U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A





(Mark One)

|**x** | **QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
    ENDED DECEMBER 31, 2005**
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------



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 ) | (I.R.S. 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:

None



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 19, 2006 was 26,203,040.



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 []

---





**SOVEREIGN
EXPLORATION ASSOCIATES INTERNATIONAL, INC.**

QUARTERLY REPORT ON
FORM 10-Q/A

FOR THE FISCAL QUARTER
ENDED DECEMBER 31, 2005



TABLE OF CONTENTS





|           | Page No                                                                                        
|---------- | -----------------------------------------------------------------------------------------------
|PART I     | FINANCIAL INFORMATION                                                                          
|Item 1.    | Financial Statements                                                                           
|           | Balance Sheets as of December 31, 2005 (Unaudited) and
    June 30, 2005                       
|           | Statement of Operations (Unaudited) Three and Six Months
    Ended December 31, 2005 and 2004  
|           | Schedule of Investments in and Advances to Affiliates (Unaudited):
    December 31, 2005       
|           | Statement of Changes in Net Assets (Unaudited): Six
    Months Ended December 31, 2005 and 2004
|           | Statement of Cash Flows (Unaudited): Six Months Ended
    December 31, 2005 and 2004           
|           | Notes to Financial Statements                                                                  
|Item 2.    | Management's Discussion and Analysis of Financial
    Condition and Results of Operations      
|Item 3.    | Quantitative and Qualitative Disclosures About Market
    Risk                                 
|Item 4.    | Control & Procedures                                                                           
|PART II    | OTHER INFORMATION                                                                              
|Item 1.    | Legal Proceedings                                                                              
|Item 2.    | Unregistered Sales of Equity Securities and Use of
    Proceeds                                
|Item 3.    | Defaults Upon Senior Securities                                                                
|Item 4.    | Submission of Matters to a Vote of Security Holders                                            
|Item 5.    | Other Information                                                                              
|Item 6.    | Exhibits                                                                                       
|           |                                                                                                
|Signatures | 41                                                                                             



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SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC.(F/K/A - Cali Holdings, Inc.)BALANCE SHEETSDecember 31, 2005
      
      June 30, 2005(unaudited)AssetsInvestments in and advances to affiliates
      $
      2,661,410
      
      $
      1,777,765Cash
      and cash equivalents
      25,130
      
      31,034Accounts receivable
      45,000
      
      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
      $ 2,738,915
      
      $ 3,010,660Liabilities and Shareholders' EquityAccounts payable and accrued expenses
      $
      307,883
      
      $
      77,989Related party note payables
      645,100
      
      -Notes payable
      117,078
      
      499,900Total liabilities
      1,070,061
      
      577,889Commitments and contingenciesShareholders' equityClass A - Preferred stock, no par value, 10,000 sharesauthorized, none issued and outstanding
      -
      
      -Class B - Preferred stock, no par value, 10,000 sharesauthorized, 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 sharesauthorized,  none issued and outstanding
      -
      
      -Common stock, $.001 par value, 250,000,000,000 sharesauthorized and 26,203,040 issued as of December31,
      2005; 2,000,000,000 shares authorized; 53,430outstanding as of June 30, 2005
      26,203
      
      53Capital in excess of par value
      20,072,488
      
      17,316,340Stock subscription receivable
      -
      
      (4,760)Accumulated undistributed net income (loss)
      (17,433,120)
      
      (14,231,534)Net
      unrealized depreciation of investments
      (1,006,717)
      
      (657,328)Total shareholders' equity
      1,668,854
      
      2,432,771Total liabilities and shareholders' equity
      $ 2,738,915
      
      $ 3,010,660Net
      asset value per share
      $ 0.0637
      
      $ 45.53


See accompanying notes

3

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|SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC.
|----------------------------------------------------
|(F/K/A - Cali Holdings, Inc.)                       
|Statements of Operations                            
|(unaudited)                                         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|OPERATING INCOME:                                   
|                                                    
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|                                                    
|                                                    
|COST
    OF GOODS SOLD                              
|                                                    
|OPERATING EXPENSES                                  
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|                                                    
|OPERATING (LOSS) BEFORE INCOME TAXES                
|                                                    
|                                                    
|NET
    OPERATING (LOSS)                            
|                                                    





See accompanying notes

4

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|SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC.
|----------------------------------------------------
|(F/K/A - Cali Holdings, Inc.)                       
|Statements of Operations, continued                 
|(unaudited)                                         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Net
    realized gain (loss) on investments         
|                                                    
|                                                    
|                                                    
|                                                    
|Net
    unrealized (depreciation) on investments    
|                                                    
|                                                    
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|                                                    
|                                                    
|                                                    
|NET
    INCOME (LOSS) BEFORE MINORITY INTEREST      
|                                                    
|                                                    
|                                                    
|                                                    
|NET
    DECREASE IN NET ASSETS                      
|                                                    
|                                                    
|NET
    OPERATING LOSS PER COMMON SHARE:            
|                                                    
|                                                    
|                                                    
|NET
    LOSS PER COMMON SHARE                       
|                                                    
|                                                    
|                                                    
|WEIGHTED AVERAGE SHARES OF COMMON                   
|                                                    
|                                                    
|                                                    
|                                                    
|DIVIDENDS DECLARED PER COMMON SHARE                 
|                                                    
|                                                    
|                                                    



