UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
      DC 20549





FORM
      10-QSB





(Mark
      One)


x  QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





**For
      the quarterly period ended March 31, 2008**


OR





o  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      transition period from _____________ to ________________





Commission
      file number: 333-229903





**SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC.**


(Exact
      Name of Registrant as Specified in Its Charter)





Utah
            
            30-0123229(State
                or other jurisdiction of incorporation )
            
            (IRS
                Employer Identification No.)





503
      Washington Avenue, Suite 2d, Newtown, Pennsylvania 18940


(Address
      and Zip Code of Principal Executive Offices)





Registrant's
      Telephone Number: (215)968-0200





(Former
      Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
      N/A





Check
      whether the registrant: (1) 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 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.     x Yes o No





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).               o Yes x No





As
      of May
      14, 2008 there are 36,608,671 shares of the registrant’s common stock, $0.001
      par value, issued and outstanding.





Transitional
      Small Business Disclosure Format (Check One):      o Yes x No





SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


Table
      of
      Contents


March
      31,
      2008





PAGEPART
                I - FINANCIAL INFORMATIONItem
                1. Financial Statements
            F-1Item
                2. Management's Discussion and Analysis or Plan of
                Operation
            2Item
                3. Controls and Procedures
            5PART
                II - OTHER INFORMATIONItem
                1. Legal Proceedings
            6Item
                2. Unregistered Sale of Equity Securities and Use of
                Proceeds
            7Item
                3. Defaults Upon Senior Securities
            7Item
                4. Submission of Matters to a Vote of Security Holders
            7Item
                5. Other Information
            7Item
                6. Exhibits
            7SIGNATURES








SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND
                SUBSIDIARIESCONSOLIDATED
                BALANCE SHEETMarch
                31, 2008(Unaudited)





AssetsCurrent
                assetsCash
                and cash equivalents
            
            $
            10,775Accounts
                receivable, net of allowance of $93,728
            
            
            -Total
                current assets
            
            
            10,775Other
                assetsCapitalized
                costs
            
            
            3,308,936Permits
            
            
            1,009,851Research
                vessel
            
            
            125,000Equipment,
                net of depreciation of $3,337
            
            
            11,457Investments,
                net of allowance of $173,868
            
            
            51,962Notes
                receivable, net of allowance of $832,849
            
            
            -Total
                other assets
            
            
            4,507,206Total
                assets
            
            $
            4,517,981Liabilities
                and Deficiency in AssetsCurrent
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            539,901Related
                party notes payable
            
            
            3,558,438Due
                to related parties
            
            
            1,449,961Notes
                payable
            
            
            1,136,776Total
                current liabilities
            
            
            6,685,076Total
                liabilities
            
            
            6,685,076Commitments
                and contingencies
            
            
            -Deficiency
                in AssetsPreferred
                stock, Series A, $0 par value, 100,000,000 shares authorized; 10,000,000
                issued and outstanding
            
            
            -Common
                stock, $.001 par value, 250,000,000,000 shares authorized; 36,368,671
                issued and outstanding
            
            
            36,369Additional
                paid-in capital
            
            
            19,566,452Stock
                subscription receivable
            
            
            (30,000
            )Cumulative
                comprehensive income
            
            
            (11,799
            )Minority
                interest
            
            
            (803,530
            )Accumulated
                deficit
            
            
            (20,924,587
            )Total
                deficiency in assets
            
            
            (2,167,095
            )Total
                liabilities and deficiency in assets
            
            $
            4,517,981





See
      accompanying notes to consolidated financial statements, which are an integral
      part of the financial statements


F-1





SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND
                SUBSIDIARIESCONSOLIDATED
                STATEMENT OF OPERATIONS(Unaudited)





For the three months ended
            
            For the nine months endedMarch 31,
            
            March 31,2008
            
            2007
            
            2008
            
            2007(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)Revenue
            
            $
            -
            
            $
            79,089
            
            $
            395,550
            
            $
            421,210Cost
                of sales
            
            
            -
            
            
            65,665
            
            
            240,250
            
            
            252,248Gross
                profit
            
            
            -
            
            
            13,424
            
            
            155,300
            
            
            168,962Operating
                expensesSalaries
                and wages
            
            
            -
            
            
            20,178
            
            
            122,774
            
            
            189,506General
                and administrative
            
            
            391,079
            
            
            37,752
            
            
            731,981
            
            
            426,970Legal
                and professional fees
            
            
            40,495
            
            
            74,111
            
            
            245,739
            
            
            258,107Total
                operating expenses
            
            
            431,574
            
            
            132,041
            
            
            1,100,494
            
            
            874,583Loss
                from operations
            
            
            (431,574
            )
            
            (118,617
            )
            
            (945,194
            )
            
            (705,621
            )Other
                income (expenses)Stock
                issued - settlement agreement
            
            
            -
            
            
            (364,000
            )
            
            -
            
            
            (364,000
            )Depreciation
                and amortization
            
            
            (1,250
            )
            
            -
            
            
            (5,255
            )
            
            -Interest
                income
            
            
            -
            
            
            -
            
            
            518
            
            
            -Interest
                expense
            
            
            (41,941
            )
            
            (75,411
            )
            
            (124,080
            )
            
            (121,136
            )Total
                other (income) expense
            
            
            (43,191
            )
            
            (439,411
            )
            
            (128,817
            )
            
            (485,136
            )Loss
                before income taxes
            
            
            (474,764
            )
            
            (558,028
            )
            
            (1,074,011
            )
            
            (1,190,757
            )Provision
                for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            $
            (474,764
            )
            $
            (558,028
            )
            $
            (1,074,011
            )
            $
            (1,190,757
            )Net
                loss per common shareBasic
            
            
            (0.01
            )
            
            (0.02
            )
            
            (0.04
            )
            
            (0.05
            )Diluted
            
            
            (0.01
            )
            
            (0.02
            )
            
            (0.04
            )
            
            (0.04
            )Weighted
                average of common shares outstandingBasic
            
            
            35,122,844
            
            
            26,203,166
            
            
            27,580,209
            
            
            26,203,166Diluted
            
            
            75,122,844
            
            
            27,113,166
            
            
            30,132,628
            
            
            27,113,166Dividends
                declared per common share
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -





See
      accompanying notes to consolidated financial statements, which are an integral
      part of the financial statements


F-2





SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND
                SUBSIDIARIESCONSOLIDATED
                STATEMENT OF CASH FLOWS(Unaudited)





For the nine months endedMarch 31,2008
            
            2007(Unaudited)
            
            (Unaudited)Operating activities:Net
                loss
            
            $
            (1,074,011
            )
            $
            (1,190,757
            )Adjustments
                to reconcile net loss from operations to net cash used in operating
                activities:Cumulative
                comprehensive income
            
            
            (11,799
            )
            
