**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 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,
                2007





OR





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





Commission
      file number 333-229903





**SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC.**


(Name
      of
      small business issuer in its charter)





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





503
      Washington Ave, Suite 2d, Newtown PA 18940


(Address
      and Zip Code of Principal Executive Offices)





Registrant's
      Telephone Number: (781) 246-7512




(Former
      Name, Former Address if changed since last report) Securities registered under
      Section 12(b) of the Exchange Act: N/A




Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par
      value per share (Title of Class)





Check
      whether the issuer: (i) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (ii) has been
      subject to such filing requirements for the past 90
      days.    Yes [x]    No [ 
]





Indicate
      by check mark whether the registrant is an accelerated filer (see defined Rule
      12b-2 of the Exchange Act).  Yes [ 
]    No  [x]





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





The
      number of shares of the issuer's common stock, $0.001 par value, outstanding
      as
      of May 11, 2007 was 29,122,017





Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court. Yes [x]   No [  ]





PART
      I -
      FINANCIAL INFORMATION:


Item
      1.  Financial
      Statements





SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - CALI Holdings, Inc.)CONSOLIDATED
                BALANCE SHEETSMARCH
                31, 2007 AND JUNE 30, 2006




03/31/2007
            
            06/30/2006**UNAUDITED**
            
            **RESTATED**AssetsCash
                and cash equivalents
            
            $
            6,771
            
            $
            570Total
                current assets
            
            
            6,771
            
            
            570Other
                assetsInvestments,
                net of allowance of $173,868
            
            
            -
            
            
            -Notes
                receivable, net of allowance of $832,849
            
            
            -
            
            
            -Capitalized
                costs and permits
            
            
            3,354,867
            
            
            2,365,870Total
                other assets
            
            
            3,354,867
            
            
            2,365,870Total
                assets
            
            $
            3,361,638
            
            $
            2,366,440Liabilities
                and Shareholders' Equity (Deficit)Current
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            480,651
            
            $
            336,801Due
                to related parties
            
            
            1,253,131
            
            
            955,062Notes
                payable
            
            
            96,833
            
            
            121,840Total
                current liabilities
            
            
            1,830,615
            
            
            1,413,703Long-term
                liabilitiesRelated
                party note payables
            
            
            3,062,059
            
            
            2,126,665Notes
                payable, convertible debt
            
            
            -
            
            
            800,000Total
                long-term liabilities
            
            
            3,062,059
            
            
            2,926,665Total
                liabilities
            
            
            4,892,674
            
            
            4,340,368Commitments
                and contingencies
            
            
            -
            
            
            -Shareholders'
                equity (deficit)Common
                stock, $.001 par value, 250,000,000 sharesauthorized
                and 29,122,017 issued and outstanding as ofMarch
                31, 2007; 26,203,166 issued and outstandingas
                of June 30, 2006
            
            
            29,122
            
            
            26,203Additional
                paid-in capital
            
            
            19,594,746
            
            
            17,876,659Minority
                interest
            
            
            (803,530
            )
            
            (803,530
            )Accumulated
                deficit
            
            
            20,351,374
            )
            
            (19,073,260
            )Total
                shareholders' equity (deficit)
            
            
            (1,531,036
            )
            
            (1,973,928
            )Total
                liabilities and shareholders' equity (deficit)
            
            $
            3,361,638
            
            $
            2,366,440See
                accompanying notes





2





SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - CALI Holdings, Inc.)CONSOLIDATED
                STATEMENTS OF OPERATIONSFOR
                THE NINE MONTHS ENDED MARCH 31, 2007**UNAUDITED**




Revenue
            
            $
            -Operating
                expenses:Stock
                issued for services
            
            
            363,000Salaries
                and wages
            
            
            127,965General
                and administrative
            
            
            44,166Legal
                and professional fees
            
            
            257,847Total
                operating expenses
            
            
            792,978Other
                income (expenses):Stock
                issued in conjunction with settlement agreement
            
            
            (364,000
            )Interest
                expense
            
            
            (121,136
            )Total
                other income (expense)
            
            
            (485,136
            )Operating
                loss before income taxes
            
            
            (1,278,114
            )Provision
                for income taxes
            
            
            -Net
                loss
            
            $
            (1,278,114
            )Net
                operating loss per common sharesBasic
            
            $
            (0.0468
            )Diluted
            
            $
            (0.0468
            )Net
                loss per common shareBasic
            
            $
            (0.0468
            )Diluted
            
            $
            (0.0468
            )Weighted
                average shares of common outstandingBasic
            
            
            27,333,778Diluted
            
            
            27,334,904Dividends
                declared per common share
            
            $
            -See
                accompanying notes




3





SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL,
                INC.(F/K/A
                - CALI Holdings, Inc.)CONSOLIDATED
                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)FOR
                THE NINE MONTHS ENDED MARCH 31, 2007**UNAUDITED**




AdditionalCommon
                Stock
            
            paid-in
            
            Minority
            
            AccumulatedShares
            
            Par
                Value
            
            capital
            
            Interest
            
            Deficit
            
            Total(1)
            
            
            
            (2)Balance,
                June 30, 2006, restated
            
            
            26,203,166
            
            $
            26,203
            
            $
            17,876,659
            
            $
            (803,530
            )
            $
            (19,073,260
            )
            $
            (1,973,928
            )Issuance
                of common sharessettlement
                agreement
            
            
            910,000
            
            
            910
            
            
            363,090
            
            
            -
            
            
            -
            
            
            364,000Conversion
                of convertible debtto
                common shares
            
            
            848,000
            
            
            848
            
            
            847,152
            
            
            -
            
            
            -
            
            
            848,000Conversion
                of convertible debtto
                common shares
            
            
            95,851
            
            
            96
            
            
            34,410
            
            
            -
            
            
            -
            
            
            34,506Issuance
                of common stockpursuant
                to Rule 506 under Regulation D
            
            
            300,000
            
            
            300
            
            
            74,700
            
            
            -
            
            
            -
            
            
            75,000Issuance
                of common stockpursuant
                to Rule 144
            
            
            350,000
            
            
            50
            
            
            150,150
            
            
            -
            
            
            -
            
            
            150,500Issuance
                of common stock under Regulation S
            
            
            415,000
            
            
            415
            
            
            248,585
            
            
            -
            
            
            -
            
            
            249,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,278,114
            )
            
            (1,278,114
            )Balance,
                March 31, 2007
            
            
            29,122,017
            
            $
            29,122
            
            $
            19,594,746
            
            $
            (803,530
            )
            $
            (20,351,374
            )
            $
            (1,531,036
            )(1)
                - Capital in excess of par value as of June 30, 2006 and includes
                the
                Company and subsidiaries(2)
                - Accumulated undistributed net income (loss) as of June 30,
                2006See
                accompanying notes





4





SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - CALI Holdings, Inc.)CONSOLIDATED
                STATEMENTS OF CASH FLOWSFOR
                THE NINE MONTHS ENDED MARCH 31, 2007**UNAUDITED**




03/31/2007Operating
                activities:Net
                loss
            
            $
            (1,278,114
            )Adjustments
                to reconcile net loss from operations tonet
                cash (used in) operating activities:(Increase)
                decrease in:Capitalized
                costs and permits
            
            
            (988,997
            )Increase
                (decrease) in:Accounts
                payable and accrued expenses
            
            
            143,850Due
                to related parties
            
            
            298,069Net
                cash (used in) operating activities
            
            
            (1,825,192
            )Financing
                activities:Issuance
                of common stock
            
            
            895,999Proceeds
                from related party notes payable
            
            
            1,092,377Payments
                on related party notes payable
            
            
            (156,983
            )Net
                cash provided by financing activities
            
            
            1,831,393Net
                increase in cash and cash equivalents
            
            
            6,201Cash
                and cash equivalents, beginning of period
            
            
            570Cash
                and cash equivalents, end of period
            
            $
            6,771Supplemental
                disclosure of cash flow information:Interest
                paid
            
            $
            263Taxes
                paid
            
            
            -See
                accompanying notes





5




SOVEREIGN
      EXPLORATION ASSOCIATES INTERNATIONAL, INC.


F/K/A
      -
      CALI Holdings, Inc.)


NOTES
      TO
      FINANCIAL STATEMENTS


MARCH
      31,
      2007


UNAUDITED







NOTE
      A
      - NATURE OF ORGANIZATION





Sovereign
      Exploration Associates International, Inc.
      (the
“Company”) was incorporated in the state of Utah in 1980. The company was
      formerly known as CALI Holdings, Inc. On October 26, 2005 the Company changed
      its name from CALI Holdings, Inc. to Sovereign
      Exploration Associates International ,
      Inc.





On
      January 13, 2004 the Company filed form N-54A with the United States Securities
      and Exchange Commission (“SEC”) to become a Business Development Company ("BDC")
      pursuant to Section 54 of the Investment Company Act of 1940 (the "1940 Act").
      As a result, the Company operated as an investment holding company and acquired
      investments designed to build an investment portfolio to enhance the Company's
      shareholder value. As a BDC, the Company was, in effect, a publicly traded
      private equity fund, where stockholders provided public capital in a regulated
      environment for private investment in smaller companies. Congressional intent
      behind the creation of BDCs was to encourage the flow of public capital to
      private and smaller public companies.





On
      September 22, 2006 at a duly called special meeting, the Company’s shareholders
      approved a proposal to withdraw the Company’s election to be a business
      development company under the Investment Company Act of 1940 by filing Form
      N-54C with the SEC.





On
      September 22, 2006, the Company filed a notification of withdrawal of business
      development company election on Form N-54C notifying the SEC that, pursuant
      to
      the provisions of Section 54(c) of the Investment Company Act of 1940
      ("Investment Company Act" or "1940 Act"), the Company withdrew its election
      to
      be subject to Sections 55 through 65 of the 1940 Act. Accordingly, the Company
      is no longer subject to the Investment Company Act but will continue as an
      operating reporting public company subject to the Securities Exchange Act of
      1934.





The
      net
      effect, as of June 30, 2006, of the Company’s election to withdrawal our
      business development company status pursuant to the Investment Company Act
      of
      1940 was as follows:




Additional
                paid in capital
            
            $
            (550,705
            )Deficit
            
            
            (425,068
            )Unrealized
                depreciation on investments
            
            
            1,015,273Net
                adjustments
            
            $
            39,500





As
      a
      result of the change in accounting principle because of the Company’s election
      to withdrawal its business development company election, the Company restated
      its June 30, 2006 Balance Sheet which is included in these consolidated
      financial statements.