See accompanying notes

5

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|SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC. 
|-----------------------------------------------------
|(F/K/A - Cali Holdings, Inc.)                        
|SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES
|December 31, 2005                                    
|(unaudited)                                          
|                                                     
|                                                     
|Company                                              
|                                                     
|                                                     
|Historic Discoveries, Inc.                           
|                                                     
|Sovereign
    Exploration Associates                 
|International of Spain, Inc.                         
|                                                     
|                                                     
|Gulf Coast Records, LLC                              
|                                                     
|Gulf Coast
    Records, LLC                          
|                                                     
|                                                     
|                                                     
|                                                     
|Total investments in and advances to affiliates      
|                                                     
|                                                     











See accompanying notes

6

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|SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC.
|----------------------------------------------------
|(F/K/A - Cali Holdings, Inc.)                       
|STATEMENTS OF CHANGES IN NET ASSETS                 
|(unaudited)                                         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Operations:                                         
|                                                    
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|                                                    
|                                                    
|                                                    
|                                                    
|Shareholder distributions:                          
|                                                    
|                                                    
|                                                    
|                                                    
|Capital share transactions:                         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Net
    assets beginning of period                  
|                                                    
|Net
    assets end of period                        
|                                                    
|Net
    asset value per common share                
|                                                    
|Common shares outstanding at end of period          
|                                                    
|                                                    













See accompanying notes

7

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|SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC.
|----------------------------------------------------
|(F/K/A - Cali Holdings, Inc.)                       
|STATEMENTS OF CASH FLOWS
    Unaudited              
|                                                    
|                                                    
|Operating activities:                               
|                                                    
|                                                    
|                                                    
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|                                                    
|                                                    
|                                                    
|Investing activities:                               
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|                                                    
|                                                    
|Financing activities:                               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Cash,
    beginning of period                       
|                                                    
|Cash,
    end of period                             
|                                                    
|                                                    







See accompanying notes

8

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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005

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
December 31, 2004 and June 30, 2005 amounts to make them consistent with the
December 31, 2005 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.



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.



---



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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005



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 three months ending December 31, 2005, goodwill was adjusted
to zero pursuant to the calculation of the divesture of the assets in Note J.



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.



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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005



Valuation of Investments, continued



The Company has investments in three (3) controlled portfolio
companies as of December 31, 2005.



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.



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.

---





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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005

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 six months ended December 31,
2005 and 2004 was $615 and $642, 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 six month ended December 31, 2005, the Company did
not issue any stock for services.



During the six months ended December 31, 2004, prior
management issued 12,250 shares of the Company's common stock for various
professional consulting services. The value assigned to the above shares
($52,250) 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 six months ended December 31, 2005 and 2004, the
Company recognized an unrealized loss on the Company's investments in the amount
of $716,649 and $7,071, 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 six months ended December 31, 2005 and
2004 was $36,717 and $69,778, respectively.





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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005





NOTE H - NOTES PAYABLE



The following are convertible debentures as of December 31,
2005 that 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                                                                         |  |  | $ 22,134 | 
|                                                                                                                                                                                                                                                             |  |  |          | 
|5.25% 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) |  |  | $ 87,647 | 
|                                                                                                                                                                                                                                                             |  |  |          | 
|8% 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                                                                         |  |  | $ 7,297  | 
|Total notes payable, current                                                                                                                                                                                                                                 |  |  | $117,078 | 



NOTE I - RELATED PARTY NOTES PAYABLE



As of December 31, 2005, $45,100 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 December 31, 2005, $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 December 31, 2005, 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:

---

| | SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC.
    (F/K/A - Cali
    Holdings, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS
    Unaudited
    December 31, 2005
    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 et 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.



---



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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005



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 December 31, 2005, management's good faith estimate of fair
market value of its investment in Historic Discoveries, Inc. equals its cost of
$1,861,410 as fully disclosed in the Exchange Agreement.



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 it liability under these
agreements on a periodic basis. No liability has been recorded for these
agreements as of December 31, 2005.

---



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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005



NOTE L -STOCKHOLDERS' EQUITY



As of December 31, 2005, 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 December 31,
2005 and 3,725,000 shares as of December 31, 2004, 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.



As of December 31, 2005, 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 which approximates cost, reflected in the financial statements presented
herein.



As of December 31, 2005, 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.

---





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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005



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.



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 December 31, 2005, 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 December 31, 2005.
Historically, the Company has not experienced any losses on its deposits in
excess of federally insured guarantees.



As of December 31, 2005, the fair value of the investment in
Historic Discoveries, Inc. or $1,861,400 is approximately 69.9% of the total
investments, at fair value, of $2,661,410.





---



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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005





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



As of December 31, 2005, a note receivable in the amount of
$832,849 (offset by an allowance to reduce the market value of this note and
investment to $0) 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.

NOTE N - REVERSE STOCK SPLITS

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. 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 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 - SUBSEQUENT EVENTS

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.



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.



---





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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005



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 2005 and 2004 have been
restated to reflect the reverse stock split.



NOTE P: RELATED PARTY TRANSACTONS



As of December 31, 2005, the following is a listing of all
related party transactions and/or relationships of the Company:



OFFICERS LOANS



As of December 31, 2005, $45,100 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 December 31, 2005, $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.





---





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



NOTES TO FINANCIAL
STATEMENTS

Unaudited

December 31, 2005

RELATED PARTY OWNERSHIP OF PERMITS



The original owners of the permits, as identified under
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 inHistoric Discoveries, Inc., 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 ACQUISTION - EXHANGE 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.

---



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS



The following discussion will assist in the understanding of
the Company's financial position and results of operations. The information
below should be read in conjunction with the financial statements and the notes
thereto, and the other recent Company filings describing the October 17, 2005
definitive agreement with Sovereign Exploration Associates International, Inc. (SEAI).



