UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURUTIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
Commission file number 000-20462
Southern Energy Company, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 95-3746596
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 W. Liberty St. 10th Floor
Reno, Nevada 89505
(Address of Principal Executive Offices & Zip Code)
1-800-628-5764
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] 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 [ ] 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 past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [ ]
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
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do Not Check if a Smaller Reporting Company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of March 9, 2009, the registrant had 70,376,485 shares of common stock issued
and outstanding.
SOUTHERN ENERGY COMPANY, INC
TABLE OF CONTENTS
Item 1. Business........................................................... 3
Item 1A. Risk Factors....................................................... 6
Item 2. Properties......................................................... 8
Item 3. Legal Proceedings.................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders................ 8
Item 5. Market for Common Equity and Related Stockholder Matters........... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 9
Item 8. Financial Statements............................................... 11
Item 9. Changes in and Disagreements with Accountants on
Financial Disclosure.............................................. 21
Item 9A. Controls and Procedures............................................ 21
Item 10. Directors, Executive Officers and Control Persons.................. 23
Item 11. Executive Compensation............................................. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 25
Item 13. Certain Relationships and Related Transactions..................... 25
Item 14. Principal Accounting Fees and Services............................. 25
Item 15. Exhibits........................................................... 26
Signatures................................................................... 26
2
PART I
ITEM 1. BUSINESS
SUMMARY
Southern Energy Company Inc. was incorporated in the state of California as
Astro Systems and Engineering, Inc. on March 22, 1982. On May 28 1985, the
company changed its name to Astro Sciences Corporation. On February 8 1996, the
company changed its name to Chatcom, Inc. In September 1999 the company filed
petition under Chapter XI of the Federal Bankruptcy Code. On August 15, 2007 the
company changed its name to Southern Energy Company Inc. On December 13, 2007
the company re-domiciled to the state of Nevada.
The company is in the business of finding and developing coal and other mineral
properties in North and South America.
The company has recently entered into an agreement to acquire a Coal Concession
located in Lota Bay, Chile. This acquisition agreement is scheduled to close on
or before March 31, 2009 for a total value of $8,000,000 comprising of cash and
shares.
We have not earned any revenues to date. Our independent auditor has issued an
audit opinion which includes a statement expressing substantial doubt as to our
ability to continue as a going concern.
LOTA BAY, CHILE, COAL RECOVERY PROJECT
The company has entered into an agreement to acquire a coal concession located
in Lota Bay, Chile. This acquisition agreement is scheduled to close on or
before March 31, 2009 for a total value of $8,000,000 comprising of cash and
shares.
Lota was a major coal-mining centre in southern Chile, on the Golfo (gulf) de
Arauco. Although Lota was founded in 1662, sustained development of coal mining
did not begin until 1852, when the industrial Matias Cousino started a
coal-mining enterprise. Completion of a railway from Concepcion, 32 km north, in
1888 stimulated growth. In the 1990's Lota's coal resources became exhausted and
cheaper Colombian coal began to compete in the market causing the coal mines to
close after 145 years of continuous operations.
Over the 145 year span of Lota coal mines operation, coal was dumped or spilled
into the harbour. Most of the spilled coal resulted from primitive shipping and
conveying practices that where used over the last 145 years.
In March 2006 a drilling test was performed in this area. The net results of
these tests show 275,000 proven tones of recoverable bituminous thermal coal in
the harbor with probable reserves of 90,000 tonnes. The coal within the
boundaries of the concession is a layer averaging 2.26 meters in thickness in 10
meters of water with 1.7 meters of overburden.
Mrs. Latapiat acquired the rights to remove the Lota coal through a MINOR
MARITIME CONCESSION ON A SECTION OF THE SEA FLOOR from the Chilean Governmant on
August 20, 2008. Southern Energy Company Inc. has an agreement with Mrs.
Latapiat to acquire her right to remove and sell the Lota coal.
The operational plan is to dredge up the coal and process it in an adjacent
industrial site. Lota has grid power, water, sewage, road and rail access. The
coal will be marketed to nearby coal burning thermal electric generating plants
which currently have to import to meet the growing electrical demands. The
3
projected economics is based on a coal price of $90 per tonne. At a medium price
of $90 per tonne the estimated fair value of the project is $17 million.
DRILLING RESULTS
The sea bed of the concession lies in 10 to 11 meters of water. In March of
2006, a drilling test was carried out on the designated are of the coal
concession. The sea floor in the concession region was drilled at 10 locations
and the thickness of the coal located was up to 3 meters and the average
thickness of the coal where intersected was 2.26 meters. The layer of coal was
found to be covered with about 1 to 2 1/2 meters of overburden. The drill test
results are summarized in the following table.
SUMMARY TABLE OF COAL THICKNESS
Test Depth (m) Overburden (m) Coal Thickness (m)
---- --------- -------------- ------------------
1 11.40 0.71 1.72
2 10.30 2.58 1.29
3 9.97 1.29 2.89
4 10.71 1.18 2.66
5 10.24 1.48 2.93
6 10.86 1.85 0.00
7 10.57 2.05 0.00
8 10.61 2.14 1.99
9 10.78 2.03 0.00
10 10.42 1.89 2.33
Average 10.59 1.72 2.26
Based on the result of the drill tests, the computed concession contains 625,000
tonnes of coal. The company has used a calculated recoverable reserve of 275,000
tonnes. By extending boundries past the drill holes, we estimate the probable
reserve to be 90,000 tonnes. The extracted coal was tested at the University of
Conception in January of 2001. The coal was classified as good quality thermal
bituminous coal with low ash, low sulphur and rates at 6,000 kcal/kg.
ENGINEERING PROCESS
The dredging operation will be achieved in a series of stages. The first
operation will strip off the overburden in a predetermined section and the waste
material will be deposited as per an agreement with the Chilean Government. The
coal layer will be then dredged from the section and coal will be barraged or
pumped to the existing dock and stockpiled to permit the excess moisture to
drain.
