for the year ended June 30, 2007.

On August 27, 2008, the Chief Executive Officer and the Board of Directors concluded that the previously issued statements for the fiscal years ended June 30, 2007 and 2006 along with each of the statements set forth in the quarterly filings for September 2006, December 2006, March 2007, September 2007, December 2007 and March 2008, should no longer be relied upon because of the change in reporting status from that of a business development company under the 1940 Act to an operating company under the 1934 Act along with certain corrections of errors, which have been addressed pursuant to requirements of SFAS no. 154.

The following sets forth:  a) basis of presentation and change in reporting status, and 2) correction of errors in previously issued financial statements:

BASIS OF PRESENTATION AND CHANGE IN REPORTING STATUS

The following table reflects the changes as of June 30, 2005 equity accounts for the change in reporting status of the Company from a BDC to an operating company:

   
Class C Convertible
Preferred Stock
    
Common Stock
    
Additional
paid-in
    
Stock
Subscription
    
Minority
    
Accumulated
    
Unrealized
Depreciation of
        
   
Shares
    
Par Value
    
Shares
    
Par Value
    
capital
    
Receivable
    
Interest
    
Deficit
    
Investments
    
Total
  
Balance, June 30, 2005
     10,000     $ 10,000       55,837     $ 56     $ 17,316,337     $ (4,760 )   $ -     $ (17,207,468 )   $ (657,328 )   $ (543,163 )
                                                                                 
Change in reporting entity status
     (10,000 )     (10,000 )     -       -       1,925,504       4,760       (803,530 )     (181,959 )     657,328       1,592,103  
                                                                                 
Balance, June 30, 2005
     -       -       55,837     $ 56     $ 19,241,841     $ -     $ (803,530 )   $ (17,389,427 )   $ -     $ 1,048,940  

 
The net effect on the total stockholders’ equity as of June 30, 2005 was $1,592,103, which consists of the following adjustments:

1.  
$657,328 in the unrealized depreciation of investments for the elimination of this account.
2.  
$(181,959) in the accumulated deficit to account for the change in loss as an operating company versus a BDC.
3.  
$(803,530) in minority interests for the capital investments in the Company’s subsidiaries from unrelated parties.
4.  
$4,760 in stock subscription receivable to eliminate this account.
5.  
$1,925,504 in the additional paid in capital for the net effect of the change in the reporting entity pursuant to SFAS no. 154; $2,240,163 for the effect of the issuance of common stock for the escrow/exchange agreements, $(23,583) for the effect of the common shares issued with the exchange agreement and $(291,076) for the net effect of the disposal of the assets of the Company prior to the exchange agreement in October 2005.
6.  
$(10,000) for the elimination of the Class C Convertible Preferred Stock.

CORRECTION OF ERRORS IN PREVIOUSLY ISSUED STATEMENTS

The Company determined that as an operating company and reporting pursuant to the 1934 Act, certain errors were discovered and corrected retrospectively pursuant to SFAS no. 154.
 
The following table reflects the impact of the corrections on the
restated consolidated balance sheet as of June 30, 2007:
 
   
2007
    
2007
        
   
As Corrected
          
Change
  
Cash and cash equivalents
   $ 542,336     $ 542,336     $ -  
Accounts receivable
     323,493       323,493       -  
Inventory
     2,132,820       2,132,820       -  
 Total current assets
     2,998,649       2,998,649       -  
                         
Equipment, net of depreciation
     100,000       -       100,000  
 Total property and equipment
     100,000       -       100,000  
                         
Other assets
                        
Capitalized costs and permits
     -       -       -  
Research vessel
     -       125,000       (125,000 )
Licenses and permits, net of amortization
     1,480,946       1,682,916       (201,970 )
Investments, net of allowance of $173,868
     51,962       51,962       -  
Notes receivable, net of allowance of $832,849
     -       -       -  
Total other assets
     1,532,908       1,859,878       (326,970 )
                         
Total assets
   $ 4,631,557     $ 4,858,527     $ (226,970 )
Current liabilities
                        
Accounts payable and accrued expenses
   $ 752,657     $ 752,657     $ -  
Related party notes payable
     3,459,359       3,459,359       -  
Due to related parties
     1,237,726       1,237,726       -  
Convertible notes payable
     1,000,000       1,000,000       -  
Debentures payable
     99,174       99,174       -  
Total current liabilities
     6,548,916       6,548,916       -  
Total liabilities
     6,548,916       6,548,916       -  
                         