6





NOTE
      B
      - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES





Basis
      of Presentation





The
      accompanying unaudited interim financial statements have been prepared in
      accordance with generally accepted accounting principles for interim financial
      information and pursuant to the rules and regulations of the SEC. The
      accompanying financial statements for the interim periods are unaudited and
      reflect all adjustments (consisting only of normal recurring adjustments) which
      are, in the opinion of management, necessary for a fair presentation of the
      financial position and operating results for the quarterly period presented.
      These financial statements should be read in conjunction with the Company's
      financial statements for the years ended June 30, 2006 and 2005 and notes
      thereto contained in the Company’s Annual Report on Form 10-K for the year ended
      June 30, 2006 as filed with the SEC. See discussion of change in accounting
      principle below.





Certain
      account balances as of June 30, 2006 have been reclassified to reflect current
      account classifications as of March 31, 2007.





The
      results of operations for the nine months ended March 31, 2007 are not
      necessarily indicative of the results of operations to be achieved for the
      full
      fiscal year ending June 30, 2007. The election to withdraw the Company as a
      BDC
      under the Investment Company Act effective September 21, 2006 has resulted
      in a
      significant change in the Company’s required method of accounting. BDC financial
      statement presentation and accounting utilizes the fair value method of
      accounting used by investment companies, which allows BDCs to recognize income
      and value their investments at market value as opposed to historical cost.





In
      addition, majority-owned subsidiaries BDCs are not consolidated and instead,
      investments in those subsidiaries are reflected on the balance sheet as an
      investment in and advances to affiliates, at fair value. As an operating
      company, the required financial statement presentation and accounting for
      securities held by the Company utilize either fair value or historical cost
      methods of accounting, depending on the classification of the investment and
      the
      Company’s intent with respect to the period of time it intends to hold the
      investment, and the Company and its subsidiaries are reflected for financial
      accounting purposes as a consolidated entity. The change in accounting due
      to
      the conversion to an operating company from a BDC is considered a change in
      accounting principle.





As
      an
      operating company, the Company consolidates its financial statements with
      subsidiaries, thus eliminating the investment in and advances to affiliates
      account that was reflected on the Company’s balance sheet as of June 30, 2006
      and 2005, respectively.





Management
      has determined that with the lack of information available from prior management
      of the Company, and because the Company no longer owns any of the portfolio
      companies that were divested as a result of the Exchange Agreement effective
      October 17, 2005 except for Gulf Coast Records, LLC, it is impractical to comply
      with the retroactive application of prior periods being presented on an
      operating and consolidated basis in accordance with Statement of Financial
      Accounting Standards No. 154, Accounting for Changes and Error Corrections
      ("FAS
      #154").





Pursuant
      to paragraph 11 of FAS #154: The Company has deemed it impracticable to apply
      the effects of a change in accounting principle retroactively because the
      following conditions apply as of March 31, 2007:





1.
            The
                Company has made every reasonable effort to apply the requirement;
                however, we are unable to do so.


2.
            Retrospective
                application of the change in accounting principle requires assumptions
                about prior management’s intent in prior periods that can not now be
                independently substantiated.




7





3.
            Retrospective
                application of the accounting principle requires significant estimates
                of
                amounts that at this time, it is impossible to distinguish objectively
                information about those estimates that: (a) provides evidence of
                circumstances that existed on the date(s) at which those amounts
                would be
                recognized, measured, or disclosed under retrospective application,
                and
                (b) would have been available when the financial statements for that
                prior
                period were issued.





See
      Note
      Q for explanation of the prior period financial statement
      presentation.





As
      of
      March 31, 2007, the Company’s subsidiaries were development stage enterprises,
      except for Gulf Coast Records, LLC, which is accounted for on the equity method
      of accounting as described in Investments under Note B.





The
      Company’s subsidiaries are development stage enterprises engaged in ocean
      explorations and archaeologically sensitive recoveries of artifacts, treasure
      trove and/or cargo from shipwrecks under various licenses.





Statement
      of Financial Accounting Standards No. 7, Accounting and Reporting by Development
      Stage Enterprises, defines a development stage enterprise as one that is
      devoting substantially all of its efforts to establishing a new business and
      either planned principal operations have not commenced or planned principal
      operations have commenced but there has been no significant revenue. Several
      artifacts have been recovered, but for the nine month period ended March 31,
      2007, there was no revenue.





The
      accompanying 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’s
      subsidiaries have capitalized all of their ocean
      explorations and archaeologically sensitive recoveries of artifacts, treasure
      trove and/or cargo from shipwrecks costs
      to-date. 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 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 that uncertainty.





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, 2007, 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. Historic Discoveries has two wholly-owned subsidiaries, Artifact
      Recovery & Conservation, Inc. ("ARC") and Sea Research, Inc.
      ("SRI").





Artifact
      Recovery & Conservation, Inc.





ARC
      is
      the managing member of Fantome Cove Treasure Trove 150, LLC, of which it owns
      a
      97.05% equity interest. ARC is also the managing member of Interspace
      Exploration, LLC, of which ARC owns a 74% equity interest.


8





As
      of
      March 31, 2007, the minority interest in Fantome Cove Treasure Trove 150, LLC
      and Interspace
      Exploration, LLC is
      $803,530.





Sovereign
      Exploration Associates International of Spain, Inc.





The
      Company owns a 100% equity interest in Sovereign Exploration Associates
      International of Spain, Inc.





Investments




The
      Company accounts for investments, where the Company holds from 20% up to 50%,
      in
      the common stock 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.





As
      of
      March 31, 2007, the Company’s 49% equity investment in Gulf Coast Records, LLC
      was valued at zero. As of the fiscal year ended June 30, 2006, the Company
      had
      provided for a write-down of the investment in and advances to this company
      of
      $1,015,273 to zero.





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.





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.





Consolidated
      Statement of Cash Flows





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.





Segments





The
      Company operates as one segment as defined by the Statement of Financial
      Accounting Standards No. 131 Disclosures
      about Segments of an Enterprise and Related Information.





Foreign
      Currency Translation





The
      accompanying financial statements are stated in United States Dollars (USD).


9





New
      Accounting Pronouncement





In
      September 2006, the Financial Accounting Standards Board 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. The Company does not expect
      the adoption of FAS 157 to have an effect on its financial
      statements.





NOTE
      C
      - 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
      D
      - CAPITALIZED COSTS





As
      of
      March 31, 2007, 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.





NOTE
      E
      - STOCK ISSUED FOR SERVICES





During
      the nine months ended March 31, 2007, the Company issued 415,000 shares of
      common stock for services. Stock issued for services for the nine months ended
      March 31, 2007 was $363,000.





During
      the year ended June 30, 2006, the Company did not issue any stock for
      services.





NOTE
      F- INCOME TAXES





Pursuant
      to the Exchange Agreement dated October 17, 2005, substantial ownership of
      the
      Company was transferred and according to provisions of the Internal Revenue
      Code, this transaction eliminated all of the loss carryforwards for federal
      income tax purposes starting with fiscal year that ended June 30,
      2006.





NOTE
      G
      - LEASE ARRANGEMENTS





The
      Company maintains shared office space in Pennsylvania and Massachusetts with
      unrelated companies controlled by certain officers of the Company. These
      companies sublet space to the Company on a month-to-month basis with monthly
      rent of approximately $2,000, with no formal subleases. Rent expense for the
      nine months ended March 31, 2007 was $16,970.


10





NOTE
      H
      - NOTES PAYABLE





5.25%
                convertible debenture to a company dated June 29, 2005 with an
                initialprincipal
                balance of $40,000 due no later than June 29, 2008;
                outstandingprincipal
                and interest. This convertible debenture is currently in
                dispute.
            
            $
            96,833Total
                notes payable, current
            
            $
            96,833





For
      the
      nine months ended March 31, 2007, the Company incurred interest expense on
      this
      convertible debenture of $5,621. This convertible debenture continues to be
      in
      dispute because of issues related to the conversion rates. There is no
      additional information from prior management at this time.





During
      the nine months ended March 31, 2007, the Company issued 95,851 shares of common
      stock in the settlement of the convertible notes payable with a balance
      including principal and accrued interest of $34,506.





NOTE
      I
      - AGREEMENTS





Prior
      to
      the Exchange Agreement of October 17, 2005, there is 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. is 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
      Fantome project (Fantome Cove Treasure Trove License 150, LLC. a subsidiary
      of
      ARC) sold a 2.06% equity interest for a capital investment of $411,530, and
      the
      LeChameau project (Interspace Explorations, LLC, a subsidiary of ARC) sold
      a
      26.0% ownership interest and 40% profit participation interest for
      $392,000.





Management
      intends to assess the Company's liability under these agreements on a periodic
      basis. No liability has been recorded for these agreements as of March 31,
      2007.





In
      March
      2007, the Company’s board of directors authorized the issuance of 10,000,000
      shares of Series A Convertible Preferred Stock. Upon issuance of these shares,
      the 20% revenue participation payable to the original owners of the permits
      will
      be exchanged for 10,000,000 shares of Series A Convertible Preferred Stock.
      The
      holders of the this Series of Convertible Preferred Stock will have conversion
      rights of 4 to 1 to common stock of the Company.


11





NOTE
      J
      - 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
      K
      - SHAREHOLDERS’ EQUITY





As
      of
      March 31, 2007, the authorized capital of the Company was 250,000,000 shares
      of
      common stock (with voting rights), par value $.001.





During
      the three months ended March 31, 2007, the Company raised $75,000 through the
      issuance of 300,000 shares of common stock plus warrants were issued to purchase
      60,000 shares of common stock for $.32 per share. The warrants must be exercised
      within 1 year from the date the Shares are purchased.





NOTE
      L
      - ISSUANCE OF STOCK





During
      the nine months ended March 31, 2007, the Company issued 2,918,851 shares of
      common stock as follows:





1)
            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.





2)
            848,000
                common shares were issued for the conversion of the convertible debt
                of
                $848,000 including accrued interest of $48,000. These common shares
                are
                restricted under Rule 144.





3)
            95,851
                common shares were issued pursuant to the settlement agreement. Note
                H.