Among other material items, the October 17, 2005 Exchange
Agreement required CALI Holdings, Inc. to divest all its portfolio companies in
existence at the time of the execution of the Exchange Agreement, with the sole
exception of Gulf Coast Records. 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.



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, and the Board of
Directors have all materially changed.





Overview

On January 5, 2004 the Company shareholders approved 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 is a financial services company providing
financing and advisory services to small and medium-sized companies. Effective
January 5, 2004 the Company shareholders approved the proposal to allow the
Company to convert to a business development company ("BDC") under the
Investment Company Act of 1940 ("1940 Act").



The Company invests either directly in the equity of a
company through equity shares or through a debt instrument. The Company's debt
instruments usually do not have a maturity of more than five years. Interest is
either currently paid or deferred.



Investment opportunities are identified for the Company by
the management team. Investment proposals may, however, come to the Company from
many sources, and may include unsolicited proposals from the public and from
referrals from banks, lawyers, accountants and other members of the financial
community. The management team brings an extensive network of investment
referral relationships.



On October 26, 2005 the Company changed its name from CALI
Holdings, Inc. to Sovereign Exploration Associates International, Inc. ("the
Company"). In conjunction with the Company's name change and the Exchange
Agreement dated October 17, 2005, its principal offices were relocated to 503
Washington Avenue, Suite 2D, Newtown, Pennsylvania and 33 North Avenue, Suite
2B, Wakefield, MA. These offices are equipped with an integrated network of
computers for word processing, financial analysis and accounting services. The
Company believes its office space is suitable for its needs for the foreseeable
future.



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.



Portfolio Investments



The Company has investments in three (3) controlled portfolio
companies as of December 31, 2005.



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 team. 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.



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.



Dispositions of Investments



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 December 31, 2005, the investment in and the
note receivable due from Gulf Coast was reduced to zero.



Management does not possess adequate information to determine
the proper fair market value of this portfolio company, at this time. 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.



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:

| | 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.



Total loss on the divestiture of these assets of the Company
was $2,620,117; this amount was recorded as aet 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.



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.



Upon the Company's conversion to a business development
company, the Company employed independent business valuation experts to value
selected portfolio companies. The Board of Directors determined all other
portfolio companies and investments at fair market value, which approximates
cost, under a good faith standard. The Company analyzes and values each
individual investment on a quarterly basis and records unrealized depreciation
for an investment that it believes has become impaired, including where
collection of a loan or realization of an equity security is doubtful.
Conversely, the Company will record unrealized appreciation if it believes that
the underlying portfolio company has appreciated in value.



Investments in Private Companies



The Company provides privately negotiated long-term debt and
equity investment capital. The Company provides capital in the form of debt with
or without equity features, such as warrants or options, often referred to as
mezzanine financing. In certain situations the Company may choose to take a
controlling equity position in a company. The Company's private financing is
generally used to fund growth, buyouts and acquisitions and bridge financing.



As of the effective date of the Exchange Agreement dated
October 17, 2005, the Company's private finance portfolio currently includes
investments in a variety of industries including a record company and maritime
exploration and excavation services.



The Company funds new investments using cash through the
issuance of common stock. The Company intends to reinvest accrued interest,
dividends and management fees into its various investments. When the Company
acquires a controlling interest in a company, the Company may have the
opportunity to acquire the company's equity with its common stock. The issuance
of its stock as consideration may provide the Company with the benefit of
raising equity without having to access the public markets in an underwritten
offering, including the added benefit of the elimination of any underwriting
commission.



As a business development company, the Company is required to
make significant managerial assistance available to the companies in its
investment portfolio. In addition to the interest and dividends received from
the Company's private finance investments, the Company will often generate
additional fee income for the structuring, due diligence, transaction and
management services and guarantees provided to its portfolio companies.



Governmental Regulation



Business Development Company



A business development company is defined and regulated by
the 1940 Act. Although the 1940 Act exempts a business development company from
registration under the Act, it contains significant limitations on the
operations of a business development company.



A business development company must be organized in the
United States for the purpose of investing in or lending to primarily private
companies and making managerial assistance available to them. A business
development company may use capital provided by public shareholders and from
other sources to invest in long-term, private investments in businesses. A
business development company provides shareholders the ability to retain the
liquidity of a publicly traded stock, while sharing in the possible benefits, if
any, of investing in primarily privately owned companies. To qualify as a
business development company, a company must:



|* | Have registered a class of its equity securities or have
    filed a registration statement with the Securities and Exchange Commission
    pursuant to Section 12 of the Securities and Exchange Act of 1934;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | Operate for the purpose of investing in securities of
    certain types of portfolio companies, namely emerging companies and
    businesses suffering or just recovering from financial distress;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | Extend significant managerial assistance to such
    portfolio companies and;
|- | -----------------------------------------------------------------------------



|* | Have a majority of "disinterested" directors (as defined
    in the 1940 Act).
|- | ------------------------------------------------------------------------------



Generally, a business development company must be primarily
engaged in the business of furnishing capital and providing managerial expertise
to companies that do not have ready access to capital through conventional
financial channels. An eligible portfolio company is generally a domestic
company that is not an investment company (other than a small business
investment company wholly owned by a business development company), and that:



|* | Does not have a class of securities registered on an
    exchange or included in the Federal Reserve Board's over-the-counter margin
    list; or
|- | -------------------------------------------------------------------------------------------------------------------------------------------------



|* | Is actively controlled by a business development company
    and has an affiliate of a business development company on its board of
    directors; or
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|* | Meets such other criteria as may be established by the
    Securities and Exchange Commission.
|- | ----------------------------------------------------------------------------------------------



Control under the 1940 Act is presumed to exist where a
business development Company beneficially owns more than 25% of the outstanding
voting securities of the portfolio company.