            -Depreciation
                and amortization
            
            
            3,337
            
            
            -Stock
                issued for services
            
            
            320,530
            
            
            -(Increase)
                decrease in:Accounts
                receivable
            
            
            323,493
            
            
            (427,742
            )Increase
                (decrease) in:Accounts
                payable and accrued expenses
            
            
            (206,486
            )
            
            490,461Due
                to related parties
            
            
            212,235
            
            
            298,069Net
                cash used in operating activities
            
            
            (432,701
            )
            
            (829,969
            )Investing
                activities:Capitalized
                costs
            
            
            (336,081
            )
            
            (988,997
            )Investments
                and loans receivable
            
            
            -
            
            
            (51,962
            )Purchase
                of equipment
            
            
            (14,794
            )
            
            -Net
                cash used in investing activities
            
            
            (350,875
            )
            
            (1,040,959
            )Financing
                activities:Stock
                subscription receivable
            
            
            30,000
            
            
            -Proceeds
                from issuance of common stock
            
            
            60,000
            
            
            895,999Proceeds
                from exercise of warrants - common stock
            
            
            50,000
            
            
            -Distributions
                to shareholders - Lavelle
            
            
            -
            
            
            (10,150
            )Proceeds
                from related party notes payable
            
            
            112,015
            
            
            1,092,377Payments
                on related party notes payable
            
            
            -
            
            
            (156,983
            )Net
                cash provided by financing activities
            
            
            252,015
            
            
            1,821,243Net
                decrease in cash and cash equivalents
            
            
            (531,561
            )
            
            (49,685
            )Cash
                and cash equivalents, beginning of period
            
            
            542,336
            
            
            115,454Cash
                and cash equivalents, end of period
            
            $
            10,775
            
            $
            65,769Supplemental
                disclosure of cash flow information:Interest
                paid
            
            $
            -
            
            $
            263Taxes
                paid
            
            
            -
            
            
            -





See
      accompanying notes to consolidated financial statements, which are an integral
      part of the financial statements


F-3


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      NINE MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





NOTE
      1
      - BASIS OF PRESENTATION





The
      accompanying unaudited consolidated financial statements of Sovereign
      Exploration Associates International, Inc.
      (the
“Company”) have been prepared in accordance with generally accepted accounting
      principles for interim financial information and in accordance with the
      instructions to Form 10-QSB. In the opinion of management, all material
      adjustments (consisting of normal recurring accruals) considered necessary
      for a
      fair presentation have been included. Operating results for the nine month
      period ended March 31, 2008 are not necessarily indicative of the results that
      are expected for the year ending June 30, 2008. The information contained in
      this Form 10-QSB should be read in conjunction with the audited financial
      statements filed as part of the Company's Form 10-KSB for the year ended June
      30, 2007.





NOTE
      2
      - GOING CONCERN





The
      accompanying consolidated financial statements have been prepared on a
      going-concern basis, which contemplates the continuation of operations,
      realization of assets and liquidation of liabilities in the ordinary course
      of
      business. The Company has incurred an accumulated deficit of $20,924,587 as
      of
      March 31, 2008. The Company’s subsidiaries have capitalized all of their ocean
      exploration and archaeologically sensitive recoveries of artifacts, treasure
      trove and/or cargo from shipwrecks costs
      to-date. As of March 31, 2008, Lavelle Holdings, Inc. has ceased operations
      subject to the review by the Company’s management to determine its business
      strategy going forward, as it relates to the business of Lavelle Holdings,
      Inc.
      The Company provided for the allowance for bad debts of $93,728, however, there
      were no other reserves provided for as of March 31, 2008 as they relate to
      Lavelle Holdings, Inc. The Company plans to obtain additional financing through
      the sale of publicly traded stock, limited liability company member units of
      its
      subsidiaries and/or debt financing. There is no assurance these efforts will
      be
      successful. The Company has received extensions of the due dates for payments
      on
      the demand notes payable as of March 31, 2008. The accompanying consolidated
      financial statements do not include any adjustments relating to the
      recoverability and classifications of reported asset amounts or the amounts
      of
      liabilities that might result from the outcome of this uncertainty.





NOTE
      3
      - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





PRINCIPLES
      OF CONSOLIDATION





The
      accompanying consolidated financial statements, as presented herein, are
      prepared on the accrual basis of accounting under the principles of
      consolidation consisting of the accounts of the Company and its
      subsidiaries.





As
      of
      March 31, 2008, the Company's subsidiaries and the related equity ownership
      are
      as follows:





*Historic
      Discoveries, Inc.*





Historic
      Discoveries is the Company's primary subsidiary and is wholly-owned by the
      Company. The Company acquired Historic Discoveries in connection with the change
      in control on October 17, 2005, and it has since made additional investments
      in
      Historic Discoveries. Historic Discoveries has two wholly-owned subsidiaries,
      Artifact Recovery & Conservation Inc. ("ARC") and Sea Research, Inc.
      ("SRI").





The
      Company and Historic Discoveries had agreed to distribute 20% of the net profits
      arising out of the exploitation of permits, licenses, finder fees rights,
      contracts and other rights (collectively, "permits") held by ARC to its former
      corporate parent, Sovereign Marine Explorations, Inc. ("SME"), and to distribute
      20% of the net profits arising out of the exploitation of permits held by SRI
      to
      its former corporate parent, Sea Hunt, Inc. ("Sea Hunt").


F-4


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      SIX MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





On
      May
      19, 2007, the Company issued 10,000,000 shares of Convertible Preferred Stock
      in
      exchange for this 20% net profits participation agreement. The Convertible
      Preferred Stock carries a 4 to1 conversion feature into 40,000,000 common shares
      of the Company.





*Artifact
      Recovery & Conservation, Inc.*





ARC
      holds
      licenses for some of the Company’s most promising sites. ARC has already
      recovered substantial artifacts from Le Chameau, a French ship lost off Cape
      Lorembec, Cape Breton Island, Nova Scotia, on August 27, 1725. The Chameau
      carried extensive ladings of specie, military supplies, trade goods, and
      commercially-consigned freight, as well as the personal effects of wealthy
      passengers. ARC submitted artifacts from the Chameau and other ships to the
      Nova
      Scotia government for artifact selection in 2005, and the selection process
      was
      completed in March 2006.





ARC
      has
      also conducted extensive exploratory efforts in Fantome Cove, near Prospect,
      Nova Scotia. The H.M.S. Fantome and accompanying ships are believed to have
      been
      lost in Fantome Cove on November 24, 1814. The Fantome is particularly
      historically significant, as it played a role in the War of 1812 and potentially
      could have been carrying plunder from the sacking of Washington, DC in August
      1814. ARC's exploratory efforts have confirmed that it has located at least
      two
      historical shipwrecks, although it has not specifically confirmed that either
      wreck is that of the Fantome. During its most recent reconnaissance efforts
      in
      late summer, 2006, ARC identified two very large concretion fields, and its
      divers observed flatware, artifacts, ship fittings, and thousands of coins
      in
      the concretions. Because Fantome Cove is in Canadian waters but may involve
      British ships and American plunder, any shipwrecks located in Fantome Cove
      may
      be subject to competing claims. The United Kingdom has filed a formal notice
      on
      the H.M.S. Fantome that has caused a delay in the Company’s plans for a recovery
      in Fantome Cove.