The dredging operation can take place most of the year. The prevailing winds are
South/South East which will largely limit wind generated wave action and will
extend the term in which the dredging procedure can take place.
4
FINANCIAL
The project has had sufficient engineering work to substantiate that the coal
resource is on the concession granted by the government. Dredging contractors
have been approached to determine costs. The budget amounts are outlined below.
Estimated Capital Equipment and Startup Costs $300,000
Estimated Tonnage of Coal 275,000
Optimum Monthly Tonnage Recovered 40,000
Start up Period in months 6
Average production for 6 months period 20,000
Average Sales Prices per Tonne FOB plant $ 70
Average Cost/Tonne to dredge coal $ 15
Average Cost/Tonne to clean coal $ 8
Average Overhead Cost/Tonne $ 3
Depreciation of equipment in years 2
Average Tax rate 30%
Based on these assumptions a sensitivity analysis was performed using coal
prices of $70, $90 and $110 per tonne. The estimated fair value at these prices
are $12.6 million, $17.0 million, and $20.8 million respectively.
COMPETITION
We are an exploration stage company. We do not compete directly with anyone for
the exploration or removal of minerals from our property as we hold all interest
and rights to our claim. Readily available commodities markets exist around the
world for the sale of minerals. Therefore, we will likely be able to sell all
the coal that we are able to recover.
We compete with other mineral resource exploration and development companies for
financing and for the acquisition of new properties. Many of the resource
exploration and development companies with whom we compete have greater
financial and technical resources than 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 greater 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 and development.
This competition could adversely impact on our ability to finance further
exploration and to achieve the financing necessary for us to develop our
properties.
COMPLIANCE WITH GOVERNMENT REGULATION
We will be required to comply with all regulations, rules and directives of
governmental authorities and agencies applicable to the exploration of minerals
in the country of Chile as well as the need to comply with all regulations,
rules and corporate directives in the state of Nevada, the state wherein our
company is domiciled.
5
PATENTS AND TRADEMARKS
We do not own, either legally or beneficially, any patents or trademarks.
NEED FOR GOVERNMENT APPROVAL FOR ITS PRODUCTS OR SERVICES
We are not required to apply for or have any government approval for our product
or services.
REPORTS TO SECURITIES HOLDERS
We provide an annual report that includes audited financial information to our
shareholders. We will make our financial information equally available to any
interested parties or investors through compliance with the disclosure rules of
Regulation S-K for a small business issuer under the Securities Exchange Act of
1934. We are subject to disclosure filing requirements including filing Form 10K
annually and Form 10Q quarterly. In addition, we will file Form 8K and other
proxy and information statements from time to time as required. We do not intend
to voluntarily file the above reports in the event that our obligation to file
such reports is suspended under the Exchange Act. The public may read and copy
any materials that we file with the Securities and Exchange Commission, ("SEC"),
at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC.
ITEM 1A. RISK FACTORS
WE ARE AN EXPLORATION STAGE COMPANY AND WE EXPECT TO INCUR OPERATING LOSSES FOR
THE FORESEEABLE FUTURE.
We were incorporated in March 1982 and to date have recently been involved in
the organizational activities, and acquisition of coal claims. We have no way to
evaluate the likelihood that our business will be successful. We have not earned
any revenues as of the date of this annual report. Potential investors should be
aware of the difficulties normally encountered by mineral exploration companies
and the high rate of failure of such enterprises. The likelihood of success must
be considered in light of the problems, expenses, difficulties, complications
and delays encountered in connection with the exploration and development of the
mineral properties that we plan to undertake. These potential problems include,
but are not limited to, unanticipated problems relating to exploration, and
additional costs and expenses that may exceed current estimates. Prior to
completion of our exploration stage, we anticipate that we will incur increased
operating expenses without realizing any revenues. We expect to incur
significant losses into the foreseeable future. We recognize that if production
of minerals from the claims is not forthcoming, we will not be able to continue
business operations. There is no history upon which to base any assumption as to
the likelihood that we will prove successful, and it is doubtful that we will
generate any operating revenues or ever achieve profitable operations. If we are
unsuccessful in addressing these risks, our business will most likely fail.
WE HAVE YET TO EARN REVENUE AND OUR ABILITY TO SUSTAIN OUR OPERATIONS IS
DEPENDENT ON OUR ABILITY TO RAISE ADDITIONAL FINANCING TO COMPLETE THE FINAL
PHASE OF OUR EXPLORATION PROGRAM IF WARRANTED. AS A RESULT, OUR ACCOUNTANT
BELIEVES THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.
We have accrued net losses of $735,498 for the period from the date of
reinstatement on October 1, 1999 to December 31, 2008, and have no revenues to
date. Our future is dependent upon our ability to obtain financing and upon
future profitable operations from the development of our mineral claims. These
factors raise substantial doubt that we will be able to continue as a going
concern. Moore and Associates, our independent auditor, has expressed
6
substantial doubt about our ability to continue as a going concern. This opinion
could materially limit our ability to raise additional funds by issuing new debt
or equity securities or otherwise. If we fail to raise sufficient capital when
needed, we will not be able to complete our business plan. As a result we may
have to liquidate our business and you may lose your investment. You should
consider our auditor's comments when determining if an investment in our company
is suitable.
BECAUSE OF THE UNIQUE DIFFICULTIES AND UNCERTAINTIES INHERENT IN MINERAL
VENTURES, WE FACE A HIGH RISK OF BUSINESS FAILURE.
You should be aware of the difficulties normally encountered by mineral
companies and the high rate of failure of such enterprises. The likelihood of
success must be considered in light of the problems, expenses, difficulties,
complications and delays encountered in connection with the exploration and
development of the mineral properties that we plan to undertake. These potential
problems include, but are not limited to, unanticipated problems relating to
exploration, and additional costs and expenses that may exceed current
estimates. If the results of our development program do not reveal viable
commercial mineralization, we may decide to abandon our claim and acquire new
claims. Our ability to acquire additional claims will be dependent upon our
possessing adequate capital resources when needed. If no funding is available,
we may be forced to abandon our operations.