4)
            300,000
                common shares were issued pursuant to Rule 506 under Regulation D
                in
                exchange for $75,000 cash proceeds. These shareholders also own a
                warrant
                to purchase 60,000 shares of common stock of the Company. Note
                K.





5)
            350,000
                common shares were issued in exchange for services provided. These
                common
                shares are restricted under Rule
                144.





6)
            415,000
                common shares were issued pursuant to Regulation S in exchange for
                services provided. Note E.




12


NOTE
      M
      - CONCENTRATION OF CREDIT RISK





Financial
      instruments, which potentially expose the Company to concentrations of credit
      risk, consist principally of cash. As of March 31, 2007, the Company maintains
      its cash accounts with financial institutions located in Pennsylvania and
      Canada. The Federal Deposit Insurance Corporation (FDIC) guarantees the
      Company's deposits in US-based financial institutions up to
      $100,000.





The
      Company's deposits with financial institutions that exceeded federally insured
      guarantees amounted to $0 as of March 31, 2007. Historically, the Company has
      not experienced any losses on its deposits in excess of federally insured
      guarantees.





As
      of
      March 31, 2007, the Company accounts for its investment in Gulf Coast Records,
      LLC on the equity method of accounting. The amount of $832,849 was offset by
      an
      allowance to reduce the market value of this note and investment to zero from
      Gulf Coast Records as of June 30, 2006. Current management is reviewing its
      options regarding this company and whether it wants to maintain its position
      or
      divest its holdings in the future, while actively negotiating with the
      management of Gulf Coast Records, LLC regarding the recovery of the Company's
      investment. Prior to June 30, 2006, the Company received information from the
      management of Gulf Coast Records, LLC that has caused the Company to reduce
      the
      fair market value to zero.





NOTE
      N
      - RELATED PARTY TRANSACTIONS





ACCRUED
      PAYROLL AND EXPENSES; DUE TO RELATED PARTIES





As
      of
      March 31, 2007, $1,253,131 was owed to certain officers of the Company for
      accrued payroll and unreimbursed expenses.





As
      of
      March 31, 2007, these officers have agreed to reduce the amount of unreimbursed
      expenses by $204,637 in addition to the 50% reduction in accrued payroll since
      July 2006.





RELATED
      PARTY NOTE PAYABLE





Effective
      July 10, 2006, the President of the Company advanced $500,000 to the Company
      for
      working capital purposes. The loan is due on demand and the interest
      requirements and stated rate are a direct pass-through from Nova Savings
      Bank.





Effective
      November 15, 2006, the Chairman of the Company advanced the Company $160,000
      under a note agreement that requires an interest rate of the lesser of 0.9%
      or
      the legal rate under Texas law and is due, in full, with principal and interest
      on November 15, 2007.





Effective
      November 15, 2006, the $600,000 note due to Sea Hunt, Inc. and Venture Planning,
      Inc., related parties to the Chairman of the Company, was renegotiated with
      a
      new due date of November 15, 2007 along with an interest rate of the lesser
      of
      0.9% or the legal rate under Texas law and is due, in full, with principal
      and
      interest on November 15, 2007.





OFFICERS
      AND DIRECTORS OF THE COMPANY





Certain
      officers and directors of the Company hold certain executive positions in
      Historic Discoveries, Inc., Sea Hunt, Inc. and their respective
      subsidiaries.


13


NOTE
      O: LEGAL PROCEEDINGS




On
      December 1, 2006, the Company was named in a lawsuit in Orange County, Florida; *Estate
      of Mulligan vs. Cali Holdings, Inc., Sovereign Exploration Associates
      International, Inc., TSB Holdings, Inc., James Jenkins, and Charles Gianetto,
      et
      al.* The
      Plaintiff had invested funds into one of the portfolio companies of prior
      management and has named all parties including successor corporations in the
      suit. Management has the signed representations from prior management that
      no
      other potential lawsuits existed as of the settlement with them on June 30,
      2006, the documentation clearly states otherwise and they were aware of this
      suit at that time.




On
      February 9, 2007 the Company filed suit in The Province of Nova Scotia seeking
      an application for judicial review to in effect ask the province to order the
      Nova Scotia Museum to issue the proper permits to the Company. The Company
      believes the Nova Scotia Museum acted improperly in not issuing the necessary
      permits in 2006 and should not have recognized the claims made by the United
      Kingdom. The Company believes its rights are protected under the Special Places
      Protection Act, The Treasure Act and many other acts and considerations of
      established law governing these types of permits.





NOTE
      P: SUBSEQUENT EVENTS





In
      May
      2007, Martin Thorp, Chief Financial Officer of the Company was appointed to
      the
      Board of Directors.


14





NOTE
      Q
      - PRIOR PERIOD FINANCIAL STATEMENT PRESENTATION





As
      stated
      in Note B: pursuant to paragraph 11 of FAS#154: The Company has deemed it
      impracticable to apply the effects of a change in accounting principle
      retroactively because certain conditions apply as of March 31,
      2007.





Since
      the
      Company does not possess the information necessary to restate the comparative
      financial statements as of March 31, 2006 as an operating company; the following
      are the financial statements and corresponding footnotes for the Company,
      presented as on the basis of accounting utilized by business development
      companies (as amended: October 25, 2006):





SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - Cali Holdings, Inc.)BALANCE
                SHEETS




March
                31, 2006
            
            June
                30, 2005(unaudited)AssetsInvestments
                in and advances to affiliates
            
            $
            2,707,070
            
            $
            1,777,765Cash
                and cash equivalents
            
            
            14,376
            
            
            31,034Accounts
                receivable
            
            
            90,000
            
            
            3,692Prepaid
                expenses
            
            
            1,803
            
            
            -Fixed
                assets, net of accumulated depreciation
            
            
            -
            
            
            9,658Notes
                receivable
            
            
            -
            
            
            439,732Other
                assets
            
            
            -
            
            
            254,207Goodwill
            
            
            -
            
            
            489,000Security
                deposit
            
            
            5,572
            
            
            5,572Total
                assets
            
            $
            2,818,821
            
            $
            3,010,660Liabilities
                and Shareholders' EquityAccounts
                payable and accrued expenses
            
            $
            610,977
            
            $
            77,989Related
                party note payables
            
            
            792,155
            
            
            -Notes
                payable
            
            
            119,435
            
            
            499,900Total
                liabilities
            
            
            1,522,567
            
            
            577,889Commitments
                and contingenciesShareholders'
                equityClass
                A - Preferred stock, no par value, 10,000 shares authorized, none
                issued
                and outstanding
            
            
            -
            
            
            -Class
                B - Preferred stock, no par value, 10,000 shares authorized, none
                issued
                and outstanding
            
            
            -
            
            
            -Class
                C - Convertible Preferred stock, $.001 par value, 10,000 shares issued
                and
                outstanding
            
            
            10,000
            
            
            10,000Class
                D - Preferred stock, no par value, 10,000 shares authorized,  none
                issued and outstanding
            
            
            -
            
            
            -Common
                stock, $.001 par value, 250,000,000,000 shares authorized and 26,203,040
                issued as of March 31, 2006 2,000,000,000 shares authorized; 53,430
                outstanding as of June 30, 2005
            
            
            26,203
            
            
            53Capital
                in excess of par value
            
            
            20,322,917
            
            
            17,316,340Stock
                subscription receivable
            
            
            -
            
            
            (4,760
            )Accumulated
                undistributed net income (loss)
            
            
            (18,056,149
            )
            
            (14,231,534
            )Net
                unrealized depreciation of investments
            
            
            (1,006,717
            )
            
            (657,328
            )Total
                shareholders' equity
            
            
            1,296,254
            
            
            2,432,771Total
                liabilities and shareholders' equity
            
            $
            2,818,821
            
            $
            3,010,660Net
                asset value per share
            
            $
            0.0495
            
            $
            45.53




See
      accompanying notes


15




SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - Cali Holdings, Inc.)Statements
                of Operations(unaudited)




Three
                Months ended
            
            
            Nine
                Months endedMarch
                31,
            
            
            March
                31,2006
            
            
            2005
            
            
            2006
            
            
            2005OPERATING
                INCOME:Interest
                and dividend income:Control
                investments
            
            $
            -
            
            
            19,835
            
            $
            40,283
            
            $
            51,142Total
                interest and dividend income
            
            
            -
            
            
            19,835
            
            
            40,283
            
            
            51,142Fee
                and other income:Control
                investments
            
            
            45,000
            
            
            57,861
            
            
            470,000
            
            
            147,861Other
            
            
            -
            
            
            -
            
            
            52,602
            
            
            -Total
                fee and other income
            
            
            45,000
            
            
            57,861
            
            
            522,602
            
            
            147,861Total
                operating income
            
            
            45,000
            
            
            77,696
            
            
            562,885
            
            
            199,003COST
                OF GOODS SOLD
            
            
            -
            
            
            10,000
            
            
            -
            
            
            31,152OPERATING
                EXPENSESDepreciation
                and amortization
            
            
            -
            
            
            746
            
            
            615
            
            
            2,165Salaries
                and wages
            
            
            170,862
            
            
            197,508
            
            
            473,554
            
            
            560,133General
                and administrative
            
            
            97,367
            
            
            66,245
            
            
            407,096
            
            
            174,208Interest
            
            
            22,580
            
            
            13,958
            
            
            3,599
            
            
            52,747Professional
                fees
            
            
            93,714
            
            
            112,431
            
            
            165,870
            
            
            286,020Other
            
            
            -
            
            
            -
            
            
            -
            
            
            9,218Total
                operating expenses
            
            
            384,523
            
            
            390,888
            
            
            1,050,734
            
            
            1,084,491OPERATING
                (LOSS) BEFOREINCOME
                TAXES
            
            
            (339,523
            )
            
            (323,192
            )
            
            (487,849
            )
            
            (916,640
            )Provision
                for income taxes
            
            
            -
            
            
            (181,900
            )
            
            -
            
            
            (227,164
            )NET
                OPERATING (LOSS)
            
            $
            (339,523
            )
            $
            (505,092
            )
            $
            (487,849
            )
            $
            (1,143,804
            )




See
      accompanying notes




16




SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - Cali Holdings, Inc.)Statements
                of Operations, continued(unaudited)




Three
                Months ended
            
            Nine
                Months endedMarch
                31,
            
            March
                31,2006
            
            2005
            
            2006
            
            2005Net
                realized gain (loss) on investmentsControl
                investments
            