ARC
      was
      notified on August 31, 2006, its application for a Class B recovery permit
      for
      the Fantome Cove treasure trove site has not been approved. A Class B permit
      is
      required before ARC can make any substantial recoveries from the site. The
      Nova
      Scotia Department of Tourism, Culture & Heritage has recommended that ARC
      and Le Chameau Explorations Limited (a wholly-owned subsidiary of the Company),
      secure permission from the United Kingdom. The Company’s management and counsel
      believe that the admiralty and treaty laws governing the site will substantiate
      ARC's and Le Chameau Explorations Limited's Interest as license holder. As
      of
      March 31, 2008, the Company is arranging meetings with representatives from
      the
      United Kingdom and is waiting for Class B permit approval.





*Sea
      Research, Inc.*





SRI
      holds
      the rights to seven sites, several of which have multiple ships. The wrecked
      ships are believed to have contained diverse cargoes, including money, bullion,
      religious artifacts, jewelry, and other personal items. SRI also owns an
      exploratory vessel, the Sea Quest, through its wholly-owned subsidiary, Sea
      Quest, Inc.





*Sovereign
      Exploration Associates International of Spain, Inc.*





Sovereign
      Exploration Associates International of Spain, Inc. ("SEAI - Spain"), a
      wholly-owned subsidiary of the Company, was acquired in November 2005 from
      unrelated parties in exchange for $800,000 of convertible debentures. The
      debentures were due on November 15, 2006, with accrued interest at a rate of
      6%
      per annum. The Company may, at any time prior to November 15, 2006, convert
      the
      principal amount of the debentures into common stock of the Company at the
      average closing price of the Company's common stock for the ten business days
      prior to the conversion date. The debenture holders may, at any time after
      November 15, 2006, convert the principal amount of the debenture into common
      stock of the Company at the average closing price of the Company's common stock
      for the ten business days prior to the conversion date. SEAI - Spain has secured
      the finder's rights to four shipwrecks in Spain with potential historic and
      intrinsic value. Effective November 15, 2006, the Company converted the
      debentures into 848,000 (including accrued interest of $48,000) common shares
      of
      the Company at a price of $1.00 per share.


F-5


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      NINE MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





*Lavelle
      Holdings, Inc* *.*





On
      June
      11, 2007, the Company acquired 100% of the common stock of the Lavelle Holdings,
      Inc., a company based in Texas, for consideration of $300,000 cash at closing
      plus a cash amount equal to five (5) times the net profit of Lavelle Holdings,
      Inc., if any, for a one (1) year period beginning on or the date that is six
      (6)
      months after the closing date. This amount will be paid in cash and/or stock
      on
      or before nineteen (19) months following the closing date. Management is unable
      to determine the amount of this contingent liability as of the balance sheet
      date of March 31, 2008. If the Company becomes insolvent during the nineteen
      (19) months following the closing date, the selling shareholders have the right
      of first refusal to repurchase the purchased stock from the Company.





In
      consideration for certain rights to purchase common stock of Lavelle Holdings,
      Inc. the Company paid $225,000, in cash, to the rights holders, at closing.
      The
      total cash paid for this acquisition at closing on June 11, 2007 was $525,000.
      Lavelle Holdings, Inc. is a wholly-owned subsidiary of the Company.





As
      of
      March 31, 2008, Lavelle Holdings, Inc. has ceased operations subject to the
      review by the Company’s management to determine its business strategy going
      forward, as it relates to the business of Lavelle Holdings, Inc. The Company
      provided for the allowance for bad debts of $93,728, however, there were no
      other reserves provided for as of March 31, 2008 as they relate to Lavelle
      Holdings, Inc. *LeChameau
      Explorations Limited*





On
      June
      13, 2007, the Company acquired 100% of the issued and outstanding capital stock
      of LeChameau Explorations Limited, a company based in Nova Scotia, for total
      consideration of USD $274,009. The payment for the stock is in the form of
      a
      note agreement, which is collateralized by the common stock of the Company.
      The
      note is due June 13, 2008. If the Company defaults, the note is convertible
      to
      the Company’s common stock at a rate of 1.25 times the outstanding liability as
      of its due date valued at the ten day average of the stock price prior to the
      conversion date. Under this acquisition, the Company now owns twenty-five
      licenses under the Nova Scotia Treasure Trove Act. LeChameau Explorations
      Limited is a wholly-owned subsidiary of the Company.





Investments




The
      Company accounts for investments, where the Company holds from 20% up to 50%,
      in
      the common stock, or membership interest, of an entity, using the equity method.
      The investment is initially recorded at cost and the carrying amount is adjusted
      to recognize the Company’s proportionate share of the earnings or losses of the
      investee after the date of acquisition. The amount of the adjustment is included
      in the determination of net income or loss of the Company in the period of
      the
      adjustment. Any dividends received from the investee reduce the carrying value
      of the investment.





*Gulf
      Coast Records, LLC*





The
      investment (a 49% minority interest) and note receivable in Gulf Coast Records,
      LLC was acquired as part of the Exchange Agreement dated October 17, 2005.
      In
      the year ended June 30, 2006, while reporting under the 1940 Act as a business
      development company, the Board of Directors agreed with management’s assessment
      to write this investment down to zero based on the information received from
      the
      management of Gulf Coast Records, LLC. For the nine months ended March 31,
      2008
      and 2007, the investment in and note receivable to Gulf Coast are being carried
      at a zero value, which is the lower of cost or market.





*Reds
      Caribbean*





The
      investment (a 30% minority interest) in Reds Caribbean was acquired in the
      stock
      purchase agreement with the shareholders of Lavelle Holdings, Inc. on June
      11,
      2007. As of March 31, 2008, the Company is recording this investment at its
      cost
      of $51,962. The Company owns a 30% equity interest in Reds
      Caribbean.


F-6


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      NINE MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





Revenue
      Recognition





The
      Company recognizes revenue using the accrual method of accounting wherein
      revenue is recognized when earned and expenses and costs are recognized when
      incurred.





Stock
      Subscription Receivable





During
      the three months ended March 31, 2008, the Company sold 380,000 shares of common
      stock for proceeds of $40,000. As of March 31, 2008, $30,000 was due from this
      shareholder.





Allowance
      for Bad Debts





As
      of
      March 31, 2008, the allowance for bad debts was $93,728. Management of the
      Company reviews the billing and collection activity on a regular basis and
      provides for an allowance for bad debts based on its expectations for cash
      collections. The $93,728 in accounts receivable and the allowance for bad debts
      of $93,728 were all for Lavelle Holdings, Inc., a wholly-owned subsidiary of
      the
      Company.