BECAUSE OF THE INHERENT DANGERS INVOLVED IN MINERAL EXTRACTING, THERE IS A RISK
THAT WE MAY INCUR LIABILITY OR DAMAGES AS WE CONDUCT OUR BUSINESS.
The extracting of minerals involves numerous hazards. As a result, we may become
subject to liability for such hazards, including pollution, cave-ins and other
hazards against which we cannot insure or against which we may elect not to
insure. At the present time we have no insurance to cover against these hazards.
The payment of such liabilities may result in our inability to complete our
planned program and/or obtain additional financing to fund our program.
AS WE UNDERTAKE DEVELOPMENT OF OUR CLAIMS, WE WILL BE SUBJECT TO COMPLIANCE WITH
GOVERNMENT REGULATION THAT MAY INCREASE THE ANTICIPATED COST OF OUR PROGRAM.
There are several governmental regulations that materially restrict our mineral
extraction program. We will be subject to the laws of the Country of Chile as we
carry out our program. We may be required to obtain work permits, post bonds and
perform remediation work for any physical disturbance to the area in order to
comply with these laws. The cost of complying with permit and regulatory
environment laws will be greater because the impact on the project area is
greater. Permits and regulations will control all aspects of the production
program if the project continues to that stage. Examples of regulatory
requirements include:
(a) Water discharge will have to meet drinking water standards;
(b) Dust generation will have to be minimal or otherwise re-mediated;
(c) Dumping of material on the surface will have to be re-contoured and
re-vegetated with natural vegetation;
(d) An assessment of all material to be left on the surface will need to
be environmentally benign;
(e) Ground water will have to be monitored for any potential contaminants;
(f) The socio-economic impact of the project will have to be evaluated and
if deemed negative, will have to be remediated; and
(g) There will have to be an impact report of the work on the local fauna
and flora including a study of potentially endangered species.
7
There is a risk that new regulations could increase our costs of doing business
and prevent us from carrying out our exploration program. We will also have to
sustain the cost of reclamation and environmental remediation for all
exploration work undertaken. Both reclamation and environmental remediation
refer to putting disturbed ground back as close to its original state as
possible. Other potential pollution or damage must be cleaned-up and renewed
along standard guidelines outlined in the usual permits. Reclamation is the
process of bringing the land back to its natural state after completion of
exploration activities. Environmental remediation refers to the physical
activity of taking steps to remediate, or remedy, any environmental damage
caused. The amount of these costs is not known at this time as we do not know
the extent of the exploration program that will be undertaken beyond completion
of the recommended work program. If remediation costs exceed our cash reserves
we may be unable to complete our exploration program and have to abandon our
operations.
IF ACCESS TO OUR MINERAL PROPERTIES IS RESTRICTED BY INCLEMENT WEATHER, WE MAY
BE DELAYED IN ANY FUTURE MINING EFFORTS.
It is possible that adverse weather could cause accessibility to our properties
difficult and this would delay in our timetables.
BASED ON CONSUMER DEMAND, THE GROWTH AND DEMAND FOR ANY ORE WE MAY RECOVER FROM
OUR CLAIMS MAY BE SLOWED, RESULTING IN REDUCED REVENUES TO THE COMPANY.
Our success will be dependent on the growth of demand for ores. If consumer
demand slows our revenues may be significantly affected. This could limit our
ability to generate revenues and our financial condition and operating results
may be harmed.
BECAUSE OUR CURRENT OFFICER AND DIRECTOR HAS OTHER BUSINESS INTERESTS, HE MAY
NOT BE ABLE OR WILLING TO DEVOTE A SUFFICIENT AMOUNT OF TIME TO OUR BUSINESS
OPERATIONS, CAUSING OUR BUSINESS TO FAIL.
Mr. Ricardo G. Munoz, our officer and director, currently devotes approximately
20 hours per week providing services to the company. While he presently
possesses adequate time to attend to our interest, it is possible that the
demands on him from other obligations could increase, with the result that he
would no longer be able to devote sufficient time to the management of our
business. This could negatively impact our business development.
ITEM 2. PROPERTIES
We currently do not own any physical property or own any real property. The
company has entered into an agreement to acquire a coal concession located in
Lota Bay, Chile.
ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any legal proceedings and we are not aware of
any pending or potential legal actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
year ended December 31, 2008.
8
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NO PUBLIC MARKET FOR COMMON STOCK
Our common stock is listed for trading under the symbol "SOCI".
As of the date of this report we have 270 shareholders of record. We have paid
no cash dividends and have no outstanding options. We have no securities
authorized for issuance under equity compensation plans.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in penny stocks. Penny stocks are generally equity securities
with a price of less than $5.00, other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or quotation system. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock, to
deliver a standardized risk disclosure document prepared by the SEC, that: (a)
contains a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading; (b) contains a
description of the broker's or dealer's duties to the customer and of the rights
and remedies available to the customer with respect to a violation to such
duties or other requirements of Securities' laws; (c) contains a brief, clear,
narrative description of a dealer market, including bid and ask prices for penny
stocks and the significance of the spread between the bid and ask price; (d)
contains a toll-free telephone number for inquiries on disciplinary actions; (e)
defines significant terms in the disclosure document or in the conduct of
trading in penny stocks; and (f) contains such other information and is in such
form, including language, type, size and format, as the SEC shall require by
rule or regulation. The broker-dealer also must provide, prior to effecting any
transaction in a penny stock, the customer with: (a) bid and offer quotations
for the penny stock; (b) the compensation of the broker-dealer and its
salesperson in the transaction; (c) the number of shares to which such bid and
ask prices apply, or other comparable information relating to the depth and
liquidity of the market for such stock; and (d) monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those 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 acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a suitably written statement.