The 1940 Act prohibits or restricts companies subject to the
1940 Act from investing in certain types of companies such as brokerage firms,
insurance companies, investment banking firms and investment companies.



As a business development company, the Company may not
acquire any asset other than "qualifying assets" unless, at the time the Company
makes the acquisition, the value of its qualifying assets represent at least 70%
of the value of its total assets. The principal categories of qualifying assets
relevant to our business are:



|* | Securities purchased in transactions not involving any
    public offering, the issuer of which is an eligible portfolio company;
|- | ---------------------------------------------------------------------------------------------------------------------------------



|* | Securities received in exchange for or distributed with
    respect to securities described in the bullet above or pursuant to the
    exercise of options, warrants or rights relating to such securities;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | Securities of bankrupt or insolvent companies that were
    eligible at the time of the business development company's initial
    acquisition of their securities but are no longer eligible, provided that
    the business development company has maintained a substantial portion of its
    initial investment in those companies; and
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | Cash, cash items, government securities or high quality
    debt securities (within the meaning of the 1940 Act), maturing in one year
    or less from the time of investment.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A business development company is permitted to invest in the
securities of public companies and other investments that are not qualifying
assets, but those kinds of investments may not exceed 30% of the business
development company's total asset value at the time of the investment.



As a business development company, the Company is entitled to
issue senior securities in the form of stock or senior securities representing
indebtedness, including debt securities and preferred stock, as long as each
class of senior security has asset coverage of at least 200% immediately after
each such issuance.



The Company is also prohibited under the 1940 Act from
knowingly participating in certain transactions with its affiliates without the
prior approval of its board of directors who are not interested persons and, in
some cases, prior approval by the Securities and Exchange Commission.



A business development company must make significant
managerial assistance available to the issuers of eligible portfolio securities
in which it invests. Making available significant managerial assistance means
among other things, any arrangement whereby the business development company,
through its directors, officers or employees, offers to provide and, if accepted
does provide, significant guidance and counsel concerning the management,
operation or business objectives and policies of a portfolio company.



The Company may be periodically examined by the Securities
and Exchange Commission for compliance with the 1940 Act. As of the date of this
filing the Company has not been examined by the Securities and Exchange
Commission and has not been notified of a pending examination.



As with other companies regulated by the 1940 Act, a business
development company must adhere to certain substantive regulatory requirements.
A majority of its directors must be persons who are not interested persons, as
that term is defined in the 1940 Act. Additionally, the Company is required to
provide and maintain a bond issued by a reputable fidelity insurance company to
protect it against larceny and embezzlement.



Furthermore, as a business development company, the Company
is prohibited from protecting any director or officer against any liability to
the Company or its shareholders arising from willful malfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such person's office.



The Company maintains a Code of Ethics that establishes
procedures for personal investment and restricts certain transactions by its
personnel. The Company's Code of Ethics generally does not permit investment by
its employees in securities that may be purchased or held by the Company.



The Company may not change the nature of its business so as
to cease to be, or withdraw its election as, a business development company
unless authorized by vote of a "majority of the outstanding voting securities,"
as defined in the 1940 Act, of its shares. A majority of the outstanding voting
securities of a company is defined under the 1940 Act as the lesser of: (i) 67%
or more of such company's shares present at a meeting if more than 50% of the
outstanding shares of such company are present and represented by proxy or (ii)
more than 50% of the outstanding shares of such company. Since the Company
elected to become a business development company, it has not made any
substantial change in the nature of its business.



Regulated Investment Company



The Company has not elected to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986.



Compliance with the Sarbanes-Oxley Act of 2002 and NYSE
Corporate Governance Regulations.



On July 30, 2002, President Bush signed into law the
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act
imposes a wide variety of new regulatory requirements on publicly held companies
and their insiders. Many of these requirements will affect the Company. For
example:



|* | The Company's chief executive officer and chief financial
    officer must now certify the accuracy of the financial statements contained
    in its periodic reports;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | The Company's periodic reports must disclose conclusions
    about the effectiveness of its disclosure controls and procedures;
|- | -------------------------------------------------------------------------------------------------------------------------------



|* | The Company's periodic reports must disclose whether
    there were significant changes in its internal controls or in other factors
    that could significantly affect these controls subsequent to the date of
    their evaluation, including any corrective actions with regard to
    significant deficiencies and material weaknesses; and
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | The Company may not make any loan to any director or
    executive officer and may not materially modify any existing loans.
|- | ----------------------------------------------------------------------------------------------------------------------------



The Sarbanes-Oxley Act has required the Company to review its
current policies and procedures to determine whether it complies with the
Sarbanes-Oxley Act and the new regulations promulgated thereunder. The Company
will continue to monitor its compliance with all future regulations that are
adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure
that we are in compliance.



Employees



As of December 31, 2005 the Company had five employees.



Risk Factors and Other Considerations



Investing in the Company's common stock involves a high
degree of risk. Careful consideration should be given to the risks described
below and all other information contained in this Quarterly Report, including
the financial statements and the related notes and the schedules as exhibits to
this Quarterly Report.



Limited Operating History as a Business Development Company
Which May Impair Your Ability to Assess Our Prospects.