            
            -
            
            
            -
            
            
            (2,620,117
            )
            
            -Total
                net realized gain (loss) on investments
            
            
            -
            
            
            -
            
            
            (2,620,117
            )
            
            -Net
                unrealized (depreciation) on investmentsPortfolio
                company investments
            
            
            -
            
            
            (527,928
            )
            
            (716,649
            )
            
            (535,000
            )Total
                net unrealized (depreciation) on investments
            
            
            -
            
            
            (527,928
            )
            
            (716,649
            )
            
            (535,000
            )Total
                net loss on investments
            
            
            -
            
            
            (527,928
            )
            
            (3,336,766
            )
            
            (535,000
            )NET
                DECREASE IN NET ASSETSRESULTING
                FROM OPERATIONS
            
            $
            (339,523
            )
            $
            (1,033,020
            )
            $
            (3,824,615
            )
            $
            (1,678,804
            )NET
                OPERATING LOSS PER COMMON SHARE:Basic
            
            $
            (0.0146
            )
            $
            (128.42
            )
            $
            (0.0307
            )
            $
            (579.19
            )Diluted
            
            $
            (0.0146
            )
            $
            (128.42
            )
            $
            (0.0307
            )
            $
            (579.19
            )NET
                LOSS PER COMMON SHAREBasic
            
            $
            (0.0146
            )
            $
            (262.64
            )
            $
            (0.2406
            )
            $
            (850.09
            )Diluted
            
            $
            (0.0146
            )
            $
            (262.64
            )
            $
            (0.2406
            )
            $
            (850.09
            )WEIGHTED
                AVERAGE SHARES OF COMMONSTOCK
                OUTSTANDING:Basic
            
            
            23,203,040
            
            
            3,933
            
            
            15,898,969
            
            
            1,975Diluted
            
            
            23,203,040
            
            
            3,933
            
            
            15,898,969
            
            
            1,975DIVIDENDS
                DECLARED PER COMMON SHARE
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -




See
      accompanying notes


17




SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - Cali Holdings, Inc.)SCHEDULE
                OF INVESTMENTS IN AND ADVANCES TO AFFILIATESMarch
                31, 2006(unaudited)




FairCompany
            
            Industry
            
            Investment
            
            Cost
            
            ValueHistoric
                Discoveries, Inc.
            
            
            Marine
                Exploration
            
            
            Common
                Stock - 100%
            
            $
            1,873,010
            
            $
            1,873,010Sovereign
                Exploration AssociatesInternational
                of Spain, Inc.
            
            
            Marine
                Exploration
            
            
            Common
                Stock - 100%
            
            
            834,060
            
            
            834,060Gulf
                Coast Records, LLC
            
            
            Recording Label
            
            
            Member
                Interest - 49%
            
            
            173,868
            
            
            -Gulf
                Coast Records, LLC
            
            
            Recording Label
            
            
            Note Receivable8%
                Interest; norepayment
                terms
            
            
            832,849
            
            
            -Total
                investments in and advances to affiliates
            
            $
            3,713,787
            
            $
            2,707,070




See
      accompanying notes


18




SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - Cali Holdings, Inc.)STATEMENTS
                OF CHANGES IN NET ASSETS(unaudited)




Nine
                Months EndedMarch
                31,2006
            
            2005Operations:Net
                operating (loss)
            
            $
            (487,849
            )
            $
            (916,640
            )Provision
                for income taxes
            
            
            -
            
            
            (227,164
            )Net
                realized gain (loss) on investments
            
            
            (2,620,117
            )
            
            -Net
                unrealized (depreciation) of investments
            
            
            (716,649
            )
            
            (535,000
            )Net
                decrease in net assets resulting from operations
            
            
            (3,824,615
            )
            
            (1,678,804
            )Shareholder
                distributions:Common
                stock dividends
            
            
            -
            
            
            -Net
                decrease in net assets resulting from shareholder
                distributions
            
            
            -
            
            
            -Capital
                share transactions:Issuance
                of common stock, net
            
            
            2,654,665
            
            
            1,096,242Issuance
                of preferred stock
            
            
            -
            
            
            -Other
            
            
            33,433
            
            
            -Net
                increase in net assets resulting from capital share
                transactions
            
            
            2,688,098
            
            
            1,096,242Total
                increase (decrease) in net assets
            
            
            (1,136,517
            )
            
            (582,562
            )Net
                assets beginning of period
            
            
            2,432,771
            
            
            2,443,945Net
                assets end of period
            
            $
            1,296,254
            
            $
            1,861,383Net
                asset value per common share
            
            $
            0.0495
            
            $
            191.53Common
                shares outstanding at end of period, (post reverse split)
            
            
            26,203,040
            
            
            9,719




See
      accompanying notes


19




SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - Cali Holdings, Inc.)STATEMENTS
                OF CASH FLOWS(unaudited)




Nine
                Months Ended
            
            Nine
                Months EndedMarch
                31, 2006
            
            March
                31, 2005Operating
                activities:Net
                (decrease) in net assets resulting from operations
            
            $
            (3,824,615
            )
            $
            (1,678,804
            )Adjustments
                to reconcile net (decrease) in net assets resultingfrom
                operations to net cash providing by operating activities:Net
                unrealized appreciation (depreciation) on investments, net
            
            
            1,278,694
            
            
            535,000Net
                realized gain (loss) on investments
            
            
            (2,620,117
            )
            
            -Deferred
                income tax
            
            
            -
            
            
            227,164Depreciation
                and amortization
            
            
            615
            
            
            2,165Bad
                debt expense
            
            
            -
            
            
            5,643(Increase)
                decrease in:Prepaid
                expenses
            
            
            (1,803
            )
            
            -Accounts
                receivable
            
            
            (86,308
            )
            
            (10,552
            )Stock
                subscription receivable
            
            
            -
            
            
            (5,769
            )Other
                assets
            
            
            254,207
            
            
            -Deposits
            
            
            -
            
            
            4,428Goodwill
            
            
            489,000
            
            
            -Other
            
            
            62,729Increase
                (decrease) in accounts payableand
                accrued expenses
            
            
            535,345
            
            
            (152,507
            )Net
                cash (used in) operating activities
            
            
            (3,912,253
            )
            
            (1,073,232
            )Investing
                activities:Decrease
                in notes receivable
            
            
            439,732
            
            
            (636,697
            )Loss
                on disposition of assets
            
            
            9,043
            
            
            3,055Purchase
                of property and equipment
            
            
            -
            
            
            (9,933
            )Purchase
                of investments, portfolio companies
            
            
            -
            
            
            (158,171
            )Net
                cash provided by (used in) investing activities
            
            
            448,775
            
            
            (801,746
            )Financing
                activities:Proceeds
                from notes payable to related parties
            
            
            792,155
            
            
            856,000Payment
                of notes payable to related parties
            
            
            -
            
            
            (65,000
            )Payment
                of notes payable
            
            
            -
            
            
            (394,641
            )Issuance
                of common stock, net
            
            
            2,654,665
            
            
            1,086,241Issuance
                of preferred stock
            
            
            -
            
            
            10,000Net
                cash provided by financing activities
            
            
            3,446,820
            
            
            1,492,600Net
                (decrease) in cash and cash equivalents
            
            
            (16,658
            )
            
            (382,378
            )Cash,
                beginning of period
            
            
            31,034
            
            
            431,355Cash,
                end of period
            
            $
            14,376
            
            $
            48,977




See
      accompanying notes


20




SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A
                - Cali Holdings, Inc.)




NOTES
      TO
      FINANCIAL STATEMENTS




Unaudited




March
      31,
      2006




NOTE
      A
      - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Company
      Activities




Sovereign
      Exploration Associates International, Inc. (the "Company") was incorporated
      in
      the state of Utah in 1980. The company was formerly known as CALI Holdings,
      Inc.
      On October 26, 2005 the Company changed its name from CALI Holdings, Inc. to
      Sovereign Exploration Associates International, Inc.




On
      January 5, 2004 the Company's shareholders consented to the proposal to allow
      the Company to adopt business development company ("BDC") status under the
      Investment Company Act of 1940 ("1940 Act"). A BDC is a specialized type of
      Investment Company under the 1940 Act. A BDC may primarily be engaged in the
      business of furnishing capital and managerial expertise to companies that do
      not
      have ready access to capital through conventional financial channels; such
      companies are termed "eligible portfolio companies". The Company as a BDC,
      may
      invest in other securities, however such investments may not exceed 30% of
      the
      Company's total asset value at the time of such investment. The Company filed
      its BDC election with the SEC (Form N-54A) on January 13, 2004. The Company
      provides equity and long-term debt financing to small and medium-sized private
      companies. The Company's investment objective is to achieve long-term capital
      appreciation in the value of its investments and to provide current income
      primarily from interest, dividends and fees paid by its portfolio
      companies.




Basis
      of Presentation




Different
      accounting principles are used in the preparation of financial statements of
      a
      business development company under the Investment Company Act of 1940 and
      therefore, the financial statements is presented using the guidelines outlined
      under the 1940 Act. By becoming a BDC, the Company has effected a change in
      accounting principle and no longer consolidates its investments in portfolio
      companies in accordance with Article 6 of Regulation S-X under the Securities
      Act of 1933 and Securities Act of 1934 in which a BDC does not consolidate
      portfolio company investments, including those in which it has a controlling
      interest. Certain reclassifications have been made to the March 31, 2005 and
      June 30, 2005 amounts to make them consistent with the March 31, 2006
      classifications.




Revenue
      Recognition




The
      Company recognizes revenue using the accrual method of accounting. The accrual
      method provides for a better matching of revenues and expenses. The Company
      also
      accrues interest income on loans made to various portfolio companies. The
      Company accrues the interest on such loans until the portfolio company has
      the
      necessary cash flow to repay such interest. If the Company's analysis of the
      portfolio company's performance indicates that the portfolio company may not
      have the ability to pay the interest and principal on a loan, the Company will
      make an allowance provision on that entity and in effect cease recognizing
      interest income on that loan until all principal has been paid. However, the
      Company will make exceptions to this policy if the investment is well secured
      and in the process of collection.