Economic
      Dependence





The
      Company’s wholly-owned subsidiary, Lavelle Holdings, Inc, which was acquired by
      the Company in June 2007, has economic dependence for its revenue on less than
      ten (10) customers and they have less than ten (10) vendors with whom they
      conduct their business.





Fair
      Value of Financial Instruments





The
      Company measures its financial assets and liabilities in accordance with
      generally accepted accounting principles. For certain of the Company's financial
      instruments, including cash and cash equivalents, accounts receivable, accounts
      payable and accrued payroll and other expenses, the carrying amounts approximate
      fair value due to their short maturities. The amount shown for notes payable
      also approximates fair value because the current interest rates offered to
      the
      Company for debt of similar maturities are substantially the same.





Use
      of
      Estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires management to
      make estimates and assumptions that affect certain 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. Accordingly, actual results could differ from
      those
      estimates.





Cash
      and Cash Equivalents





For
      the
      purpose of the Consolidated Statement of Cash Flows, the Company considers
      cash
      equivalents to be all highly liquid securities with an original maturity date
      of
      three months or less.





Advertising
      costs





For
      the
      nine month periods ended March 31, 2008 and 2007, the Company did not incur
      any
      advertising costs.


F-7


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      SIX MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





Foreign
      Currency Translation





The
      accompanying consolidated financial statements are stated in United States
      Dollars (USD). For the nine months ended March 31, 2008 and 2007, the Company
      incurred a currency translation adjustment of $11,799 and $0,
      respectively.





New
      Accounting Pronouncements





In
      July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
      Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the
      accounting for uncertainty in income taxes by prescribing the recognition
      threshold a tax position is required to meet before being recognized in the
      financial statements. It also provides guidance on derecognizing,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The cumulative effects, if any, of applying FIN 48 will
      be recorded as an adjustment to retained earnings as of the beginning of the
      period of adoption. Additionally, in May 2007, the FASB published FASB
      Staff Position No. FIN 48-1, "Definition of Settlement in FASB Interpretation
      No. 48" ("FSP FIN 48-1"). FSP FIN 48-1 is an amendment to FIN 48. It
      clarifies how an enterprise should determine whether a tax position is
      effectively settled for the purpose of recognizing previously unrecognized
      tax
      benefits. FSP FIN 48-1 is effective upon the initial adoption of FIN 48. The
      Company does not expect the adoption of FIN 48 to have an effect on its
      financial statements.





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 157 ("FAS 157"), Fair Value
      Measurements, which defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles ("GAAP"), and expands
      disclosures about fair value measurements. FAS 157 applies under other
      accounting pronouncements that require or permit fair value measurements. Prior
      to FAS 157, there were different definitions of fair value and limited guidance
      for applying those definitions in GAAP. Moreover, that guidance was dispersed
      among the many accounting pronouncements that require fair Value measurements.
      Differences in that guidance created inconsistencies that added to the
      complexity in applying GAAP. The changes to current practice resulting from
      the
      application of FAS 157 relate to the definition of fair value, the methods
      used
      to measure fair value, and the expanded disclosures about fair value
      measurements. FAS 157 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007, and interim periods within those fiscal
      years.





Management
      expects that none of the new accounting pronouncements will have a material
      effect on the accompanying financial statements.





NOTE
      4
      - FIXED ASSETS





Fixed
      assets are stated at cost. The cost of equipment is charged against income
      over
      their estimated useful lives, using the straight-line method of depreciation.
      Repairs and maintenance which are considered betterments and do not extend
      the
      useful life of equipment are charged to expense as incurred. When property
      and
      equipment are retired or otherwise disposed of, the asset and accumulated
      depreciation is removed from the accounts and the resulting profit and loss
      are
      reflected in income.





NOTE
      5 – CAPITALIZED COSTS





As
      of
      March 31, 2008, the Company accounted for its ocean exploration and
      archaeologically sensitive recoveries of artifacts, treasure trove and/or cargo
      from shipwrecks costs
      incurred to-date as capitalized costs. At least on a quarterly basis, management
      of the Company reviews the recoverability of each of the sites that the Company
      has the rights to and determines whether costs need to be expensed or continued
      to be capitalized.


F-8


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      NINE MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





NOTE
      6
      - PERMITS





As
      of
      March 31, 2008, the Company accounted for its various permits on the ocean exploration and
      archaeologically sensitive recoveries of artifacts, treasure trove and/or cargo
      from shipwrecks as
      intangible assets. At least on a quarterly basis, management of the Company
      reviews the recoverability of each of the sites that the Company has the rights
      to and determines whether the permits need to be expensed or continued to be
      capitalized until they expire. As of March 31, 2008, no permits that the Company
      currently owns have expired.





NOTE
      7
      - STOCK ISSUED FOR SERVICES





During
      the nine months ended March 31, 2008, the Company issued 1,001,655 shares of
      common stock for services rendered on behalf of the Company with a value of
      $320,530, which was charged to operations. The Company did not issue any stock
      for services during the nine months ended March 31, 2007.





NOTE
      8
      - INCOME TAXES





The
      Company has approximately $1,380,448 in deferred tax assets at March 31, 2008,
      resulting from net operating loss carryforwards to offset future taxable income
      through 2027. A valuation allowance has been recorded to fully offset these
      deferred tax assets because the future realization of the related income tax
      benefits is uncertain.





For
      the
      nine months ended March 31, 2008 and 2007 the difference between the tax
      provision at the statutory federal income tax rate and the tax provision
      attributable to loss before income taxes is as follows (in
      percentages):





Statutory
                federal income tax rate
            
            
            34
            %State
                taxes – net of federal benefits
            
            
            5
            %Valuation
                allowance
            
            
            39
            %Income
                tax rate – net
            
            
            0
            %





For
      the
      nine months ended March 31, 2008, the net change in the valuation allowance
      was
      $148,604.





NOTE
      9
      - LEASE ARRANGEMENTS





The
      Company maintains shared office space in Pennsylvania and Florida with unrelated
      companies controlled by certain officers of the Company. As of March 31, 2008,
      the Company shares office space with these companies at no cost. Rent expense
      for the nine months ended March 31, 2008 and 2007 was $0 and $0 respectively.