These disclosure requirements may have the effect of reducing the trading
activity in the secondary market for our stock if it becomes subject to these
penny stock rules. Therefore, if our common stock becomes subject to the penny
stock rules, stockholders may have difficulty selling those securities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This section of this report includes a number of forward-looking statements that
reflect our current views with respect to future events and financial
performance. Forward-looking statements are often identified by words like:
believe, expect, estimate, anticipate, intend, project and similar expressions,
or words which, by their nature, refer to future events. You should not place
undue certainty on these forward-looking statements, which apply only as of the
date of our report. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or our predictions. We are an exploration stage company
and have not yet generated or realized any revenues.
9
RESULTS OF OPERATIONS
We are still in the exploration stage and have not generated any revenues to
date.
We incurred operating expenses of $735,498 from date of reinstatement to the
year ended December 31, 2008. These expenses consisted of general operating
expenses and professional fees incurred in connection with the day to day
operation of our business and the preparation and filing of our periodic reports
and for the year ended December 31, 2008. Our net loss for the year ending
December 31, 2008 was $112,968.
Our auditors have issued a going concern opinion. This means that there is
substantial doubt that we can continue as an on-going business for the next
twelve months unless we obtain additional capital to pay our bills. This is
because we have not generated revenues and no revenues are anticipated until we
begin removing and selling minerals. There is no assurance we will ever reach
that point. We are still in our exploration stage and have generated no revenues
to date.
The following table provides selected financial data about our company for the
years ended December 31, 2008 and 2007.
Balance Sheet Data: 12/31/08 12/31/07
------------------- -------- --------
Cash $ 13 $ 0
Total assets $ 13 $ 0
Total liabilities $ 533,311 $ 420,530
Shareholders' equity $(533,298) $(420,530)
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance at December 31, 2008 was $13 with outstanding liabilities of
$533,311. Management believes our current cash balance will be unable to sustain
operations for the next 12 months. We will be forced to raise additional funds
by issuing new debt or equity securities or otherwise. If we fail to raise
sufficient capital when needed, we will not be able to complete our business
plan. We are an exploration stage company and have generated no revenue to date.
PLAN OF OPERATION
Our cash balance is $13 as of December 31, 2008. We believe our cash balance is
insufficient to fund our levels of operations for the next twelve months. As a
result we will be forced to raise additional funds by issuing new debt or equity
securities or otherwise. If we fail to raise sufficient capital when needed, we
will not be able to complete our business plan. We are an exploration stage
company and have generated no revenue to date.
Our auditor has issued a going concern opinion. This means that there is
substantial doubt that we can continue as an on-going business for the next
twelve months unless we obtain additional capital to pay our bills. This is
because we have not generated revenues and no revenues are anticipated until we
begin removing and selling minerals. There is no assurance we will ever reach
that stage.
Our plan of operation is to complete the acquisition of the Lota Bay coal
concession in Chile. We also plan to evaluate and acquire other similar
properties provided our assessment determines that the properties have mineral
reserves capable of commercial extraction.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any 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 investors.
10
ITEM 8. FINANCIAL STATEMENTS
MOORE & ASSOCIATES, CHARTERED
ACCOUNTANTS AND ADVISORS
PCAOB REGISTERED
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Southern Energy Company, Inc
(A Exploration Stage Company)
We have audited the accompanying balance sheets of Southern Energy Company, Inc
(A Exploration Stage Company) as of December 31, 2008, 2007 and 2006, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the years ended December 31, 2008, 2007 and 2006 and since reentry into
Exploration Stage on October 1, 1999 through December 31, 2008. 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 audits.
We conduct our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide 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 Southern Energy Company, Inc (A
Exploration Stage Company) as of December 31, 2008, 2007, and 2006, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the years ended December 31, 2008, 2007 and 2006 and since reentry into
Exploration Stage on October 1, 1999 through December 31, 2008, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has an accumulated deficit of $735,498, which
raises substantial doubt about its ability to continue as a going concern.
Management's plans concerning 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/ Moore & Associates, Chartered
----------------------------------------
Moore & Associates, Chartered
Las Vegas, Nevada
March 12, 2009
6490 West Desert Inn Rd, Las Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501
11
SOUTHERN ENERGY COMPANY INC.
(An exploration stage company)
Balance Sheet
December 31, December 31, December 31,
2008 2007 2006
--------- --------- ---------
ASSETS
Current Assets
Cash $ 13 $ 0 $ 0
--------- --------- ---------
Total Current Assets 13 0 0
Fixed Assets 0 0 0
--------- --------- ---------
Total Fixed Assets 0 0 0
--------- --------- ---------
Total Assets $ 13 $ 0 $ 0
========= ========= =========
LIABILITIES
Current Liabilities
Accounts Payable $ 85,867 $ 439 $ 0
Shareholders Loan 49,644 22,091 0
--------- --------- ---------
Total Current Liabilities 135,511 22,530 0
Long term Liabilities 397,800 398,000 600,000
--------- --------- ---------
Total Long Term Liabilities 397,800 398,000 600,000
--------- --------- ---------
Total Liabilities $ 533,311 $ 420,530 $ 600,000
========= ========= =========
EQUITY
75,000,000 Shares Common Authorized, 50,453,985 Shares
Issued 12/31/08, 50,200,000 shares issued 12/31/07 and
53,985 shares issued 12/31/06 @ $0.001 Per Share $ 50,400 $ 50,200 $ 0
Additional Paid-in Capital 151,800 151,800 0
Retained Earnings (Loss) (735,498) (622,530) (600,000)
--------- --------- ---------
Total Stockholders Equity (533,298) (420,530) (600,000)
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 13 $ 0 $ 0
========= ========= =========
The accompanying notes are an integral part of these financial statements.
12
SOUTHERN ENERGY COMPANY INC.