21




For
      certain investment companies, the Company provides management services and
      recognizes an agreed upon fixed monthly fee ("Fee Income") and expenses. Fee
      Income includes fees for services rendered by the Company to portfolio companies
      and other third parties such as diligence, structuring, transaction services,
      management services, and other advisory services. Diligence, structuring, and
      transaction services fees are generally recognized as income when services
      are
      rendered or when the related transactions are completed. Management and other
      advisory services fees are generally recognized as income as the services are
      rendered.




Use
      of
      Estimates




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions.
      These estimates and assumptions 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 these
      estimates.




Net
      (Loss) Per Common Share




Net
      (Loss) per common share is computed using the weighted average of shares
      outstanding during the periods presented in accordance with *Statement
      of Financial Accounting Standards No. 128, Earnings Per Share* .
      As
      discussed further in Notes N and O, any references to amounts per share or
      weighted average common shares have been restated to reflect reverse
      splits.




Cash
      and Cash Equivalents




Cash
      and
      cash equivalents include time deposits with original maturities of three months
      or less.




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.




Goodwill
      and Other Intangibles




The
      Company records Goodwill in accordance with *Statement
      of Financial Accounting Standards No.142, Goodwill and Other Intangible Assets.* Intangible
      assets such as goodwill are not amortized; instead the Company will review
      the
      goodwill not less frequently than annually to see if it has been impaired.
      If
      impairment occurs, it will be recorded as an expense in that period. During
      the
      nine months ending March 31, 2006, goodwill was adjusted to zero pursuant to
      the
      calculation of the divesture of the assets in Note J.


22




NOTE
      B
      - INVESTMENTS




Valuation
      of Investments




The
      most
      significant estimate inherent in the preparation of the Company's financial
      statements is the valuation of its investments and the related unrealized
      appreciation or depreciation. The Company has engaged independent business
      valuation experts to value selected portfolio companies, which will have
      significant activity in the Company's first year operating under the new
      registrant. The Board of Directors states all other portfolio companies and
      investments at fair market value, which approximates cost, as determined under
      a
      good faith standard. The Company analyzes the investments on a regular basis
      and
      records unrealized gains or losses if and when an investment significantly
      gains
      or loses market value as determined by a good faith standard.




The
      Company has investments in three (3) controlled portfolio companies as of March
      31, 2006.




·
            Historic
                Discoveries, Inc.




·
            Sovereign
                Exploration Associates International of Spain, Inc. (SEAI -
                SPAIN)




·
            Gulf
                Coast Records, LLC




The
      portfolio companies consist of Historic Discoveries, Inc. ** Artifact
      Recovery & Conservation, Inc. and Sea Research, Inc. (SR) are wholly owned
      subsidiaries of Historic Discoveries, Inc.




*Artifact
      Recovery & Conservation, Inc. (ARC)*




Artifact
      Recovery & Conservation, Inc. (ARC) has secured the rights to five (5)
      sites; several of the sites have revealed multiple ships with historic and
      intrinsic value. Currently ARC operates recovery operations on two of the five
      sites. ARC manages its own dive teams and oversees operations for contracted
      recovery teams. Management is in the process of preparing time lines and
      operating plans for the other sites.




*Sea
      Research, Inc. (SR)*




Sea
      Research, Inc. (SR) has secured the rights to seven (7) sites; several of the
      sites have revealed multiple ships with historic and intrinsic value. Currently
      SR is preparing to initiate recovery operations on one of the seven sites and
      developing timelines for the remainder of the portfolio.




*Sovereign
      Exploration Associates International of Spain, Inc. (SEAI -
      SPAIN)*




Sovereign
      Exploration Associates International of Spain, Inc. (SEAI-SPAIN) has secured
      the
      finder's rights to four (4) shipwrecks in Spain with potential historic and
      intrinsic value, thereby expanding SR's current holdings.




*Gulf
      Coast Records, LLC*




Gulf
      Coast Records, LLC is an independent record label. In 2005, Gulf Coast was
      developing record artist Glenn Cummings. There has been no activity in the
      development or promotion of this artist since September 2005. Current management
      is reviewing its options regarding this portfolio company and whether it wants
      to maintain its position or divest its holdings in the future.


23




Current
      management does not possess adequate information to determine the proper fair
      market value of this portfolio company, at this time, and has reduced the value
      of the investment and note receivable to zero. Once management receives the
      necessary information, it will update the fair market value of these assets.
      Current management is actively negotiating with the management of Gulf Coast
      Records, LLC regarding the recovery of the Company's investment.




NOTE
      C
      - FIXED ASSETS




Prior
      to
      the effective execution of the Exchange Agreement on October 17, 2005, the
      fixed
      assets of the Company consisting of computer and office equipment were sold
      pursuant to a warranty bill of sale for $10 to KMA Capital Partners Ltd. Inc
      of
      Texas.




Depreciation
      expense for the nine months ended March 31, 2006 and 2005 was $615 and $2,165,
      respectively.




Current
      management has requested the appropriate documentation from the management
      of
      KMA Capital, Ltd., in an effort to determine the effect these transactions
      had
      on shareholders and to assess any subsequent actions that may be required by
      current management.




NOTE
      D
      - STOCK ISSUED FOR SERVICES




During
      the nine months ended March 31, 2006, the Company did not issue any stock for
      services.




During
      the nine months ended March 31, 2005, prior management issued 10,000,000 shares
      of the Company's common stock for various professional consulting services.
      The
      value assigned to the above shares ($88,947) is based on the stocks' traded
      market price on or about the date the shares were issued and are included in
      professional fees.




NOTE
      E
      - UNREALIZED GAINS (LOSSES) ON INVESTMENTS




For
      the
      nine months ended March 31, 2006 and 2005, the Company recognized an unrealized
      appreciation (depreciation) on the investments of the Company in the amount
      of
      $(716,649) and $(535,000) respectively.




NOTE
      F- INCOME TAXES




At
      June
      30, 2005, the Company had approximately $6,414,480 of tax net operating loss
      carryforwards.




Pursuant
      to the Exchange Agreement dated October 17, 2005, substantial ownership of
      the
      Company was transferred and according to Internal Revenue Service Regulations,
      this is a transaction that will eliminate all of the loss carryforwards for
      federal income tax purposes starting with fiscal year ending June 30,
      2006.




NOTE
      G
      - COMMITMENTS




The
      Company leased office and operating facilities under short-term operating leases
      located in Orlando, Florida. Pursuant to the Exchange Agreement, the Company
      terminated its lease agreement for this office space. Subsequent to the Exchange
      Agreement, the Company maintains shared office space in Pennsylvania and
      Massachusetts with unrelated companies controlled by certain officers of the
      Company. There are no formal lease arrangements, however, the Company shares
      in
      the cost for these offices on a monthly basis.




Rent
      expense for the nine months ended March 31, 2006 and 2005 was $48,750 and
      $91,532, respectively.




24




NOTE
      H
      - NOTES PAYABLE






The
      following are convertible debentures as of March 31, 2006 were not converted
      as
      part of the Exchange Agreement dated October 17, 2005:




8%
                convertible debenture to an individual dated May 27, 2005 with an
                initial
                principal balance of $21,000 due no later than May 27, 2006; outstanding
                principal and interest.
            
            $
            22,5805.25%
                convertible debenture to Golden Gate Investors dated June 29, 2005
                with an
                initial principal balance of $40,000 due no later than June 29, 2008;
                outstanding principal and interest. (this convertible debenture is
                currently in dispute)
            
            $
            89,4128%
                convertible debenture to an individual dated May 18, 2005 with an
                initial
                principal balance of $35,000 due no later than May 18, 2006; outstanding
                principal and interest.
            
            $
            7,444Total
                notes payable, current
            
            $
            119,435




NOTE
      I
      - RELATED PARTY NOTES PAYABLE




As
      of
      March 31, 2006, $192,155 was owed to certain officers of the Company. These
      funds were advanced to the Company for cash flow purposes in the form of demand
      notes bearing no interest.




As
      of
      March 31, 2006, $600,000 was owed to Sea Hunt, Inc., a related party to the
      Company. $300,000 of these funds were advanced to the Company for the payment
      made on October 17, 2005 pursuant to the terms of the Exchange Agreement, and
      $300,000 of these funds were to be paid to the prior management and consulting
      firm on March 31, 2006 for the obligations under the Exchange Agreement dated
      October 17, 2005. However, the Company is currently in litigation with prior
      management and the consulting firm regarding their breach of the obligations
      under the Exchange Agreement dated October 17, 2005.




NOTE
      J
      - DIVESTITURE OF ALL PORTOLIO COMPANIES AND OTHER ASSETS




Prior
      to
      the effective execution of the Exchange Agreement on October 17, 2005, the
      Company was required to divest of all of its assets including the investment
      in
      all portfolio companies, notes receivable, and all remaining assets except
      for
      its investment in, and its note receivable due from Gulf Coast Records, LLC
      and
      other assets consisting of prepaid legal fees and security deposits of $7,375.
      As of March 31, 2006, the investment in and the note receivable due from Gulf
      Coast has been reduced to zero. Current management is actively negotiating
      with
      the management of Gulf Coast Records, LLC regarding the recovery of the
      Company's investment.




Prior
      to
      the effective date of the Exchange Agreement dated October 17, 2005, two
      separate bills of sales required the following lists of assets of the Company
      to
      be sold to KMA Capital, Ltd. of Texas for total consideration of $10 and Kairos
      Holdings, Inc. for a total consideration of $10:


25




Sold
      to KMA Capital Ltd. of Texas




·
            Sports
                Nation, Inc.


·
            Buehler
                Earth & Waterworks, LLC


·
            Brokerage
                account of CALI at NevWest


·
            TS&B
                Financial Services, Inc.


·
            Wellstone
                Acquisition Corporation


·
            TS&B
                Gaming & Entertainment Corp.


·
            TSB
                Ventures, Inc.


·
            Three
                (3) Dell notebook computers


·
            Furniture
                and fixtures


·
            Office
                and computer equipment




Sold
      to Kairos Holdings, Inc.





·
            Interest
                in and to investment in KMA Capital Partners Ltd - Nine (9) Limited
                Partnership Units




KMA
      Capital, Ltd. is owned in part by Kairos Holdings, Inc.




Prior
      to
      the execution of the Exchange Agreement on October 17, 2005, total realized
      loss
      on the divestiture of these assets of the Company was $2,525,274. This amount
      was recorded as net realized loss on investments: control investments. The
      Company does not have any information regarding the valuation of these
      companies. Prior management owns a controlling interest in the divested
      companies.