Prior to January 2004 the Company had not operated as a
business development company under the Investment Company Act of 1940. As a
result the Company has limited operating results under this regulatory framework
that can demonstrate either its effect on its business or management's ability
to manage the Company under these frameworks. In addition, the Company's
management has no prior experience managing a business development company. The
Company cannot assure that management will be able to operate successfully as a
business development company.



Because there is generally no established market for which to
value its investments, the Company's board of directors' determination of the
value of its investments may differ materially from the values that a ready
market or third party would attribute to these investments.



Under the 1940 Act the Company is required to carry its
portfolio investments at market value, or, if there is no readily available
market value, at fair value as determined by the board. The Company is not
permitted to maintain a general reserve for anticipated loan losses. Instead,
the Company is required by the 1940 Act to specifically value each individual
investment and to record any unrealized depreciation for any asset that has
decreased in value. Since there is typically no public market for the loans and
equity securities of the companies in which it invests, the Company's board will
determine the fair value of these loans and equity securities pursuant to its
valuation policy. These determinations of fair value may necessarily be somewhat
subjective. Accordingly, these values may differ materially from the values that
would be determined by a party or placed on the portfolio if there existed a
market for our loans and equity securities.



Investments in Private Companies Involves a High Degree of
Risk.



The Company's portfolio consists of primarily long-term loans
to and investments in private companies. Investments in private businesses
involve a high degree of business and financial risk, which can result in
substantial losses and accordingly should be considered speculative. There is
generally no publicly available information about the companies in which the
Company invests, and the Company relies significantly on the due diligence of
its employees and agents to obtain information in connection with its investment
decisions. If the Company is unable to uncover all material information about
these companies, it may not make a fully informed investment decision and the
Company may lose money on its investments.



In addition, some smaller businesses have narrower product
lines and market shares than their competition, and may be more vulnerable to
customer preferences, market conditions or economic downturns, which may
adversely affect the return on, or the recovery of, the Company's investment in
such business.



The Lack of Liquidity of the Company's Privately Held
Investments may Adversely Affect Our Business.



Substantially all of the investments the Company expects to
acquire in the future will be, subject to restrictions on resale, including in
some instances, legal restrictions, or will otherwise be less liquid than
publicly traded securities. The illiquidity of these investments may make it
difficult for the Company to quickly obtain cash equal to the value at which it
records its investments if the need arises. This could cause the Company to miss
important business opportunities. In addition, if the Company were required to
quickly liquidate all or a portion of its portfolio, it may realize
significantly less than the value at which it had previously recorded its
investments.



If the Industry Sectors in which the Company's Portfolio is
Concentrated Experience Adverse Economic or Business Conditions, Our Operating
Results may be Negatively Impacted.



The Company's customer base is primarily in the recording
industry and marine exploration and excavation industry sectors. These customers
can experience adverse business conditions or risks related to their industries.
Accordingly, if the Company's customers suffer due to these adverse business
conditions or risks or due to economic slowdowns or downturns in these industry
sectors the Company will be more vulnerable to losses in its portfolio and our
operating results may be negatively impacted.



Some of these companies may be unable to obtain financing
from public capital markets or from traditional credit sources, such as
commercial banks. Accordingly, advances made to these types of customers may
entail a higher degree of risk than advances made to customers who are able to
utilize traditional credit sources. These conditions may also make it difficult
for us to obtain repayment of our loans.



Economic downturns or recessions may impair the Company's
customers' ability to repay its loans, harm its operating results.



Many of the companies in which the Company has made or will
make investments may be susceptible to economic slowdowns or recessions. An
economic slowdown may affect the ability of a company to engage in a liquidity
event. The Company's non-performing assets are likely to increase and the value
of its portfolio is likely to decrease during these periods. These conditions
could lead to financial losses in its portfolio and a decrease in its revenues,
net income and assets.



The Company's business of making private equity investments
and positioning them for liquidity events also may be affected by current and
future market conditions. The absence of an active senior lending environment
may slow the amount of private equity investment activity generally. As a
result, the pace of the Company's investment activity may slow. In addition,
significant changes in the capital markets could have an effect on the
valuations of private companies and on the potential for liquidity events
involving such companies. This could affect the amount and timing of gains
realized on its investments.



The Company's Borrowers May Default on Their Payments, Which
May Have an Effect on Financial Performance.



Some of these companies may be unable to obtain financing
from public capital markets or from traditional credit sources, such as
commercial banks. Accordingly, advances made to these types of customers may
entail a higher degree of risk than advances made to customers who are able to
utilize traditional credit sources. These conditions may also make it difficult
for the Company to obtain repayment of its loans. Numerous factors may affect a
borrower's ability to repay its loan; including the failure to meet its business
plan, a downturn in its industry, or negative economic conditions. Deterioration
in a borrower's financial condition and prospects may be accompanied by
deterioration in any related collateral.



If the Company Fails to Manage Its Growth, its Financial
Results Could be Adversely Affected.



The Company has expanded its operations and strategic
relationships at a rapid pace. The Company's growth has placed and continues to
place significant strain on its management systems and resources. The Company
must continue to refine and expand its marketing capabilities, its management of
the investing process, access to financing resources and technology. As the
Company grows, it must continue to hire, train, supervise and manage new
employees. The Company may not develop sufficient lending and administrative
personnel and management and operating systems to manage its expansion
effectively. If the Company is unable to manage its growth, operations could be
adversely affected and the financial results could be adversely affected.



The Company's Private Finance Investments May Not Produce
Current Returns or Capital Gains.



The Company's private finance investments are typically
structured as debt securities with a relatively high fixed rate of interest and
with equity features such as conversion rights, warrants or other options. As a
result, the Company's private finance investments are generally structured to
generate interest income from the time they are made and may also produce a
realized gain from an accompanying equity feature. The Company cannot be sure
that its portfolio will generate a current return or capital gain.