F-9


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      NINE MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





NOTE
      10 - AGREEMENTS





Prior
      to
      the Exchange Agreement of October 17, 2005, as on file with the SEC, there
      was a
      Revenue Agreement as outlined in Exhibit B of the Exchange Agreement, that
      requires 20% revenue participation payable to the original owners of the permits
      from the net recovery of the shipwrecks for the permits that have been assigned
      to the subsidiaries of one of the Company's subsidiaries, Historic Discoveries,
      Inc. The 20% revenue participation allows Historic Discoveries, Inc. to defer
      permit transfer fees and align site permit cost with revenue generation,
      eliminating the exposure associated with sites that do not produce a material
      number of artifacts. Historic Discoveries, Inc. was only required to pay the
      20%
      revenue participation when sites produce net revenue. The 20% revenue
      participation also provides Historic Discoveries, Inc. the right of first
      refusal on future sites, creating a mechanism for Historic Discoveries, Inc.
      and
      its operating companies to build site inventory while deferring the associated
      cost and reducing financial risk. The Revenue Agreement with the original owners
      was executed prior to October 17, 2005. The original owners of these permits
      are
      the beneficial owners of the controlling interest in the stock received in
      the
      Exchange Agreement. Additionally, officers and directors of the Company hold
      certain executive positions in Historic Discoveries, Inc. and its subsidiaries.
      The Company and Historic Discoveries had agreed to distribute 20% of the net
      profits arising out of the exploitation of permits, licenses, finder fees
      rights, contracts and other rights (collectively, "permits") held by ARC to
      its
      former corporate parent, Sovereign Marine Explorations, Inc. ("SME"), and to
      distribute 20% of the net profits arising out of the exploitation of permits
      held by SRI to its former corporate parent, Sea Hunt, Inc. ("Sea Hunt"). On
      May
      19, 2007, the Company issued 10,000,000 shares of Convertible Preferred Stock
      in
      exchange for this 20% net profits participation agreement. The stock carries
      a 4
      to1 conversion feature which allows the holders to convert into 40,000,000
      common shares of the Company.





NOTE
      11 - SETTLEMENT AGREEMENT AND GENERAL RELEASE





Effective
      June 30, 2006, the Company entered into a Settlement Agreement and General
      Release (the “Settlement Agreement") with Former Management, KMA Capital
      Partners, Inc., and CF Holdings, LLC (collectively, the "Settlement Agreement
      Parties") in order to reach a comprehensive resolution of their disputes. The
      Settlement Agreement provides that the Settlement Agreement Parties release
      all
      claims that they may have against the Company, its parents, subsidiaries,
      affiliates, predecessors, successors, assigns, partners, agents,
      representatives, and attorneys (collectively, "affiliated parties") and that
      the
      Company releases all claims it may have against the Settlement Agreement Parties
      and their respective affiliated parties. On December 26, 2006, 910,000 common
      shares were issued pursuant to the Settlement Agreement effective June 30,
      2006.
      These 910,000 common shares are subject to a Leak-Out Agreement and are
      restricted under Rule 144.





NOTE
      12 - SHAREHOLDERS’ EQUITY AND ISSUANCE OF STOCK





As
      of
      March 31, 2008, the authorized capital of the Company was 250,000,000,000 shares
      of common stock (with voting rights), par value $.001. For the nine months
      ended
      March 31, 2008 and 2007, the Company issued 1,001,655 and zero shares of common
      stock, respectively.





NOTE
      13 - CONCENTRATION OF CREDIT RISK





Financial
      instruments, which potentially expose the Company to concentrations of credit
      risk, consist principally of cash. As of March 31, 2008, the Company maintains
      its cash accounts with financial institutions located in Pennsylvania, Florida,
      Texas and Nova Scotia. The Federal Deposit Insurance Corporation (FDIC)
      guarantees the Company's deposits in US-based financial institutions up to
      $100,000. Historically, the Company has not experienced any losses on its
      deposits in excess of federally insured guarantees.


F-10


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      SIX MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





NOTE
      14 - NOTES PAYABLE





1)
      On
      June 4, 2007, the Company received $1,000,000 cash under a promissory note.
      Under the terms of the note, the Company is obligated to pay the note in one
      payment of all outstanding principal plus all accrued unpaid interest on or
      before the six month anniversary of the closing date unless the note holders
      agree to extend the note, in which case the note shall become a demand note,
      payable upon demand or at such later date as specified by the note holders
      to
      Company in writing, in the note holders’ sole discretion. The Company’s stock is
      the collateral that supports this note. Unless otherwise agreed or required
      by
      applicable law, payments will be applied first to any accrued unpaid interest;
      then to principal; then to any late charges; and then to any unpaid collection
      costs. The annual interest rate for this note is computed on a 365 days per
      year
      basis. Company will pay the note holders at their respective address or at
      such
      other place as the note holders may designate in writing. The interest rate
      on
      this note is six percent (6%) per annum calculated on the principal amount
      of
      the Note then outstanding. The Company may make a prepayment, in whole or in
      part, of this note without the prior consent of the note holders with no
      prepayment penalty. At the maturity date of the note, the note holders shall
      be
      entitled to purchase 250,000 shares of common stock of the Company at a price
      of
      $.20 per share. The note holders will also be entitled to purchase an additional
      250,000 shares of common stock of the Company at the closing price of the
      Company stock as reported on the OTCBB on the closing date and, in addition,
      these shares must be exercised within one year from the closing date.





As
      of
      March 31, 2008, the holders of this note have verbally agreed to extend the
      payment date on the note. On February 28, 2008, the holders of this note
      exercised the first set of warrants. They purchased 250,000 shares of common
      stock of the Company for $50,000 with a per share price of $.20. As of March
      31,
      2008, there remains another warrant for the note holder to purchase 250,000
      of
      common stock of the Company.





As
      of
      March 31, 2008, the total due under
      this note including principal and interest is $1,031,515.





For
      the
      three months ended March 31, 2008, the Company recognized the $50,000 as
      proceeds from the exercise of these warrants.




2)
      On
      June 29, 2005, the Company received $40,000 cash under a debenture note payable.
      Under the terms of the debenture, the debenture is due on June 29, 2008,
      including principal and accrued interest at a rate of 5.25% per annum.
      Management of the Company continues to review this debenture and the
      circumstances surrounding the continued dispute with the debenture holders.
      The
      debenture holders and the Company are in dispute because of
      issues
      related to the conversion rates relative to the current asking price of the
      Company’s common stock trading on the OTC Bulletin Board





As
      of
      March 31, 2008, the total due under this debenture including principal and
      interest is $105,261.





As
      of
      March 31, 2008, the total notes payable due including principal and interest
      are
      $1,136,736.





NOTE
      15 - RELATED PARTY TRANSACTIONS





For
      the
      nine months ended March 31, 2008, there are no accruals for salaries and
      unreimbursed expenses for the officers of the parent company; Sovereign
      Exploration Associates, International, Inc.


F-11


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      SIX MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





NOTE
      16. - RELATED PARTY NOTES PAYABLE





As
      of
      March 31, 2008, the related party notes payable were as follows:




Demand
                note payable - advances to Sovereign Exploration Associates International,
                Inc.
            
            
            56,719Demand
                Note payable of $500,000 plus accrued interest of $3,444 per month
                as a
                direct pass through from Nova Savings Bank - origination date was
                July 10,
                2006 (b)
            
            
            571,884Term
                Note payable of $274,009 due June 13, 2008 plus at 6% per annum for
                the
                acquisition of LeChameau LeChameau Explorations Limited – June 13,
                2007
            
            
            292,736Demand
                note payable of $350,000 plus accrued interest at 6% per annum for
                the
                purchase of the original permits
            
            
            433,341Demand
                Note payable of $250,000 plus accrued interest at 6% per annum for
                the
                balance of the Fantome Cove Project
            
            
            275,274Demand
                Note payable of $160,000 due on November 15, 2007 plus accrued interest
                of
                the lesser of 0.9% or the legal rate under Texas law – origination
                date was November 15, 2006 (a)
            
            
            162,533Demand
                note payable - advances to Interspace Explorations Limited plus accrued
                interest at 6% per annum
            
            
            515,882Demand
                note payable - advances to Sea Research, Inc.
            