Commitments and contingencies
     -       -       -  
                         
Deficiency in assets
                        
Preferred stock - Series A, $0 par value, 100,000,000 shares authorized;
                        
none issued and outstanding
     -       -       -  
Common stock - $.001 par value, 250,000,000,000 shares authorized;
29,842,017 issued and outstanding
     29,842       29,842       -  
Additional paid-in capital
     20,119,147       20,119,147       -  
Minority interest
     (803,530 )     (803,530 )     -  
Accumulated deficit
     (21,262,818 )     (21,035,848 )     (226,970 )
 Total deficiency in assets
     (1,917,359 )     (1,690,389 )     (226,970 )
                         
Total liabilities and deficiency in assets
   $ 4,631,557     $ 4,858,527     $ (226,970 )

A -
Entry to reclassify the research vessel from other assets to property and equipment
   
B -
To record $25,000 in depreciation expense for the research vessel that was available for use during the fiscal year ended June 30, 2007
   
C -
To record the $201,970 for the amortization of the licenses and permits owned by the Company for the fiscal year ended June 30, 2007
   
D -
To record the $25,000 in depreciation expenses for the research vessel and the $201,970 for the amortization of the licenses and permits for the fiscal year
ended June 30, 2007

 
 
The following table reflects the impact of the corrections on the
restated consolidated balance sheet as of June 30, 2007:
 
   
2007
    
2007
              
   
As Corrected
                
Change
  
                         
Revenue
   $ 1,860,442     $ 1,860,442           $ -  
Cost of sales
     1,474,632       1,474,632             -  
Gross profit
     385,810       385,810             -  
Operating expenses
                           -  
Salaries and wages
     562,547       116,144      
A
       446,403  
General and administrative
     585,304       585,304               -  
Legal and professional fees
     318,497       318,497               -  
Total operating expenses
     1,466,348       1,019,945               446,403  
Loss from operations
     (1,080,538 )     (634,135 )             (446,403 )
Other income (expenses)
                                
Depreciation and amortization
     (226,970 )     -      
B
       (226,970 )
Interest income
     1,351       1,351               -  
Interest expense
     (144,532 )     (144,532 )             -  
Total other (income) expenses
     (370,151 )     (143,181 )             (226,970 )
Operating loss before income taxes
     (1,450,689 )     (777,316 )             (673,373 )
Provision for income taxes
     -       -               -  
Net loss
   $ (1,450,689 )   $ (777,316 )    
C
       (673,373 )
Net loss per common share
                                
Basic
     (0.05 )   $ (0.03 )    
D
     $ (0.02 )
Diluted
   $ (0.05 )   $ (0.03 )           $ (0.02 )
Weighted average of common shares outstanding
                                
Basic
     27,580,209       27,580,209               -  
Diluted
     30,132,628       30,132,628               -  

A -  
The accrued and unpaid salaries and expenses of certain officers and directors increase the operating expenses by $446.403.  This amount was adjusted through additional paid in capital to reflect the write-off of the accrued and unpaid salaries and expenses of certain officers and directors on June 30, 2007.
   
B -  
For the fiscal year ended June 30, 2007, the $226,970 in depreciation and amortization is as follows: $25,000 in depreciation for the research vessel and the $201,970 is for the amortization of the licenses and permits owned by the Company.  See Note 4 for a description if the fixed assets and Note 5 for a description of the licenses and permits
   
C -  
For the fiscal year ended June 30, 2007, the net loss increased by $673,373 for these corrections.
   
D -  
For the fiscal year ended June 30, 2007, the net effect of the corrections was $(0.02) on the basic and diluted net loss per common share of the Company.