The Company Operates in a Competitive Market for Investment
Opportunities



The Company competes for investments with a large number of
private equity funds and mezzanine funds, investment banks and other equity and
non-equity based investment funds, and other sources of financing, including
traditional financial services companies such as commercial banks. Some of its
competitors have greater resources than the Company. Increased competition would
make it more difficult for the Company to purchase or originate investments at
attractive prices. As a result of this competition, sometimes the Company may be
precluded from making otherwise attractive investments.



Investing in the Company's Stock Is Highly Speculative and an
Investor Could Lose Some or All of the Amount Invested



The value of the Company's common stock may decline and may
be affected by numerous market conditions, which could result in the loss of
some or the entire amount invested in its shares. The securities markets
frequently experience extreme price and volume fluctuations, which affect market
prices for securities of companies generally, and very small capitalization
companies in particular. The price of its common stock may be higher or lower
than the price paid for shares, depending on many factors, some of which are
beyond the Company's control and may not be directly related to its operating
performance. These factors include the following:



|* | Price and volume fluctuations in the overall stock market
    from time to time;                                                                           
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Significant volatility in the market price and trading
    volume of securities of business development companies or other financial
    service companies;



|* | Changes in the regulatory policies or tax guidance with
    respect to business development companies;                                         
|- | -----------------------------------------------------------------------------------------------------------------------------------------------
|* | Actual or anticipated changes in the earnings or
    fluctuations of operating results or changes in the experience of securities
    analysts.



The Company's Business Depends on Key Personnel



The Company depends on the continued service of its executive
officers and other key management personnel. If the Company were to lose any of
these officers or other management personnel, such a loss could result in
inefficiencies in the Company's operations and the loss of business
opportunities. The Company does not maintain any key man life insurance on any
of its officers or employees.



The Company's Business Plan is dependent upon External
Financing which may Expose the Company to Risks Associated with Leverage



The Company will require a substantial amount of cash to
operate and grow. The Company may acquire additional capital from the following
sources:



Senior Securities. The Company intends to issue debt
securities, other evidences and preferred stock, up to the maximum amount
permitted by the 1940 Act. The 1940 Act currently permits the Company, as a
business development company, to issue debt securities and preferred stock, to
which it refers collectively as senior securities, in amounts such that the
asset coverage, as defined in the 1940 Act, is at least 200% after each issuance
of senior securities. As a result of issuing senior securities, the Company will
be exposed to the risks associated with leverage. Although borrowing money for
investments increases the potential for gain, it also increases the risk of a
loss. A decrease in the value of investments will have a greater impact on the
value of its common stock to the extent that the Company borrowed money to make
investments. There is a possibility that the costs of borrowing could exceed the
income received on the investments made with such borrowed funds. In addition,
the ability to pay dividends or incur additional indebtedness would be
restricted if asset coverage is not at least twice the Company's indebtedness.
If the value of the Company's assets declines, it might be unable to satisfy
that test. If this happens, it may be required to liquidate a portion of its
loan portfolio and repay a portion of its indebtedness at a time when a sale may
be disadvantageous. Furthermore, any amounts that the Company uses to service
its indebtedness will not be available for distributions to stockholders.



Common Stock. Because the Company is limited in its
ability to issue debt for the reasons given above, the Company is dependent on
the issuance of equity as a financing source. If the Company raises additional
funds by issuing more common stock or debt securities convertible into or
exchangeable for our common stock, the percentage ownership of its stockholders
at the time of the issuance would decrease and they may experience dilution. In
addition, any convertible or exchangeable securities issued in the future may
have rights, preferences and privileges more favorable than those of the
Company's common stock.



Securitization. In addition to issuing securities to
raise capital as described above, the Company anticipates that in the future it
will securitize loans to generate cash for funding new investments. An inability
to successfully securitize the Company's loan portfolio could limit its ability
to grow the business, fully execute the business strategy and impact its
profitability. Moreover, successful securitization of the Company's loan
portfolio might expose it to losses as the loans in which it does not plan to
sell interests will be those that are riskier and more apt to generate losses.



Shares of Closed-End Investment Companies Frequently Trade at
a Discount from Net Asset Value.



Shares of closed-end investment companies frequently trade at
a discount from net asset value. This characteristic of shares of closed-end
investment companies is separate and distinct from the risk that the Company's
net asset value per share will decline.



Changes in the Law or Regulations That Govern the Company
Could Have a Material Impact on its Operations



The Company is regulated by the Securities and Exchange
Commission. In addition, changes in the laws or regulations that govern business
development companies may significantly affect its business. Any changes in the
law or regulations that govern its business could have a material impact on
operations. The Company is subject to federal, state and local laws and
regulations and is subject to judicial and administrative decisions that affect
its operations. If these laws, regulations or decisions change, or if the
Company expands its business into jurisdictions that have adopted more stringent
requirements than those in which it currently conducts business, the Company may
incur significant expenses in order to comply or might restrict operations.



Acts of God, Hurricane, Flood, etc. May Affect Operations and
Subject the Company To Risk of Damage or Loss.



The Company and its portfolio companies could be subject to
acts of God, hurricane, fire, flood or other disaster, condition or event that
adversely affects the Company or its portfolio companies or their ability to do
business and could result in a loss of sales and revenue and impair operating
results.