            
            574,355Demand
                Note payable of $600,000 due on November 15, 2007 plus accrued interest
                of
                the lesser of 0.9% or the legal rate under Texas law – origination
                date was November 15, 2006 (a)
            
            
            675,653Total
                related party notes payable - all current
            
            $
            3,558,438





(a)
      these
      two demand notes payable are being held by the chairman of the Company and
      an
      affiliated entity.  He has agreed to extend the due dates for payments on
      these notes, however, as of March 31, 2008; no formal documentation has been
      prepared to memorialize the extensions.





(b)
      this
      demand note payable is being held by the President and CEO of the Company. 
He has agreed to extend the due date for payment on this note, however, as
      of
      March 31, 2008, no formal documention has been prepared to memorialize the
      extension.


F-12


SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      SIX MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





NOTE
      17 - LEGAL PROCEEDINGS





In
      a
      matter related to KMA Capital Partners Ltd, James Jenkins and Charles Giannetto,
      filed as *KMA
      Capital Partners Ltd., v. Sovereign Exploration Association, Inc., et
      al* ,
      in the
      Circuit Court of the Ninth Judicial Circuit, in and for Orange County, Florida,
      the Company claims that KMA Capital Partners Ltd, James Jenkins and Charles
      Giannetto are in breach of a “Leak Out Agreement”, which restricts the number of
      shares of the Company’s common stock, traded as SVXA.OB, they are allowed to
      sell or transfer. As of June 30, 2006, the court entered an Order which limits
      Mr. Jenkins and Mr. Giannetto to selling no more than 2,000 shares of the
      Company’s common stock per trading day. As of March 31, 2008, there is no
      liability under this matter that requires the establishment of a liability
      within the accompanying consolidated financial statements.





The
      Company is one of several defendants in a law suit, *Patricia
      A. Mullican v. Sovereign Exploration Associates International, Inc., et al* in
      the
      Circuit Court of the Ninth Judicial Circuit, in and for Orange County, Florida.
      The plaintiff in this case is seeking damages for the alleged failure to pay
      two
      (2) debentures issued by TS&B Holdings to Mr. Mullican (one for $150,000 and
      the other for $250,000) as well as an unpaid promissory note for $50,000 plus
      accrued interest on the debentures and the promissory note along with attorney
      fees. TS&B Holdings, Inc. subsequently became Cali Holdings, Inc., which was
      acquired by the Company in October 2005.





It
      is the
      Company’s position that these debts are not the Company’s responsibility, to the
      extent that neither the debentures nor promissory notes were disclosed at the
      time Cali Holdings, Inc. was acquired by the Company. There are numerous
      defenses which the Company will be relying upon to support its legal position
      that these obligations are not its responsibility. As of March 31, 2008, the
      accompanying consolidated financial statements do not provide for any liability
      in the event that the Company is deemed responsible in this
      case.


F-13


**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





FORWARD-LOOKING
      STATEMENTS





THIS
      REPORT CONTAINS STATEMENTS THAT WE BELIEVE ARE, OR TO BE CONSIDERED TO BE,
      "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
      LITIGATION REFORM ACT OF 1995. ALL STATEMENTS OTHER THAN STATEMENTS OF
      HISTORICAL FACT INCLUDED IN THIS REPORT REGARDING THE PROSPECTS OF OUR INDUSTRY
      OR OUR PROSPECTS, PLANS, FINANCIAL POSITION OR BUSINESS STRATEGY, DO CONSTITUTE
      FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY
      CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS SUCH AS "WILL," "EXPECT,"
      "INTEND," "ESTIMATE," "FORESEE," "PROJECT," "ANTICIPATE," "BELIEVE," "PLANS,"
      "FORECASTS," "CONTINUE" OR "COULD" OR THE NEGATIVES OF THESE TERMS OR VARIATIONS
      OF THEM OR SIMILAR TERMS. FURTHERMORE, SUCH FORWARD-LOOKING STATEMENTS THAT
      ARE
      INCLUDED IN VARIOUS FILINGS THAT WE MAKE WITH THE SEC OR PRESS RELEASES OR
      ORAL
      STATEMENTS MADE BY OR WITH THE APPROVAL OF ONE OF OUR AUTHORIZED EXECUTIVE
      OFFICERS. ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THESE
      FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT ASSURE YOU THAT THESE
      EXPECTATIONS WILL PROVE TO BE CORRECT. THESE FORWARD-LOOKING STATEMENTS ARE
      SUBJECT TO CERTAIN KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, AS WELL AS
      ASSUMPTIONS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
      REFLECTED IN THESE FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO
      PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH
      REFLECT MANAGEMENT'S OPINIONS ONLY AS OF THE DATE HEREOF. EXCEPT AS REQUIRED
      BY
      LAW, WE UNDERTAKE NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE RESULTS OF
      ANY
      REVISION TO ANY FORWARD-LOOKING STATEMENTS. YOU ARE ADVISED, HOWEVER, TO CONSULT
      ANY ADDITIONAL DISCLOSURES WE MAKE IN OUR REPORTS TO THE SEC. ALL SUBSEQUENT
      WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING
      ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
      STATEMENTS CONTAINED IN THIS REPORT.





The
      following information should be read in conjunction with the consolidated
      financial statements and notes thereto appearing elsewhere in this Form
      10-QSB.





*Overview*





The
      Company was a financial service company providing financing and advisory
      services to small and medium-sized companies throughout the United States.
      Effective January 5, 2004, the Company's shareholders approved the proposal
      to
      allow the Company to elect to be treated as a business development company
      ("BDC") under the 1940 Act. The Company on September 22, 2006, withdrew its
      election to be treated as a BDC. Following the withdrawal of its election,
      the
      Company carries on a marine recovery and explorations business, which it
      conducts through subsidiaries and controlled companies, and will be managed
      so
      that it will not be subject to the provisions of the 1940 Act.





The
      increasing complexity of the business environment and applicable authoritative
      accounting guidance required the Company to closely monitor its accounting
      policies. The following is a summary of the Company’s critical accounting
      policies and its intended to enhance your ability to assess its financial
      condition and results of operation and the potential volatility due to changes
      in estimates.


2


*Valuation
      of Investments*





The
      Company is no longer subject to independently valuing its private investments
      as
      value is defined in Section 2(a)(41) of the 1940 Act as, (i) the market price
      for those securities for which a market quotation is readily available and
      (ii)
      for all other securities and assets, fair value is determined in good faith
      by
      the board of directors.