The following table reflects the impact of the corrections
on the restated consolidated balance sheet as of June 30, 2006:
 
   
2006
    
2006
              
   
As Corrected
                
Change
  
Current assets
                        
Cash and cash equivalents
   $ 570     $ 570           $ -  
Inventory
     1,614,004       -             1,614,004  
 Total current assets
     1,614,574       570             1,614,004  
                            -  
Other assets
                           -  
Capitalized costs and permits
     -       3,463,890     A       (3,463,890 )
Research vessel
     -       -             -  
Licenses and permits, net of amortization
     1,682,916       -             1,682,916  
Investments, net of allowance of $173,868
     -       -             -  
Notes receivable, net of allowance of $832,849
     -       -             -  
Total other assets
     1,682,916       3,463,890             (1,780,974 )
                               
Total assets
   $ 3,297,490     $ 3,464,460           $ (166,970 )
                               
Current liabilities
                              
Accounts payable and accrued expenses
   $ 347,528     $ 347,528           $ -  
Related party notes payable
     2,583,955       2,583,955             -  
Due to related parties
     817,929       817,929             -  
Convertible notes payable
     800,000       800,000             -  
Debentures payable
     121,840       121,840             -  
Total current liabilities
     4,671,252       4,671,252             -  
Total liabilities
     4,671,252       4,671,252             -  
                            -  
Commitments and contingencies
     -       -             -  
                               
Deficiency in assets
                              
Common stock - $.001 par value, 250,000,000,000 shares authorized;
26,203,166 issued and outstanding
     26,203       26,203             -  
Additional paid-in capital
     19,215,694       19,215,694             -  
Minority interest
     (803,530 )     (803,530 )           -  
Accumulated deficit
     (19,812,129 )     (19,645,159 )   B       (166,970 )
 Total deficiency in assets
     (1,373,762 )     (1,206,792 )           (166,970 )
                            -  
Total liabilities and deficiency in assets
   $ 3,297,490     $ 3,464,460           $ (166,970 )
 

A -  
 The capitalized costs and permits are being reclassified to inventory and permits at the earliest date possible pursuant to SFAS no. 154.  These reclassifications had no effect on the net loss for the fiscal year ended June 30, 2006

B -  
The amortization expense of $166,970 is being recorded for the amortization of the licenses and permits for the fiscal year ended June 30, 2006.  The $166,970 increased the net loss for the fiscal year ended June 30, 2006
 
 
 
The following table reflects the impact of the corrections
on the restated consolidated balance sheet as of June 30, 2006:
 
   
2006
    
2006
          
   
As Corrected
            
Change
  
                     
Revenue
   $ -     $ -       $ -  
Cost of sales
     -       -         -  
Gross profit
     -       -         -  
Operating expenses
                       -  
Termination of employment and consulting agreements
     600,000       600,000         -  
Salaries and wages
     802,680       802,680         -  
General and administrative
     507,800       507,800         -  
Legal and professional fees
     304,978       304,978         -  
Total operating expenses
     2,215,458       2,215,458         -  
Loss from operations
     (2,215,458 )     (2,215,458 )       -  
Other income (expenses)
                          
Depreciation and amortization
     (166,970 )         A     (166,970 )
Interest income
     -       -         -  
Interest expense
     (40,184 )     (40,184 )       -  
Total other (income) expenses
     (207,154 )     (40,184 )       (166,970 )
Operating loss before income taxes
     (2,422,612 )     (2,255,642 )       (166,970 )
Provision for income taxes
     -       -         -  
Net loss
   $ (2,422,612 )   $ (2,255,642 )     $ (166,970 )
Net loss per common share
                          
Basic
     (0.09 )   $ (0.08 ) B     (0.01 )
Diluted
   $ (0.09 )   $ (0.08 )     $ (0.01 )
Weighted average of common shares outstanding
                          
Basic
     28,022,592       28,022,592         -  
Diluted
     28,022,592       28,022,592         -  
 
A -  
Amortization expense of $166,970 is being recorded for the amortization of the licenses and permits for the fiscal year ended June 30, 2006.  The $166.970 increased the net loss for the fiscal year ended June 30, 2006

B -  
For the fiscal year ended June 30, 2006, the net effect of the correction was an increase of $0.01 on the basic and diluted net loss per common share of the Company.

The Chief Executive Officer of the Company along with the Board of Directors discussed these restatement matters with the Company’s auditors.

The restated audited consolidated financial statements for the fiscal year ended June 30, 2007 to include the restatements as set forth in this 8-K/A will be filed immediately following the filing of this 8-K/A.

SIGNATURES

Pursuant to the Securities Act of 1934, the Company has duly caused this report to be signed on its behalf.
 
  SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC.  
       
 November 12, 2008
By:
/s/ Robert D. Baca              
    Robert D. Baca, Chief Executive Officer