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



Forward Looking Statements



This Form 10-Q/A including the Management's Discussion and
Analysis of Financial Condition and Results of Operation contains
forward-looking statements that involve substantial risk and uncertainties.
These forward-looking statements are not historical facts but rather are based
on current expectations, estimates and projections about the Company's industry,
beliefs, and assumptions. Such forward-looking statements involve risks and
uncertainties that could cause risks or outcomes to differ materially from those
expressed in the forward-looking statements. Forward-looking statements may
include without limitation statements relating to the Company's plans,
strategies, objectives, expectations and intentions and are intended to be made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks", and "estimates" and variations of these words and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties, and other factors, some of which are beyond the Company's
control and difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements
including without limitation:



|* | The state of securities markets in which the securities
    of the Company's portfolio company trade or could be traded;
|- | ------------------------------------------------------------------------------------------------------------------------
|* | The liquidity within the national financial markets;                                                                    



|* | Economic downturns or recessions may impair the Company's
    customers' ability to repay its loans and increase its non-performing
    assets;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------
|* | A contraction of available credit and/or inability to
    access the equity markets could impair its lending and investment
    activities;    



|* | The risks associated with the possible disruption in the
    Company's operations due to terrorism; and                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The risks and uncertainties described under the caption
    "Risk Factors and Other Considerations" contained in Part I, Item I, which
    is incorporated herein by reference.



Although the assumptions on which these forward looking
statements are based are reasonable, any of those assumptions also could be
incorrect. In light of these and other uncertainties, the inclusion of a
projection or forward-looking statements in this Quarterly Report should be
regarded as a representation of the Company that its plans and objectives will
be achieved. Undue reliance should not be placed on these forward-looking
statements, which apply only as of the date of this Quarterly Report.



Overview



The Company is a financial service company providing
financing and advisory services to small and medium-sized companies throughout
the United States. Effective January 5, 2004 the Company shareholders approved
the proposal to allow the Company to convert to a business development company
("BDC") under the Investment Company Act of 1940 ("1940 Act").



The Company invests either directly in the equity of a
company through equity shares or through a debt instrument. The Company's debt
instruments usually do not have a maturity of more than five years. Interest is
either currently paid or deferred.



Investment opportunities are identified for the Company by
the management team. Investment proposals may, however, come to the Company from
many sources, and may include unsolicited proposals from the public and from
referrals from banks, lawyers, accountants and other members of the financial
community. The management team brings an extensive network of investment
referral relationships.



The Company prepares its financial statements in accordance
with accounting principles generally accepted in the United States of America
for investment companies. For a summary of all of its significant accounting
policies, including the critical accounting policies, see financial statements
in Item 8.



The increasing complexity of the business environment and
applicable authoritative accounting guidance requires the Company to closely
monitor its accounting policies. The Company has identified three critical
accounting policies that require significant judgment. The following summary of
the Company's critical accounting policies is intended to enhance your ability
to assess its financial condition and results of operation and the potential
volatility due to changes in estimates.



Valuation of Investments



At December 31, 2005, 97.17% of the Company's total assets
represented investments recorded at fair value, which approximates cost. Value
as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for
those securities for which a market quotation is readily available and (ii) for
all other securities and assets, fair value is determined in good faith by the
board of directors. Since there is typically no readily ascertainable market
value for the investments in its portfolio, the Company values substantially all
of its investments at fair value as determined in good faith by the board of
directors pursuant to a valuation policy and consistent valuation process.
Because of the inherent uncertainty in determining the fair value of investments
that do not have a readily ascertainable market value, the fair value of its
investments determined in good faith by the board of directors may differ
significantly from the values that would have been used had a ready market
existed for the investments, and the differences could be material.



Initially, the fair value of each such portfolio investment
is based upon original cost. There is no single standard for determining fair
value in good faith. As a result, determining fair value requires the judgment
be applied to the specific facts and circumstances of each portfolio investment.
The Board of Directors considers fair value to be the amount which the Company
may reasonably expect to receive for portfolio securities when sold on the
valuation date. The Company analyzes and values each individual investment on a
quarterly basis, and records unrealized depreciation for an investment that it
believes has become impaired, including where collection of a loan or
realization of an equity security is doubtful. Conversely, the Company will
record unrealized appreciation if it believes that the underlying portfolio
company has appreciated in value and, therefore, the Company's equity security
has also appreciated in value. Without a readily ascertainable market value and
because of the inherent uncertainty of valuation the fair value of the Company's
investments determined in good faith by the Board of Directors may differ
significantly from the values that would have been used had a ready market
existed for the investments, and the favorable or unfavorable differences could
be material.



In the valuation process, the Company uses financial
information received monthly, quarterly, and annually from the portfolio
companies, which include both audited, and unaudited financial information
supplied by portfolio companies management. This information is used to
determine financial condition, performance and valuation of the portfolio
investments. Valuation should be reduced if a company's performance and
potential have significantly deteriorated. If the factors, which led to the
reduction in valuation, are overcome, the valuation may be restated.



Another key factor used in valuation of the equity
investments is recent arms-length equity transactions entered into by the
investment company that the Company utilizes to form a basis for its underlying
value. Many times the terms of these equity transactions may not be identical to
those of the Company and the impact on these variations as it relates to market
value may be impossible to quantify.



Any changes in estimated fair value are recorded in the
statements of operations as "Net increase (decrease) in unrealized
(depreciation) appreciation."