As
      of
      March 31, 2008, the following is a list of the private companies in which the
      Company had an investment in and notes receivable, stated at the lower of cost
      or market value;





FairMarketName of Company
            
            Cost
            
            ValueGulf
                Coast Records, LLCMinority
                Investment (49%) and Note Receivable
            
            $
            1,006,717
            
            $
            -Reds
                Caribbean - held by Lavelle Holdings, Inc.Minority
                Investment (30%)
            
            $
            51,962
            
            $
            51,962Totals
            
            $
            1,058,679
            
            $
            51,962





The
      investments are reflected at the lower of cost or market. Since there is
      typically no readily ascertainable market value for the investments in its
      portfolio, the Company valued substantially all of its investments at the lower
      of cost or market as determined in good faith by the board of directors pursuant
      to a valuation policy and consistent valuation process. Because of the inherent
      uncertainty in determining the fair value of investments that do not have a
      readily ascertainable market value, the fair value of its investments determined
      in good faith by the board of directors may differ significantly from the values
      that would have been used had a ready market existed for the investments, and
      the differences could be material.





Initially,
      the fair value of each such portfolio investment was based upon original cost.
      There is no single standard for determining fair value in good faith. As a
      result, determining fair value requires the judgment be applied to the specific
      facts and circumstances of each portfolio investment. The Board of Directors
      considers fair value to be the amount which the Company may reasonably expect
      to
      receive for portfolio securities when sold on the valuation date.





*Gulf
      Coast Records, LLC*





The
      investment (a 49% minority interest) and note receivable in Gulf Coast Records,
      LLC was acquired as part of the Exchange Agreement dated October 17, 2005.
      In
      the year ended June 30, 2006, while reporting under the 40 Act as a business
      development company, the Board of Directors agreed with management’s assessment
      to write this investment down to zero based on the information received from
      the
      management of Gulf Coast Records, LLC. As of March 31, 2008, the investment
      in
      and note receivable to Gulf Coast is being carried as zero, which is the lower
      of cost or market.





*Reds
      Caribbean*





The
      investment (a 30% minority interest) in Reds Caribbean was acquired in the
      stock
      purchase agreement with the shareholders of Lavelle Holdings, Inc. on June
      11,
      2007. As of March 31, 2008, the Company is recording this investment at its
      cost
      of $51,962. Management expects to receive additional financial information
      before June 30, 2008 in order to ascertain the carrying value of this investment
      in Red Caribbean.


3


*Valuation
      of Loans and Debt Securities*





The
      Company did not value its loans or debt securities above cost, but loans and
      debt securities were subject to fair value write-down when the asset is
      considered impaired with respect to the Company’s investments. As of March 31,
      2008, the note receivable to Gulf Coast Records, LLC of $832,849 was considered
      impaired and continues to be carried as zero. The investment is Reds Caribbean
      was acquired in June 2007 in conjunction with the acquisition of Lavelle
      Holdings, which is not considered as impaired and it is being carried at its
      original cost.





*Financial
      Condition*




Comparison
      of operating results for the three and nine months ended March 31, 2008 and
      2007:





Net
      Sales





Net
      sales
      for the three months ended March 31, 2008 were $0, compared to $79,089 for
      the
      three months ended March 31, 2007. The sales were from the Company’s
      wholly-owned subsidiary, Lavelle Holdings, Inc. The Company’s other subsidiaries
      have yet to realize any revenue from the artifacts they have recovered
      to-date





As
      of
      March 31, 2008, Lavelle Holdings, Inc. has ceased operations subject to the
      review by the Company’s management to determine its business strategy going
      forward, as it relates to the business of Lavelle Holdings, Inc. The Company
      provided for the allowance for bad debts of $93,728, however, there were no
      other reserves provided for as of March 31, 2008 as they relate to Lavelle
      Holdings, Inc.




Net
      sales
      for the nine months ended March 31, 2008 were $395,550, compared to $421,210
      for
      the nine months ended March 31, 2007. The sales were from the Company’s
      wholly-owned subsidiary, Lavelle Holdings, Inc. The Company’s other subsidiaries
      have yet to realize any revenue from the artifacts they have recovered
      to-date.





Gross
      Profit





Gross
      profit for the three months ended March 31, 2008 was $0 compared to $13,424
      for
      the three months ended March 31, 2007. The decrease was due to no revenue being
      realized for the three months ended March 31, 2008.





Gross
      profit for the nine months ended March 31, 2008 was $155,300 compared to
      $168,962 for the nine months ended March 31, 2007. The decrease was due to
      lower
      sales.





Operating
      Expenses





Operating
      expenses for the three months ended March 31, 2008 were $474,764 compared to
      $558,028 for the three months ended March 31, 2007. The decrease was primarily
      due to stock issued for services for $288,530 during the quarter ended March
      31,
      2008. Salaries and wages decreased to zero because the officers of the parent
      company agreed to forego salaries starting in 2007.





Operating
      expenses for the nine months ended March 31, 2008 were $1,074,011 compared
      to
      $1,190,757, for the nine months ended March 31, 2007. The decrease was primarily
      due to stock issued for services for $320,530 during the nine months ended
      March
      31, 2008.





Interest
      Expense





Interest
      expense for the three months ended March 31, 2008 was $41,941 compared to
      $75,411 for the three months ended March 31, 2007. The decrease was due to
      additional debt financing received by the Company, which was converted to
      equity.




Interest
      expense for the nine months ended March 31, 2008 was $124,080 compared to
      $121,136 for the nine months ended March 31, 2007. The increase was due to
      additional debt financing received by the Company.


4


Liquidity
      and Capital Resources





As
      of
      March 31, 2008, total assets increased by $629,480 or 16.2% to $4,517,981.
      Cash
      decreased by $54,994 primarily there was no realized revenue in the nine months
      ended March 31, 2008.





Capitalized
      costs increased by $963,920 or 28.7% to $3,308,936, which was primarily funded
      by the issuance of common stock, proceeds from notes payable and proceeds from
      related party notes payable.





The
      Company does not expect its cash on hand and cash generated from operations
      to
      be adequate to meet its cash needs at its current level of operations, including
      the next twelve months. The Company intends to seek to raise additional funds
      from investors, either directly or through its subsidiaries or controlled
      companies, including special-purpose entities formed to conduct specific marine
      exploration operations. There can be no assurance that the Company’s
      fund-raising efforts will be successful.





*Quantitative
      and Qualitative Disclosures about Market Risk*





The
      Company’s investment activities contain elements of risk. The portion of the
      Company’s investment portfolio consisting of equity or equity-linked debt
      securities in private companies was subject to valuation risk. Because there
      was
      typically no public market for the equity and equity-linked debt securities
      in
      which it invested, the valuation of the equity interest in the portfolio is
      stated at "fair value" and determined in good faith by the Board of Directors
      on
      a quarterly basis in accordance with the Company's investment valuation policy.
      In the absence of a readily ascertainable market value, the estimated value
      of
      the Company’s portfolio may have differed significantly from the value that
      would be placed on the portfolio if a ready market for the investments existed.
      At times a portion of the Company’s portfolio may have included marketable
      securities traded in the over-the-counter market. In addition, there may have
      been a portion of the Company’s portfolio for which no regular trading market
      existed. In order to realize the full value of a security, the market must
      have
      traded in an orderly fashion or a willing purchaser must be available when
      a
      sale is to be made. Should an economic or other event occur that would not
      allow
      the markets to trade in an orderly fashion the Company may not have been able
      to
      realize the fair value of its marketable investments or other investments in
      a
      timely manner.