(An exploration stage company)
Income Statement
From date of
reinstatement
For the Year For the Year For the Year (October 1, 1999)
Ended Ended Ended through to
December 31, December 31, December 31, December 31,
2008 2007 2006 2008
----------- ----------- ----------- -----------
Revenue $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
Expenses
Professional Fees 112,638 7,439 -- 720,077
General Expenses 330 15,091 -- 15,421
----------- ----------- ----------- -----------
Total Expenses 112,968 22,530 -- 735,498
----------- ----------- ----------- -----------
Net Income (Loss) $ (112,968) $ (22,530) $ -- $ (735,498)
=========== =========== =========== ===========
Basic & Diluted (Loss) per Share (0.002) (0.013) (0.0000)
=========== =========== ===========
Weighted Average Number of Shares 50,341,382 1,704,396 53,985
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
13
SOUTHERN ENERGY COMPANY INC.
(An exploration stage company)
Statement of Cash Flows
From date of
reinstatement
For the Year For the Year For the Year (October 1, 1999)
Ended Ended Ended through to
December 31, December 31, December 31, December 31,
2008 2007 2006 2008
---------- ---------- ---------- ----------
OPERATING ACTIVITIES
Net income (loss) $ (112,968) $ (22,530) $ -- $ (735,498)
Accounts payable 85,428 439 -- 85,867
---------- ---------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (27,540) (22,091) -- (649,631)
INVESTING ACTIVITIES
Purchase of mineral claim -- -- -- --
---------- ---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES $ -- $ -- $ -- $ --
FINANCING ACTIVITIES
Common shares issued at founders @ $0.001 per share 200 50,200 -- 50,500
Additional paid-in capital -- 151,800 -- 151,800
Longterm Loan (200) (202,000) -- 397,800
Shareholders Loan 27,553 22,091 -- 49,644
---------- ---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 27,553 $ 22,091 $ -- $ 649,744
Cash at beginning of period $ -- $ -- $ -- $ --
---------- ---------- ---------- ----------
Cash at end of period $ 13 $ -- $ -- $ 13
========== ========== ========== ==========
Cash Paid For:
Interest $ -- $ -- $ -- $ --
========== ========== ========== ==========
Income Tax $ -- $ -- $ -- $ --
========== ========== ========== ==========
NON-CASH ACTIVITIES
Shares issued in Lieu of Payment for Service $ -- $ 30,000 $ -- $ 30,000
========== ========== ========== ==========
Stock issued for accounts payable $ -- $ -- $ -- $ --
========== ========== ========== ==========
Stock issued for notes payable and interest $ -- $ -- $ -- $ --
========== ========== ========== ==========
Stock issued for convertible debentures and interest $ 200 $ 202,000 $ -- $ 202,200
========== ========== ========== ==========
Convertible debentures issued for services $ -- $ -- $ -- $ --
========== ========== ========== ==========
Warrants issued $ -- $ -- $ -- $ --
========== ========== ========== ==========
Stock issued for penalty on default of convertible
debentures $ -- $ -- $ -- $ --
========== ========== ========== ==========
Note payable issued for finance charges $ -- $ -- $ -- $ --
========== ========== ========== ==========
Forgiveness of note payable and accrued interest $ -- $ -- $ -- $ --
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
14
SOUTHERN ENERGY COMPANY INC.
(An exploration stage company)
STATEMENT OF STOCKHOLDER'S EQUITY
From date of reinstatement (October 1, 1999) to December 31, 2008
Deficit
Accumulated
During
Common Stock Paid in Exploration Total
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
Shares issued to founders at no par value 53,985 $ 0 $ 0 $ 0 $ 0
Net (Loss) for period (600,000) (600,000)
----------- -------- --------- ---------- ----------
Balance, December 31, 2005 53,985 0 0 (600,000) (600,000)
Net (Loss) for period 0 0
----------- -------- --------- ---------- ----------
Balance, December 31, 2006 53,985 0 0 (600,000) (600,000)
Stock issued for debt - December 19, 2007
at $0.01 per share 20,200,000 20,200 181,800 0 202,000
Stock issued for services - December 19, 2007 30,000,000 30,000 (30,000) 0 0
Net (Loss) for period (22,530) (22,530)
----------- -------- --------- ---------- ----------
Balance, December 31, 2007 50,253,985 50,200 151,800 (622,530) (420,530)
Stock issued for debt - August 1, 2008
at $0.01 per share 200,000 200 0 0 200
Net (Loss) for period (112,968) (112,968)
----------- -------- --------- ---------- ----------
Balance, December 31, 2008 50,453,985 $ 50,400 $ 151,800 $ (735,498) $ (533,298)
=========== ======== ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
15
SOUTHERN ENERGY COMPANY INC.
(An Exploration Stage Company)
Footnotes to the Financial Statements
From Inception to December 31, 2008
(Stated in US Dollars)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Southern Energy Company Inc. was incorporated in the state of California as
Astro Systems and Engineering, Inc. on March 22, 1982. On May 28 1985, the
company changed its name to Astro Sciences Corporation. On February 8 1996,
the company changed its name to Chatcom, Inc. In September 1999 the company
filed petition under Chapter XI of the Federal Bankruptcy Code. On August
15, 2007 the company changed its name to Southern Energy Company Inc. On
December 13, 2007 the company re-domiciled to the state of Nevada.
The company is in the business of finding and developing coal and related
mineral properties in North and South America.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year-end.
b. Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement
exists, goods delivered, the contract price is fixed or determinable, and
collectibility is reasonably assured.
c. Income Taxes
The Company prepares its tax returns on the accrual basis. The Company
accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("Statement 109"). Under
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
d. Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
16
e. Assets
The company has cash $13 as of December 31, 2008.
In accordance with FASB No. 89 paragraph 14 "Additional Disclosure by
Enterprises with Mineral Resources Assets" the Company since inception has
yet to establish proven or probable mining reserves and has no quantities
of proved mineral reserves or probable mineral reserves. Moreover, the
Company has not purchased or sold proved or probable minerals reserves
since inception. Due to the fact that we have no proven or probable mining
reserves the Company will record our exploration and development costs
within operating expenses, as opposed to capitalizing those costs.
f. Income
Income represents all of the company's revenue less all its expenses in the
period incurred. The Company has no revenues as of December 31, 2008 and
has paid expenses of $735,498 since inception. For the year ended December
31, 2008 it has incurred expenses of $112,968.