NEX2U,
      Inc. is listed as a portfolio company investment as of September 30, 2005;
      however, it was not included in either of the above referenced bills of sale
      included in the Exchange Agreement dated October 17, 2005. As of September
      30,
      2005, this portfolio company had a cost basis of $16,000. The Company has
      requested documentation from prior management regarding the transfer of NEX2U,
      Inc. to Kairos Holdings, Inc., and the consideration for such
      transfer.




On
      September 21, 2005, prior management sold the Company's 51% interest in Buehler
      Earth and Waterworks, LLC for $110,000 to Buehler's managing
      member.




Current
      management has requested the appropriate documentation from the management
      of
      KMA Capital, Ltd. and Kairos Holdings, Inc. in an effort to determine the effect
      these transactions had on shareholders.




NOTE
      K
      - EXCHANGE AGREEMENT




At
      closing of the Exchange Agreement on October 17, 2005, the Company agreed to
      pay
      to Charles Giannetto, James E, Jenkins and KMA Capital, in total the sum of
      Six
      Hundred Thousand and no/100 dollars ($600,000) in complete termination and
      release of the Executive Management contracts from Cali to Giannetto and Jenkins
      and the consulting contract of Cali to KMA. Three Hundred Thousand ($300,000)
      was paid at closing and the balance of $300,000 was to be paid on or before
      March 31, 2006. Additionally, two of the former officers of the Company, and
      a
      management consulting firm (KMA Capital Partners, Ltd.) were to receive an
      aggregate 5% of the outstanding shares of the Company, post reverse
      split.


26




Pursuant
      to the Exchange Agreement, the Company received in exchange for total
      consideration under the Exchange Agreement an interest in one controlled
      portfolio company: Historic Discoveries, Inc; ** See
      Note
      B for a description of this portfolio company. The consideration for the
      acquisition of this portfolio company was $1,861,410 in the form of obligations
      as outlined in Exhibit G of the Exchange Agreement.




Under
      the
      requirements of a BDC, management is required to recognize the fair market
      value
      of its ownership interest in its portfolio companies. As of March 31, 2006,
      management's good faith estimate of fair market value of its investment in
      Historic Discoveries, Inc. ** equals
      its cost of $1,873,010 including advances of $11,600 subsequent to the
      acquisition.




Prior
      management received consent for the transaction by the holders of 51% of the
      outstanding shares as of the date of the Exchange Agreement. Current management
      is reviewing the consent transaction to determine if all filing requirements
      were completed by prior management as they relate to the shareholder approval
      of
      this transaction.




Senior
      Security Instruments




Prior
      to
      the Exchange Agreement, there is 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 the Company's portfolio
      company, 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. is 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
      Fantome project (Fantome Cove Treasure Trove License 150, LLC. a subsidiary
      of
      ARC) sold a 2.06% equity interest for a capital investment of $412,000, and
      the
      LeChameau project (Interspace Explorations, LLC, a subsidiary of ARC) sold
      a
      26.0% ownership interest and 40% profit participation interest for
      $390,000.




Management
      intends to assess the Company's liability under these agreements on a periodic
      basis. No liability has been recorded for these agreements as of March 31,
      2006.




NOTE
      L
      - STOCKHOLDERS' EQUITY




As
      of
      March 31, 2006, the authorized capital of the Company is 250,000,000,000 shares
      of common stock (with voting rights); par value $.001.




The
      Company has authorized 10,000 shares of Class A, no par, preferred stock and
      has
      issued and outstanding 10,000 shares as of March 31, 2006 and 3,725,000 shares
      as of March 31, 2005, as discussed further in Note O. The Class A preferred
      stock has conversion rights to the Company's common stock (with voting rights)
      of 4-1.


27




As
      of
      March 31, 2006, the Company has authorized and issued 10,000 shares of
      convertible Class C, .001 per share, preferred stock. The Class C preferred
      stock has conversion rights to the Company's common voting stock of 1-1. If
      at
      any time or time to time, there is a capital reorganization of the common stock
      (reverse split, forward split, etc.) the number of Class C preferred stock
      authorized, issued and outstanding, and the number of shares of common stock
      into which such Class C preferred shall not be entitled to vote such shares
      (except as otherwise expressly provided herein or as required by law, voting
      together with the common stock as a single class), but shall be entitled to
      notice of any stockholders' meeting in accordance with the Company's bylaws.
      In
      lieu of voting rights, the holders of Class C preferred, voting as a class
      shall
      be entitled to elect two of the Board of Directors at each meeting.




The
      investment in Historic Discoveries, Inc. ** and
      the
      investment in Sovereign Exploration Associates of Spain Inc., individually
      and
      in total of the two investments, exceed 25% of the total investments, at fair
      value, reflected in the financial statements presented herein.




As
      of
      March 31, 2006, the Company has authorized but not issued 10,000 shares of
      Class
      D, no par, preferred stock. As of the date of this report no preferred shares
      have been converted to common stock.




ISSUANCE
      OF STOCK




On
      October 5, 2005, the prior management issued 800,000 shares of restricted common
      stock (with voting rights) to KMA Capital Partners, Ltd. The Company is in
      dispute with prior management and related consulting firm, over the subsequent
      sale of 400,000 shares of this restricted stock. The Company does not possess
      any documentation, nor does it have any knowledge regarding the consideration
      for which these shares were issued to KMA Capital Partners, Ltd. The Company
      has
      requested documentation for the issuance of these shares and this matter is
      part
      of the ongoing litigation with the prior management.




On
      October 14, 2005, the prior management issued the 556,166,667 common shares
      (556,166 common shares post reverse split of January 17, 2006) referred to
      in
      Note H of the September 30, 2005 Form 10-Q to Sequoia International, Inc. and
      therefore, has satisfied the Escrow Agreement with Sequoia International, Inc. *"Escrow
      Agreement with Sequoia International, Inc. in which the Company has received
      $166,850 and will in turn disburse 556,166,667 shares into an escrow account
      at
      the discretion of Sequoia."*




On
      October 14, 2005, the prior management issued the 191,700,000 common shares
      (191,700 common shares post reverse split of January 17, 2006) referred to
      in
      Note H of the September 30, 2005 Form 10-Q to an individual and therefore,
      has
      satisfied the Escrow Agreement with that individual. *"Escrow
      Agreement with an individual in which the Company has received $95,850 and
      will
      in turn disburse 191,700,000 shares into an escrow account at the discretion
      of
      the individual"*




On
      December 26, 2005, the Company issued 100,000 shares of common stock for 100%
      ownership of the stock of Sea Quest, Inc. Sea Quest, Inc. is a wholly owned
      subsidiary of Sea Research, Inc. Sea Quest, Inc. was owned 50% by a private
      unrelated individual and 50% owned by Sea Hunt Holding, LLC, which is owned
      by
      the Chairman of the Company.




On
      January 17, 2006, the Board of Directors authorized a 1,000 to 1 reverse stock
      split of the Company's $.001 par value common stock. As a result of the reverse
      split, 2,535,359,053 shares were returned to the Company and additional paid
      in
      capital was increased by $2,535,359.


28




Pursuant
      to the Exchange Agreement, the owners of the stock of Historic Discoveries,
      Inc *.* and Sea
      Hunt, Inc. collectively were to receive 90% of the outstanding shares of the
      Company, post reverse split.




Two
      of
      the former officers of the Company, and a management consulting firm (KMA
      Capital Partners, Ltd.) collectively were to receive an aggregate 5% of the
      outstanding shares of the Company, post reverse split.




Due
      to
      the activities and transactions of prior management and the consulting firm,
      the
      Company did not issue additional shares to prior management and the consulting
      firm pursuant to the Exchange Agreement, and as a result, the public
      shareholders now own 8.47% of the outstanding shares. The Company reduced the
      amount of the shares due to the former officers and the consulting firm, from
      5%
      to 1.53%, taking into account their unauthorized sale of restricted stock and
      other alleged improper activities which are the subject of the ongoing
      litigation previously mentioned.




On
      January 17, 2006, the Board of Directors cancelled the 10,000 shares of Series
      A
      Convertible Preferred Stock, no par value, and the 9,990 shares of Series C
      Convertible Preferred Stock, no par value. The Series A Preferred shares were
      partially owned by the prior management (3,750 shares) and indirectly owned
      by
      the Company through its portfolio company Historic Discoveries, Inc *.* (6,250
      shares). Pursuant to the Exchange Agreement, the Company had the authority
      to
      cancel and retire the shares of prior management. The Company determined that
      it
      was in the best interests of the Company's shareholders to cancel and retire
      all
      issued and outstanding shares of Series A Convertible Preferred
      Stock.




All
      references in the accompanying financial statements to the number of common
      shares and per share amounts for 2006 and 2005 have been restated to reflect
      the
      reverse stock split.




NOTE
      M
      - CONCENTRATION OF CREDIT RISK




Financial
      instruments, which potentially expose the Company to concentrations of credit
      risk, consist principally of cash, investments in portfolio companies, and
      notes
      receivable.




As
      of
      March 31, 2006, the Company maintains its cash accounts with financial
      institutions located in Pennsylvania. Federal Deposit Insurance Corporation
      (FDIC) guarantees the Company's deposits in financial institutions up to
      $100,000 per account.




The
      Company's deposits with financial institutions that exceeded federally insured
      guarantees amounted to $0 as of March 31, 2006. Historically, the Company has
      not experienced any losses on its deposits in excess of federally insured
      guarantees.




As
      of
      March 31, 2006, the fair value of the investment in Historic Discoveries,
      Inc *.* or
      $1,873,010 is approximately 69.19% of the total investments, at fair value,
      of
      $2,707,070.




The
      investment in Historic Discoveries, Inc. and the investment in Sovereign
      Exploration Associates of Spain Inc., individually and in total of the two
      investments, exceed 25% of the total investments, at fair value which
      approximates cost, reflected in the financial statements presented herein.




As
      of
      March 31, 2006, a note receivable in the amount of $832,849 (offset by an
      allowance to reduce the market value of this note and investment to zero from
      Gulf Coast Records is included in Investments in and advances to affiliates
      in
      the accompanying balance sheet. Current management is reviewing its options
      regarding this portfolio company and whether it wants to maintain its position
      or divest its holdings in the future, while actively negotiating with the
      management of Gulf Coast Records, LLC regarding the recovery of the Company's
      investment. The Company has recently received information from the management
      of
      Gulf Coast Records, LLC that has caused the Company to reduce the fair market
      value to zero at this time.