As
      of
      March 31, 2008, the Company did not have any off-balance sheet investments
      or
      hedging investments.





*Impact
      of Inflation*





The
      Company does not believe that its business was materially affected by inflation,
      other than the impact inflation may have on the securities markets, the
      valuations of business enterprises and the relationship of such valuation to
      underlying earnings, all of which will influence the value of the Company's
      investments.





ITEM
      3.
      CONTROLS AND PROCEDURES





*CEO
      and CFO Certifications*





As
      of the
      end of the period covered by this quarterly report, the Company carried out
      under the supervision and with the participation of our management, including
      our Chief Executive Officer and Chief Financial Officer ("the Certifying
      Officers"), an evaluation of the effectiveness of our "disclosure controls
      and
      procedures." The certifications of the CEO and the CFO required by Rules
      13a-14(a) and 15d-14(c) of the Securities Exchange Act of 1934, as amended
      (the
      "Certifications") are filed as exhibits to this report.





This
      section of this report contains information concerning the evaluation of our
      "disclosure controls and procedures" (as defined in Exchange Act Rules 13a-15(e)
      and 15d-15(e)) ("Disclosure Controls") and changes to internal control over
      financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
      ("Internal Controls") referred to in the Certifications and should be read
      in
      conjunction with the Certifications for a more complete understanding of the
      topics presented.


5


*Evaluation
      of Disclosure Controls*





The
      Company maintains controls and procedures designed to ensure that they are
      able
      to collect the information that is required to be disclosed in the reports
      they
      file with the Securities and Exchange Commission (the "SEC") and to process,
      summarize and disclose this information within the time period specified in
      the
      rules of the SEC. The Company’s Chief Executive Officer and Chief Financial
      Officer are responsible for establishing, maintaining and enhancing these
      procedures. The officers are also responsible, as required by the rules
      established by the SEC, for the evaluation of the effectiveness of these
      procedures.





Based
      on
      management's evaluation (with participation of our principal executive officer
      and principal financial officer), as of the end of the period covered by this
      report, the principal executive officer and principal financial officer
      concluded that no deficiencies were identified in the Company's internal
      controls over financial reporting which constituted a "material weakness."
      Accordingly, management concluded that the Company's disclosure controls and
      procedures were effective.





*Limitations
      on the Effectiveness of Controls*





The
      Company's management does not expect that their disclosure controls or their
      internal controls over financial reporting will prevent all error and fraud.
      A
      control system, no matter how well conceived and operated, can provide only
      reasonable, but not absolute, assurance that the objectives of a control system
      are met. Further, any control system reflects limitations on resources, and
      the
      benefits of a control system must be considered relative to its costs. These
      limitations also include the realities that judgments in decision-making can
      be
      faulty and that breakdowns can occur because of simple error or mistake.
      Additionally, controls can be circumvented by the individual acts of some
      persons, by collusion of two or more people or by management override of a
      control. A design of a control system is also based upon certain assumptions
      about potential future conditions; over time, controls may become inadequate
      because of changes in conditions, or the degree of compliance with the policies
      or procedures may deteriorate. Because of the inherent limitations in a
      cost-effective control system, misstatements due to error or fraud may occur
      and
      may not be detected.





*Changes
      in Internal Controls*





The
      Company maintains a system of internal controls designed to provide reasonable
      assurance that transactions are executed in accordance with management's general
      or specific authorization; transactions are recorded as necessary to permit
      preparation of financial statements in conformity with Generally Accepted
      Accounting Principles ("GAAP"). It is the responsibility of Company’s management
      to establish and maintain adequate internal control over financial
      reporting.





PART
      II: OTHER INFORMATION





Item
      1.   Legal
      Proceedings





In
      a
      matter related to KMA Capital Partners Ltd, James Jenkins and Charles Giannetto,
      filed as *KMA
      Capital Partners Ltd., v. Sovereign Exploration Association, Inc., et
      al* ,
      in the
      Circuit Court of the Ninth Judicial Circuit, in and for Orange County, Florida,
      the Company claims that KMA Capital Partners Ltd, James Jenkins and Charles
      Giannetto are in breach of a “Leak Out Agreement”, which restricts the number of
      shares of the Company’s common stock, traded as SVXA.OB, they are allowed to
      sell or transfer. As of June 30, 2006, the court entered an Order which limits
      Mr. Jenkins and Mr. Giannetto to selling no more than 2,000 shares of the
      Company’s common stock per trading day. As of March 31, 2008, there is no
      liability under this matter that requires the establishment of a liability
      within the accompanying consolidated financial statements.





The
      Company is one of several defendants in a law suit, *Patricia
      A. Mullican v. Sovereign Exploration Associates International, Inc., et al* in
      the
      Circuit Court of the Ninth Judicial Circuit, in and for Orange County, Florida.
      The plaintiff in this case is seeking damages for the alleged failure to pay
      two
      (2) debentures issued by TS&B Holdings to Mr. Mullican (one for $150,000 and
      the other for $250,000) as well as an unpaid promissory note for $50,000 plus
      accrued interest on the debentures and the promissory note along with attorney
      fees. TS&B Holdings, Inc. subsequently became Cali Holdings, Inc., which was
      acquired by the Company in October 2005.


6


It
      is the
      Company’s position that these debts are not its responsibility, to the extent
      that neither the debentures nor promissory notes were disclosed at the time
      Cali
      Holdings, Inc. was acquired by the Company. There are numerous defenses which
      the Company will be relying upon to support its legal position that these
      obligations are not its responsibility. As of March 31, 2008, the accompanying
      consolidated financial statements do not provide for any liability in the event
      that the Company is deemed responsible in this case.





ITEM
      2.
      UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.





None





ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES.





None





ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





None





ITEM
      5.
      OTHER INFORMATION.





None





ITEM
      6.
      EXHIBITS.





Section
      302 CEO and CFO Certifications





Section
      906 CEO and CFO Certifications





SIGNATURES





Pursuant
      to the requirements of Section 3 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this Quarterly Report on Form 10-QSB to
      be
      signed on its behalf by the undersigned, thereunto duly authorized.





**SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC**





May
                14, 2008
            By:
            /s/
                Robert D. BacaDate
            
            Robert
                D. BacaChief
                Executive OfficerMay
                14, 2008
            By:
            /s/
                Martin ThorpDate
            
            Martin
                ThorpChief
                Financial Officer


7