In accordance with FASB/ FAS 142 option 12, paragraph 11 "Intangible Assets
Subject to Amortization", a recognized intangible asset shall be amortized
over its useful life to the reporting entity unless that life is determined
to be indefinite. If an intangible asset has been has a finite useful life,
but the precise length of that life is not known, that intangible asset
shall be amortized over the best estimate of its useful life. The method of
amortization shall reflect the pattern in which the economic benefits of
the intangible asset are consumed or otherwise used up. If that pattern
cannot be reliable determined, a straight-line amortization method shall be
used. An intangible asset shall not be written down or off in the period of
acquisition unless it becomes impaired during that period.
In accordance with FASB 144, 25, "An impairment loss recognized for a
long-lived asset (asset group) to be held and used shall be included in
income from continuing operations before income taxes in the income
statement of a business enterprise and in income from continuing operations
in the statement of activities of a not-for-profit organization. If a
subtotal such as "income from operations" is presented, it shall include
the amount of that loss." The Company has recognized the impairment of a
long-lived asset by declaring that amount as a loss in income from
operations in accordance with an interpretation of FASB 144.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, DETERMINING
WHETHER INSTRUMENTS GRANTED IN SHARE-BASED PAYMENT TRANSACTIONS ARE
PARTICIPATING SECURITIES, ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting, and therefore need to be
included in the computation of earnings per share under the two-class
method as described in FASB Statement of Financial Accounting Standards No.
128, "Earnings per Share." FSP EITF 03-6-1 is effective for financial
statements issued for fiscal years beginning on or after December 15, 2008
and earlier adoption is prohibited. We are not required to adopt FSP EITF
03-6-1; neither do we believe that FSP EITF 03-6-1 would have material
effect on our consolidated financial position and results of operations if
adopted.
17
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 163, "Accounting for Financial Guarantee Insurance Contracts-and
interpretation of FASB Statement No. 60". SFAS No. 163 clarifies how
Statement 60 applies to financial guarantee insurance contracts, including
the recognition and measurement of premium revenue and claims liabilities.
This statement also requires expanded disclosures about financial guarantee
insurance contracts. SFAS No. 163 is effective for fiscal years beginning
on or after December 15, 2008, and interim periods within those years. SFAS
No. 163 has no effect on the Company's financial position, statements of
operations, or cash flows at this time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS
No. 162 sets forth the level of authority to a given accounting
pronouncement or document by category. Where there might be conflicting
guidance between two categories, the more authoritative category will
prevail. SFAS No. 162 will become effective 60 days after the SEC approves
the PCAOB's amendments to AU Section 411 of the AICPA Professional
Standards. SFAS No. 162 has no effect on the Company's financial position,
statements of operations, or cash flows at this time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities--an amendment of FASB Statement No. 133. This standard requires
companies to provide enhanced disclosures about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged
items affect an entity's financial position, financial performance, and
cash flows. This Statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. The Company has not yet adopted the
provisions of SFAS No. 161, but does not expect it to have a material
impact on its consolidated financial position, results of operations or
cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110
regarding the use of a "simplified" method, as discussed in SAB No. 107
(SAB 107), in developing an estimate of expected term of "plain vanilla"
share options in accordance with SFAS No. 123 (R), Share-Based Payment. In
particular, the staff indicated in SAB 107 that it will accept a company's
election to use the simplified method, regardless of whether the company
has sufficient information to make more refined estimates of expected term.
At the time SAB 107 was issued, the staff believed that more detailed
external information about employee exercise behavior (e.g., employee
exercise patterns by industry and/or other categories of companies) would,
over time, become readily available to companies. Therefore, the staff
stated in SAB 107 that it would not expect a company to use the simplified
method for share option grants after December 31, 2007. The staff
understands that such detailed information about employee exercise behavior
may not be widely available by December 31, 2007. Accordingly, the staff
will continue to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007. The Company currently uses the
simplified method for "plain vanilla" share options and warrants, and will
assess the impact of SAB 110 for fiscal year 2009. It is not believed that
this will have an impact on the Company's consolidated financial position,
results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements--an amendment of ARB No. 51. This
statement amends ARB 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. It clarifies that a noncontrolling interest in a subsidiary
is an ownership interest in the consolidated entity that should be reported
as equity in the consolidated financial statements. Before this statement
was issued, limited guidance existed for reporting noncontrolling
interests. As a result, considerable diversity in practice existed.
So-called minority interests were reported in the consolidated statement of
financial position as liabilities or in the mezzanine section between
liabilities and equity. This statement improves comparability by
18
eliminating that diversity. This statement is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after
December 15, 2008 (that is, January 1, 2009, for entities with calendar
year-ends). Earlier adoption is prohibited. The effective date of this
statement is the same as that of the related Statement 141 (revised 2007).
The Company will adopt this Statement beginning March 1, 2009. It is not
believed that this will have an impact on the Company's consolidated
financial position, results of operations or cash flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations'. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in Statement 141.
This Statement establishes principles and requirements for how the
acquirer: (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain
purchase; and (c) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of
the business combination. This statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after December 15, 2008.
An entity may not apply it before that date. The effective date of this
statement is the same as that of the related FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements. The Company
will adopt this statement beginning March 1, 2009. It is not believed that
this will have an impact on the Company's consolidated financial position,
results of operations or cash flows.
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option for
Financial Assets and Liabilities--Including an Amendment of FASB Statement
No. 115. This standard permits an entity to choose to measure many
financial instruments and certain other items at fair value. This option is
available to all entities. Most of the provisions in FAS 159 are elective;
however, an amendment to FAS 115 Accounting for Certain Investments in Debt
and Equity Securities applies to all entities with available for sale or
trading securities. Some requirements apply differently to entities that do
not report net income. SFAS No. 159 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. Early
adoption is permitted as of the beginning of the previous fiscal year
provided that the entity makes that choice in the first 120 days of that
fiscal year and also elects to apply the provisions of SFAS No. 157 Fair
Value Measurements. The Company will adopt SFAS No. 159 beginning March 1,
2008 and is currently evaluating the potential impact the adoption of this
pronouncement will have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
This statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This statement applies under
other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value
measurements. However, for some entities, the application of this statement
will change current practice. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including financial statements for an
interim period within that fiscal year. The Company will adopt this
statement March 1, 2008, and it is not believed that this will have an
impact on the Company's consolidated financial position, results of
operations or cash flows.