29




NOTE
      N
      - REVERSE STOCK SPLITS




On
      January 17, 2006, the Board of Directors authorized a 1,000 to 1 reverse stock
      split of the Company's $.001 par value common stock. As a result of the reverse
      split, 2,535,359,053 shares were returned to the Company and additional paid
      in
      capital was increased by $2,535,359. All references to the accompanying
      financial statements to the number of common shares and per share amounts for
      2005 and 2004 have been restated to reflect the reverse stock split.




On
      April
      4, 2005, the Board of Directors authorized a 100 to 1 reverse stock split of
      the
      Company's $.001 par value common stock. As a result of the reverse split,
      962,151,879 shares were returned to the Company and additional paid in capital
      was increased by $962,152.




On
      August
      13, 2004, the Board of Directors authorized a 40 to 1 reverse stock split of
      the
      Company's $.001 par value common stock. As a result of the reverse split,
      473,185,733 shares were returned to the Company and additional paid in capital
      was increased by $473,186. All references in the accompanying financial
      statements to the number of common shares and per share amounts for 2005 and
      2004 have been restated to reflect the reverse stock split.




NOTE
      O: RELATED PARTY TRANSACTONS




As
      of
      March 31, 2006, the following is a listing of all related party transactions
      and/or relationships of the Company:




OFFICERS
      LOANS




As
      of
      March 31, 2006, $192,155 was owed to certain officers of the Company. These
      funds were advanced to the Company for cash flow purposes in the form of demand
      notes bearing no interest.




RELATED
      PARTY NOTE PAYABLE TO SEA HUNT, INC.




As
      of
      March 31, 2006, $600,000 was owed to Sea Hunt, Inc., a related party of the
      Company. $300,000 of these funds were advanced to the Company for the payment
      made on October 17, 2005 pursuant to the terms of the Exchange Agreement, and
      $300,000 of these funds were to be paid to the prior management and consulting
      firm on March 31, 2006 for the obligations under the Exchange Agreement dated
      October 17, 2005. However, the Company is currently in litigation with prior
      management and the consulting firm regarding their breach of the obligations
      under the Exchange Agreement dated October 17, 2005.




SENIOR
      SECURITY INSTRUMENT - HISTORIC DISCOVERIES, INC.




Prior
      to
      the Exchange Agreement, there is 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 the Company's portfolio
      company, ** 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 *.* is 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.




30




RELATED
      PARTY OWNERSHIP OF PERMITS




The
      original owners of the permits, as discussed in Senior Security Instrument
      -
      Historic Discoveries, Inc., are the beneficial owners of the controlling
      interest in the stock of the Company received in the Exchange Agreement dated
      October 17, 2005.




OFFICERS
      AND DIRECTORS OF THE COMPANY




Certain
      officers and directors of the Company hold certain executive positions
      in ** Historic
      Discoveries, Inc. and Sea Hunt, Inc. and their respective subsidiaries.




ACQUISITION
      OF SEA QUEST, INC.




On
      December 26, 2005, the Company issued 100,000 shares of common stock for 100%
      ownership of the stock of Sea Quest, Inc. Sea Quest, Inc. is a wholly owned
      subsidiary of Sea Research, Inc. Sea Quest, Inc. was owned 50% by a private
      unrelated individual and 50% owned by Sea Hunt Holding, LLC, which is owned
      by
      the Chairman of the Company.




STOCK
      ACQUISITION - EXCHANGE AGREEMENT




Pursuant
      to the Exchange Agreement dated October 17, 2005, Sovereign Marine Explorations,
      Inc (owner of Artifact Recovery & Conservation, Inc.) and Sea Hunt, Inc.
      (owner of Sea Research, Inc.) collectively own 90% of the Company's outstanding
      common stock and 100% of the Company's Class C, Convertible Preferred
      Stock.




31


**ITEM
      2.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLANS OF OPERATIONS**





The
      following discussion should be read in conjunction with our financial statements
      and notes thereto appearing elsewhere in this report.





CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING INFORMATION:





This
      Form
      10-QSB for the quarter ended March 31, 2007 contains forward-looking statements
      within the meaning of Section 27A of the Securities Act of 1933, as amended,
      and
      Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
      statements may be identified by the use of forward-looking terminology, such
      as
      "may", "shall", "could", "expect", "estimate", "anticipate", "predict",
      "probable", "possible", "should", "continue", or similar terms, variations
      of
      those terms or the negative of those terms. The forward-looking statements
      specified in the following information have been compiled by our management
      on
      the basis of assumptions made by management and are considered by management
      to
      be reasonable. Our future operating results, however, are impossible to predict
      and no representation, guaranty, or warranty is to be inferred from those
      forward-looking statements.





The
      assumptions used for purposes of the forward-looking statements specified in
      the
      following information represent estimates of future events and are subject
      to
      uncertainty as to possible changes in economic, legislative, industry, and
      other
      circumstances. As a result, the identification and interpretation of data and
      other information and their use in developing and selecting assumptions from
      and
      among reasonable alternatives require the exercise of judgment. To the extent
      that the assumed events do not occur, the outcome may vary substantially from
      anticipated or projected results, and, accordingly, no opinion is expressed
      on
      the achievability of those forward-looking statements. No assurance can be
      given
      that any of the assumptions relating to the forward-looking statements specified
      in the following information are accurate, and we assume no obligation to update
      any such forward-looking statements.





The
      reader of this discussion, the related financial statements and notes thereto,
      and other recent Company filings should understand that the Portfolio companies,
      the Senior Management team, the Board of Directors, and the Company’s method of
      accounting upon its withdrawal of its election to be treated as a business
      development company under the Investment Company Act of 1940, have all
      materially changed.





RECENT
      DEVELOPMENTS:





REASONS
      FOR CEASING TO BE A BUSINESS DEVELOPMENT COMPANY





Following
      the change in control of Sovereign Exploration Associates International, Inc.
      (the "Company") on October 17, 2005, we determined that many of the regulatory,
      financial reporting and other requirements imposed by the 1940 Act were too
      restrictive and prevented the Company from operating in the manner in which
      it
      desires. Among these restrictions are the following:





·
            A
                BDC is an investment company and is engaged in the business of investing,
                reinvesting, owning, holding, or trading in securities. We instead
                intend
                to carry on our marine recovery and explorations business through
                subsidiaries and controlled
                companies.





·
            In
                carrying on our business, from time to time we expect to enter into
                joint
                venture and other transactions with affiliates, subject to the oversight
                and approval of the Board of Directors. BDCs generally are unable
                to enter
                into such transactions without the approval of the Securities and
                Exchange
                Commission (the "SEC"), and such approvals generally cannot be obtained
                without undue time and expense.




32




·
            BDCs
                are subject to restrictions in the 1940 Act on the type and amount
                of
                securities, other than Common Stock, that they can issue. We believe
                that
                the Company would be better served by greater flexibility in our
                capital
                structure. The closely regulated nature of BDCs causes them to be
                subject
                to greater legal and accounting
                expenses.





·
            Because
                of restrictions on the Company' ability to issue stock, we were unable
                to
                comply with the Settlement Agreement effective June 30, 2006, while
                the
                Company was a BDC. We believe that the comprehensive settlement embodied
                in the Settlement Agreement is in the Company's best
                interests.





The
      Company's Board of Directors agreed with our assessment and determined that
      it
      was no longer feasible for the Company to operate as a BDC. The appropriate
      course of action was to withdraw the Company's election to be regulated as
      a BDC
      by filing a Form N-54C with the SEC. Following the withdrawal of the election,
      the Company will continue to be a reporting company under the Exchange Act,
      but
      will be managed so that it will not be subject to the provisions of the 1940
      Act.





EFFECT
      ON SHAREHOLDERS





Upon
      the
      Company's withdrawal of its election to be treated as a BDC effective September
      2,1 2006, the Company is not subject to regulation under the 1940 Act, which
      is
      designed to protect the interests of investors in investment companies.
      Specifically, our shareholders will no longer have the following protections
      of
      the 1940 Act:





·
            We
                are not subject to the requirement in Section 61 of the1940 Act that
                we
                maintain a ratio of assets to senior securities (such as senior debt
                or
                preferred stock) of at least 200%. We will no longer be prohibited
                from
                protecting any director or officer against any liability to the Company
                or
                our shareholders arising from willful malfeasance, bad faith, gross
                negligence, or reckless disregard of the duties involved in the conduct
                of
                that person's office.





·
            Weare
                nolonger required to provide and maintain a bond issued by a reputable
                fidelity insurance company to protect the Company against larceny
                and
                embezzlement.





·
            We
                -are not required to ensure that a majority of our directors are
                persons
                who are not "interested persons," as that term is defined in section
                56 of
                the Investment Company Act, and certain persons that would be prevented
                from serving on our board if we were a BDC (such as investment bankers)
                would be able to serve on our
                board.





·
            We
                are not subject to provisions of the 1940 Act regulating transactions
                between BDCs and certain
                affiliates.





·
            We
                are not subject to provisions of the 1940 Act restricting our ability
                to
                issue shares, warrants and options.





·
            We
                will be able to change the nature of our business and fundamental
                investment policies without having to obtain the approval of our
                shareholders.





EFFECT
      ON FINANCIAL STATEMENTS AND TAX STATUS





The
      election to withdraw the Company as a BDC under the 1940 Act effective September
      21, 2006, resulted in a significant change in the Company's required method
      of
      accounting. BDC financial statement presentation and accounting utilizes the
      value method of accounting used by investment companies, which allows BDCs
      to
      recognize income and value their investments at market value as opposed to
      historical cost.




33


Operating
      companies use either the fair-value or historical-cost methods of accounting
      for
      financial statement presentation and accounting for securities held, depending
      on how the investment is classified and how long the company intends to hold
      the
      investment. Because of an absence of reliable market data as to the value of
      its
      assets, the Company has used historical cost as a proxy for fair value,
      mitigating the immediate impact of the change from fair-value to historical-cost
      accounting. In the future, however, changing our method of accounting could
      reduce the market value of our investments in privately held companies by
      eliminating our ability to report an increase in value of our holdings as they
      occur. Also, as an operating company, we will have to consolidate our financial
      statements with subsidiaries, thus eliminating the portfolio company reporting
      benefits available to BDCs.