19
g. Basic Income (Loss) Per Share
In accordance with SFAS No. 128-"Earnings Per Share", the basic loss per
common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed similar to basic loss per common
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive. At December 31, 2008, the Company has no stock equivalents that
were anti-dilutive and excluded in the earnings per share computation.
i. Cash and Cash Equivalents
For purposes of the statement of cash flows, the company considers all
highly liquid investments purchased with maturity of three months or less
to be cash equivalents. As of December 31, 2008 the company has cash of
$13.
j. Liabilities
Liabilities are made up of current liabilities and long-term liabilities.
Current liabilities include accounts payable of $85,867 and a shareholders
loan of $46,644. The long-term liabilities consist of a long-term loan of
$397,800.
Share Capital
a) Authorized:
75,000,000 common shares with a par value of $0.001
b) Issued:
As of December 31, 2008, there are 50,553,985 shares issued and outstanding
at a value of $0.001 per share
There are no preferred shares authorized. The Company has issued no
preferred shares.
The Company has no stock option plan, warrants or other dilutive
securities.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal
course of business. However, the Company has accumulated a loss and is new.
This raises substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from this uncertainty.
As shown in the accompanying financial statements, the Company has incurred
a net loss of $735,498 for the period from inception to December 31, 2008
and has not generated any revenues. The future of the Company is dependent
upon its ability to obtain financing and upon future profitable operations
from the development of acquisitions. Management has plans to seek
additional capital through a private placement and public offering of its
common stock. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or
the amounts of and classification of liabilities that might be necessary in
the event the Company cannot continue in existence.
20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange
Act of 1934 as a process designed by, or under the supervision of, the company's
principal executive and principal financial officers and effected by the
company's board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America and
includes those policies and procedures that:
- Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the company;
- Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and
directors of the company; and
- Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Because of the
inherent limitations of internal control, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2008 management assessed the effectiveness of our internal
control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") and SEC guidance on conducting such assessments. Based on
that evaluation, they concluded that, during the period covered by this report,
such internal controls and procedures were not effective to detect the
inappropriate application of US GAAP rules as more fully described below. This
was due to deficiencies that existed in the design or operation of our internal
controls over financial reporting that adversely affected our internal controls
and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) lack of a functioning audit committee due
to a lack of a majority of independent members and a lack of a majority of
outside directors on our board of directors, resulting in ineffective oversight
in the establishment and monitoring of required internal controls and
procedures; (2) inadequate segregation of duties consistent with control
21
objectives; and (3) ineffective controls over period end financial disclosure
and reporting processes. The aforementioned material weaknesses were identified
by our Chief Executive Officer in connection with the review of our financial
statements as of December 31, 2008.
Management believes that the material weaknesses set forth in items (2) and (3)
above did not have an effect on our financial results. However, management
believes that the lack of a functioning audit committee and the lack of a
majority of outside directors on our board of directors results in ineffective
oversight in the establishment and monitoring of required internal controls and
procedures, which could result in a material misstatement in our financial
statements in future periods.
This annual report does not include an attestation report of the Corporation's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the
Corporation's registered public accounting firm pursuant to temporary rules of
the SEC that permit the Corporation to provide only the management's report in
this annual report.
MANAGEMENT'S REMEDIATION INITIATIVES
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated, or plan to
initiate, the following series of measures:
We will create a position to segregate duties consistent with control objectives
and will increase our personnel resources and technical accounting expertise
within the accounting function when funds are available to us. And, we plan to
appoint one or more outside directors to our board of directors who shall be
appointed to an audit committee resulting in a fully functioning audit committee
who will undertake the oversight in the establishment and monitoring of required
internal controls and procedures such as reviewing and approving estimates and
assumptions made by management when funds are available to us.
Management believes that the appointment of one or more outside directors, who
shall be appointed to a fully functioning audit committee, will remedy the lack
of a functioning audit committee and a lack of a majority of outside directors
on our Board.
We anticipate that these initiatives will be at least partially, if not fully,
implemented by December 31, 2009. Additionally, we plan to test our updated
controls and remediate our deficiencies by December 31, 2009.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There was no change in our internal controls over financial reporting that
occurred during the period covered by this report, which has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
22
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
The names, ages and titles of our executive officers and director are as
follows:
Name and Address of Executive
Officer and/or Director Age Position
----------------------- --- --------
Ricardo G. Munoz 59 President, Secretary, Treasurer and
Casilla 127 Director
Correo de Paine
Paine, Santiago
Chile
Mr. Munoz has formal training as a mining technician. . His prior business
experiences include work as a general manager for Medinah Mining, Inc from 1995
till 1999. In 2000 till 2003 Mr. Munoz worked for the South America Mining Corp
as an exploration manager. In 2003 Mr. Munoz worked for Andacollo Mining as an
exploration manager. From 2004 to the present date Mr. Munoz has worked on the
Lota coal project as well as other projects in the Petorca Chile region.
TERM OF OFFICE
Our director is appointed to hold office until the next annual meeting of our
stockholders or until his successor is elected and qualified, or until he
resigns or is removed in accordance with the provisions of the State of Nevada
Statutes. Our officer is appointed by our Board of Directors and holds office
until removed by the Board.
SIGNIFICANT EMPLOYEES
We have no significant employees other than our officer and/or director,
Mr. Ricardo Munoz. Mr. Munoz currently devotes approximately 20 hours per
week to company matters.
Mr. Munoz has not been the subject of any order, judgment, or decree of any
court of competent jurisdiction, or any regulatory agency permanently or
temporarily enjoining, barring, suspending or otherwise limited him from acting
as an investment advisor, underwriter, broker or dealer in the securities
industry, or as an affiliated person, director or employee of an investment
company, bank, savings and loan association, or insurance company or from
engaging in or continuing any conduct or practice in connection with any such
activity or in connection with the purchase or sale of any securities.
Mr. Munoz has not been convicted in any criminal proceeding (excluding traffic
violations) nor is he subject of any currently pending criminal proceeding.
We conduct our business through agreements with consultants and arms-length
third parties. We pay our consulting geologist the usual and customary rates
received by geologists performing similar consulting services.
RESUME
RICARDO MUNOZ has served as President, Secretary and Treasurer of Southern
Energy Company, Inc. since January 23 2009. From 1995 till 1999 Mr. Munoz worked
as a general manager of Medinah Mining, Inc. In 2000 till 2003 Mr. Munoz worked
for the South America Mining Corp as an exploration manager. In 2003 Mr. Munoz
23
worked for Andacollo Mining as an exploration manager. From 2004 to the present
date Mr. Munoz has worked on the Lota coal project as well as other projects in
the Petorca Chile region.
CODE OF ETHICS
Our board of directors adopted our code of ethical conduct that applies to all
of our employees and directors, including our principal executive officer,
principal financial officer, principal accounting officer or controller, and
persons performing similar functions.
We believe the adoption of our Code of Ethical Conduct is consistent with the
requirements of the Sarbanes-Oxley Act of 2002.
Our Code of Ethical Conduct is designed to deter wrongdoing and to promote:
* Honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
* Full, fair, accurate, timely and understandable disclosure in reports
and documents that we file or submit to the Securities & Exchange
Commission and in other public communications made by us;
* Compliance with applicable governmental laws, rules and regulations;
* The prompt internal reporting to an appropriate person or persons
identified in the code of violations of our Code of Ethical Conduct;
and
* Accountability for adherence to the Code.
ITEM 11. EXECUTIVE COMPENSATION
MANAGEMENT COMPENSATION
Our current director and officer is Ricardo G. Munoz.
The table below summarizes all compensation awarded to, earned by, or paid to
our executive officers by any person for all services rendered in all capacities
to us for the past three years ending March 31, 2009:
Annual Compensation Long Term Compensation
------------------------------- -----------------------------------
Restricted
Other Annual Stock Options/* LTIP All Other
Name Title Year Salary($) Bonus Compensation Awarded SARs(#) payouts($) Compensation
---- ----- ---- --------- ----- ------------ ------- ------- ---------- ------------
Ricardo Munoz President, 2009 $0 $0 $0 20,000,000 $0 $0 $0
Secretary, shares
Treasurer,
and Director
There are no current employment agreements between the company and its
officer/director.
There are no annuity, pension or retirement benefits proposed to be paid to the
officer or director or employees in the event of retirement at normal retirement
date pursuant to any presently existing plan provided or contributed to by the
company or any of its subsidiaries, if any.
24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of March 9, 2009 by: (i) each
person (including any group) known to us to own more than five percent (5%) of
any class of our voting securities, (ii) our director, and or (iii) our officer.
Unless otherwise indicated, the stockholder listed possesses sole voting and
investment power with respect to the shares shown.
Amount and Nature Percentage of
of Beneficial Common
Title of Class Name and Address of Beneficial Owner Ownership Stock(1)
-------------- ------------------------------------ --------- --------
Common Stock Ricardo G. Munoz, Director 30,000,000 42.6%
4321 7th Avenue Direct
Los Angeles, CA 90008
Common Stock Officer and/or director as a Group 30,000,000 42.6%
HOLDERS OF MORE THAN 5% OF OUR COMMON STOCK
----------
(1) A beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship,
or otherwise has or shares: (i) voting power, which includes the power to
vote, or to direct the voting of shares; and (ii) investment power, which
includes the power to dispose or direct the disposition of shares. Certain
shares may be deemed to be beneficially owned by more than one person (if,
for example, persons share the power to vote or the power to dispose of the
shares). In addition, shares are deemed to be beneficially owned by a
person if the person has the right to acquire the shares (for example, upon
exercise of an option) within 60 days of the date as of which the
information is provided. In computing the percentage ownership of any
person, the amount of shares outstanding is deemed to include the amount of
shares beneficially owned by such person (and only such person) by reason
of these acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in this table does not necessarily reflect
the person's actual ownership or voting power with respect to the number of
shares of common stock actually outstanding on March 9, 2009.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2009, a total of 20,000,000 shares of Common Stock were awarded to
Mr. Munoz in exchange for services rendered. All of such shares are "restricted"
securities, as that term is defined by the Securities act of 1933, as amended,
and are held by a director of the Company.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
For the year ended December 31, 2008, the total fees charged to the company for
audit services, including quarterly reviews, were $Nil, for audit-related
services were $Nil and for tax services were $Nil.
For the year ended December 31, 2007, there were no fees charged to the company
for audit services, audit-related services and tax services.
25
PART IV
ITEM 15. EXHIBITS
Exhibit
Number Description
------ -----------
3(i) Articles of Incorporation*
3(ii) Bylaws*
31.1 Sec. 302 Certification of Chief Executive Officer
31.2 Sec. 302 Certification of Chief Financial Officer
32.1 Sec. 906 Certification of Chief Executive Officer
32.2 Sec. 906 Certification of Chief Financial Officer
SIGNATURES
Pursuant to the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 16, 2009 Southern Energy Company, Inc.
By: /s/ Ricardo G. Munoz
-------------------------------------------------------
Ricardo G. Munoz, President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
March 16, 2009 Southern Energy Company, Inc.
By: /s/ Ricardo G. Munoz
-------------------------------------------------------
Ricardo G. Munoz, President, Secretary, Treasurer and
Chief Financial Officer (Principal Executive Officer
and Principal Accounting Officer)
26