We
      do not
      believe that the withdrawal of the Company's election to be treated as a BDC
      will have any impact on its federal income tax status, since we never elected
      to
      be treated as a regulated investment company under Subchapter M of the Internal
      Revenue Code. (Electing treatment as a regulated investment company under
      Subchapter M generally allows a qualified investment company to avoid paying
      corporate level federal income tax on income it distributes to its
      shareholders.) Instead, we have always been subject to corporate level federal
      income tax on our income (without regard to any distributions we make to our
      shareholders) as a "regular" corporation under Subchapter C of the Code.





CHANGE
      IN
      ACCOUNTING PRINCIPLE





The
      Company's financial statements for the quarter ended March 31, 2006, as
      presented herein, were prepared using the method of accounting applicable to
      investment companies, while our financial statements, as presented herein,
      for
      the nine months ended March 31, 2007, are prepared using the method of
      accounting applicable to operating companies. Our financial statements for
      these
      periods are not comparable. We have determined it is impractical to comply
      with
      the retroactive application of prior periods being presented on an operating
      and
      consolidated basis in accordance with Statement of Financial Accounting
      Standards No. 154, Accounting for Changes and Error Corrections ("FAS
      #154").





Pursuant
      to paragraph 11 of FAS #154, we have deemed it impracticable to apply the
      effects of a change in accounting principle retroactively because the following
      conditions apply as of March 31, 2007:





1.
            We
                have made every reasonable effort to apply the requirement, but are
                unable
                to do.





2.
            Retrospective
                application of the change in accounting principle requires assumptions
                about prior management's intent in prior periods that cannot now
                be
                independently substantiated.





3.
            Retrospective
                application of the change in accounting principle requires significant
                estimates of amounts, and at this time it is impossible to distinguish
                objectively information about those estimates that: (a) provides
                evidence
                of circumstances that existed on the date(s) at which those amounts
                would
                be recognized, measured, or disclosed under retrospective application,
                and
                (b) would have been available when the financial statements for that
                prior
                period were issued.





COMPARATIVE
      ANALYSIS





Since
      the
      Company does not possess the information necessary to restate the financial
      statements as of March 31, 2006, as an operating company, the following analysis
      only provides for the current year information.





REVENUES




Revenue
      for the nine months ended March 31, 2007 was $0.


34





OPERATING
      AND OTHER EXPENSES





Operating
      expenses for the nine months ended March 31, 2007 was $792,978 consisting of
      stock issued for services, salaries and wages, general and administrative
      expenses and professional fees. All of our employees, including officers, have
      agreed to a 50% reduction in their respective salaries and wages effective
      July
      01, 2006.





As
      of
      March 31, 2007, officers of the Company have agreed to reduce the amount of
      unreimbursed expenses owed to them by $204,637.





CAPITALIZED
      COSTS





The
      Company’s subsidiaries are development stage enterprises engaged in ocean
      explorations and archaeologically sensitive recoveries of artifacts, treasure
      trove and/or cargo from shipwrecks under various licenses. FAS #7 defines a
      development stage enterprise as one that is devoting substantially all of its
      efforts to establishing a new business and either planned principal operations
      have not commenced or planned principal operations have commenced but there
      has
      been no significant revenue.





As
      of
      March 31, 2007, the Company accounted for $3,364,867 of its ocean exploration and
      archaeologically sensitive recoveries of artifacts, treasure trove and/or cargo
      from shipwrecks costs
      incurred to-date as capitalized costs.





LIQUIDITY
      AND CAPITAL RESOURCES





At
      March
      31, 2007, we had an accumulated deficit of $20,351,374.





Each
      year
      diving operations for ocean
      explorations and archaeologically sensitive recoveries of artifacts, treasure
      trove and/or cargo from shipwrecks must be funded. In order to fund the 2006
      diving operations which ran from July through October 2006, in July 2006 the
      President of the Company advanced the Company $500,000 of which $265,000 was
      directly used for diving operations in Nova Scotia. The remaining funds of
      approximately $235,000 were used for working capital purposes of the Company
      primarily for legal and professional fees related to being an SEC
      registrant.





The
      net
      affect, as of June 30, 2006, of the Company’s election to withdrawal our
      business development company status pursuant to the Investment Company Act
      of
      1940 was as follows:




Additional
                paid in capital
            
            $
            (550,705
            )Deficit
            
            
            (425,068
            )Unrealized
                depreciation on investments
            
            
            1,015,273Net
                adjustments
            
            $
            39,500





As
      a
      result of the change in accounting principle because of the Company’s election
      to withdrawal its business development company election, the Company restated
      its June 30, 2006 Balance Sheet which is included in the accompanying financial
      statements.





Effective
      November 15, 2006, the Chairman of the Company advanced the Company $160,000
      under a note agreement that requires an interest rate of the lesser of 0.9%
      or
      the legal rate under Texas law and is due, in full, with principal and interest
      on November 15, 2007.


35





Effective
      November 15, 2006, the $600,000 note due to Sea Hunt, Inc. and Venture Planning,
      Inc., related parties to the Chairman of the Company, was renegotiated with
      a
      new due date of November 15, 2007 along with an interest rate of the lesser
      of
      0.9% or the legal rate under Texas law and is due, in full, with principal
      and
      interest on November 15, 2007.





NOTES
      PAYABLE





The
      convertible debenture as outlined in Note H of the accompanying financial
      statements continues to be in dispute. We have no additional information
      regarding the resolution to this disputed convertible debenture which was
      entered into by prior management before October 17, 2005. This convertible
      debenture continues to be in dispute because of issues related to the conversion
      rates. There is no additional information available from prior management at
      this time.





During
      the nine months ended March 31, 2007, the Company issued 95,851 shares of common
      stock in the settlement of the convertible notes payable with a balance
      including principal and accrued interest of $34,506.





COMMITMENTS
      AND CONTINGENCIES:





Pursuant
      to a Revenue Agreement as outlined in Exhibit B of the Exchange Agreement,
      it
      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 the Company's portfolio company, 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. is 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.





In
      March
      2007, the Company’s board of directors authorized the issuance of 10,000,000
      shares of Series A Convertible Preferred Stock. Upon issuance of these shares,
      the 20% revenue participation payable to the original owners of the permits
      will
      be exchanged for 10,000,000 shares of Series A Convertible Preferred Stock.
      The
      holders of the this Series of Convertible Preferred Stock will have conversion
      rights of 4 to 1 to common stock of the Company.


Item
      4.  Controls
      and Procedures





a)
      Evaluation of Disclosure Controls and Procedures




As
      of
      March 31, 2007, we carried out an evaluation, under the supervision and with
      the
      participation of our Chief Executive Officer and Chief Financial Officer, of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures. Based on this evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      effective in ensuring that information required to be disclosed by us in our
      periodic reports is recorded, processed, summarized and reported, within the
      time periods specified for each report and that such information is accumulated
      and communicated to our management, including our principal executive and
      principal financial officers, or persons performing similar functions, as
      appropriate to allow timely decisions regarding required
      disclosure.




36





(b)
      Changes in Internal Controls.




There
      was
      no change in our internal controls over financial reporting that has materially
      affected, or is reasonable likely to materially affect, our internal
      control  over financial reporting during the quarter covered by this
      Report.





PART
      II.  OTHER
      INFORMATION





Item
      1.  Legal
      Proceedings





On
      February 9, 2007 the Company filed suit in The Province of Nova Scotia seeking
      an application for judicial review to in effect ask the province to order the
      Nova Scotia Museum to issue the proper permits to the Company. The Company
      believes the Nova Scotia Museum acted improperly in not issuing the necessary
      permits in 2006 and should not have recognized the claims made by the United
      Kingdom. The Company believes its rights are protected under the Special Places
      Protection Act, The Treasure Act and many other acts and considerations of
      established law governing this type of permits.




On
      December 1, 2006, the Company was named in a lawsuit in Orange County, Florida; *Estate
      of Mulligan vs. Cali Holdings, Inc., Sovereign Exploration Associates
      International, Inc., TSB Holdings, Inc., James Jenkins, and Charles Gianetto,
      et
      al.* The
      Plaintiff had invested funds into one of the portfolio companies of prior
      management and has named all parties including successor corporations in the
      suit. Management also has the signed representations from prior management
      that
      no other potential lawsuits existed as of the settlement with them on June
      30,
      2006. The documentation clearly states otherwise and they were aware of this
      suit at that time. Management feels comfortable they will prevail in this suit
      based on the documentation already provided.





Item
      2.  Unregistered
      Sales of Equity Securities and Use of Proceeds





None





Item
      3.  Defaults
      upon Senior Securities





None


37





Item
      4.  Submission
      of Matters to a Vote of Security Holders





The
      Company held a special meeting of its shareholders on September 20, 2006, to
      consider a proposal for the company to withdraw its election to be a business
      development company under the 1940 Act. The withdrawal was approved by a vote
      of
      91.33% of the company's outstanding common stock, with 23,931,879 shares voted
      in favor, 20,665 shares voted against, and 252 abstentions.





Item
      5.  Other
      Information





In
      April
      2007, Martin Thorp was appointed Chief Financial Officer of the
      Company.





In
      May
      2007, Martin Thorp was appointed to the Board of Directors of the
      Company.





None.


Item
      6.  EXHIBITS





1.
            Articles
                of Incorporation are incorporated by reference to Exhibit 3(i) of
                Form
                10-K as filed electronically with the SEC on October 13,
                2006.





2.
            By-Laws
                are incorporated by reference to Exhibit 3(ii) of Form 10-K as filed
                electronically with the SEC on October 13,
                2006.





3.
            Exchange
                Agreement is incorporated by reference to Exhibit 10.1 of Form 10-K
                as
                filed electronically with the SEC on October 13,
                2006.





4.
            Settlement
                Agreement is incorporated by reference to Exhibit 10.2 of Form 10-K
                as
                filed electronically with the SEC on October 13,
                2006.





5.
            Section
                302 CEO and CFO Certification is filed herewith as
                EX-31





6.
            Section
                906 CEO and CFO Certification is filed herewith as
                EX-32





SIGNATURE





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




SOVEREIGN
                EXPLORATION ASSOCIATES INTERNATONAL, INC.Date:
                May 11, 2007
            By:
            /s/ Robert
                D.
                BacaRobert
                D. Baca
              Chief
                Executive Officer, President, and
                Director





38