Valuation of Equity Securities



With respect to private equity securities, each investment is
valued using industry valuation benchmarks and then the value is assigned a
discount reflecting the illiquid nature of the investment, as well as the
Company's minority non-control positions. When an external event such as a
purchase transaction, public offering, or subsequent equity sale occurs, the
pricing indicated by the external event will be used to corroborate the
Company's private equity valuation. Securities that are traded in the
over-the-counter market or on a stock exchange will generally be valued at the
prevailing bid price on the valuation date. However, restricted and unrestricted
publicly traded securities may be valued at discounts from the public market
value due to restrictions on sale, the size of its investment or market
liquidity concerns.



Valuation of Loans and Debt Securities



As a general rule, the Company does not value its loans or
debt securities above cost, but loans and debt securities will be subject to
fair value write-down when the asset is considered impaired.



Financial Condition



The Company's assets decreased by $271,745 or 9.03% to
$2,738,915 during the six months ending December 31, 2005.



The Company's financial condition is dependent on the success
of its portfolio holdings. It has invested a substantial portion of its assets
in small and medium-sized companies. These businesses tend to be thinly
capitalized, small companies that may lack experienced management. The following
summarizes the Company's investment portfolio as of December 31, 2005.



|                                                |  | December 31, 2005 |            
|----------------------------------------------- |  | ----------------- | -----------
|                                                |  |                   |            
|Investment at Cost                              |  | $                 | 3,668,127  
|                                                |  |                   |            
|Unrealized depreciation, net                    |  |                   | (1,006,717)
|                                                |  |                   |            
|Total investments in and advances to affiliates |  | $                 | 2,661,410  



During the Company's fiscal year, the Company valued its
equity and investment holdings in accordance with the established valuation
policies (see "Valuation of Investments and Equity Holdings") above.



The cash and cash equivalents approximated .92% of net assets
as of December 31, 2005.



Results of Operations



The results of operations for the six months ended December
31, 2005 reflect the net effects of the Exchange Agreement completed on October
17, 2005.



After October 17, 2005, a new management of officers and
directors assumed control of the Company.



The financial effect of this transaction is reflected in the
financial statements for the three months ended December 31, 2005. The
accounting treatment of this transaction increased the Company's realized loss
by $(2,525,274) and increased the unrealized loss by $(558,332)



Taking into account this one time treatment of the recording
of this transaction would reduce the loss for the quarter ended and six months
ended December 31, 2005 to $(919,077) and $(1,025,701) respectively.



Dividends and Interest



Dividends and interest income on investments for the six
months ended December 31, 2005 and December 31, 2004 was $40,283 and $31,315,
respectively. The increase in interest and dividends was primarily due to the
sources of income shifting from a transactional base business to the Company
receiving interest income from its portfolio companies.



Management Fees



Management fees for the six months ended December 31, 2005
and December 31, 2004 were $425,000 and $612,482 respectively. The management
fees decreased mainly due to the sale of the Company's portfolio investments in
the last quarter. The majority of these management fees were earned by the prior
management in the quarter ending September 30, 2005.



Operating Expenses



Total operating expenses for the six months ended December
31, 2005 and December 31, 2004 was $732,094 and $1,215,453. A significant
component of total operating expenses was general and administrative expenses of
$355,389 and $545,931 for the six months ending December 31, 2005 and 2004,
respectively. The decrease in general and administrative expenses would have
been greater but for the bad debt expense of $143,232 for the non-portfolio
company assets that were written-off in October 2005 as part of the divestiture
of assets prior to the Exchange Agreement dated October 17, 2005. A second
component of total operating expenses was professional fees of $72,156 for the
six months ending December 31, 2005 and $170,463 for the six months ending
December 31, 2004. The decrease in professional fees is primarily due to the
Company using employees rather than outside consultants to complete due
diligence on potential portfolio companies.







Liquidity and Capital Resources



At December 31, 2005 and June 30, 2005, the Company had
$25,130 and $31,034 respectively in cash and cash equivalents. The Company's
objective is to have sufficient cash on hand to cover current funding
requirements and operations.



The Company expects its cash on hand and cash generated from
operations to be adequate to meet its cash needs at its current level of
operations, including the next twelve months. The Company generally funds new
investments using cash on hand and equity financing and outside investments.



Private Portfolio Company Investments



The following is a list of the private companies in which the
Company had an investment in and the fair market value which approximates cost
of such securities at December 31, 2005:





|Name of Company                                                   |  | Cost |           | FMV |  
|----------------------------------------------------------------- |  | ---- | --------- | --- | -
|                                                                  |  |      |           |     |  
|                                                                  |  |      |           |     |  
|Historic Discoveries, Inc.                                        |  | $    | 1,861,410 |     | $
|                                                                  |  |      |           |     |  
|Gulf Coast Records, LLC - Investment and Note Receivable          |  |      | 1,006,717 |     |  
|                                                                  |  |      |           |     |  
|Sovereign Exploration Associates International of Spain,
    Inc. |  |      | 800,000   |     |  
|                                                                  |  |      |           |     |  
|Total                                                             |  | $    | 3,668,127 |     | $



Item 3. Quantitative and Qualitative Disclosures About Market
Risk



The Company's investment activities contain elements of risk.
The portion of the Company's investment portfolio consisting of equity or
equity-linked debt securities in private companies is subject to valuation risk.
Because there is typically no public market for the equity and equity-linked
debt securities in which it invests, the valuation of the equity interest in the
portfolio is stated at "fair value" and determined in good faith by the Board of
Directors on a quarterly basis in accordance with the Company's investment
valuation policy.



In the absence of a readily ascertainable market value, the
estimated value of the Company's portfolio may differ significantly from the
value that would be placed on the portfolio if a ready market for the
investments existed. Any changes in valuation are recorded in the Company's
consolidated statement of operations as "Net unrealized appreciation
(depreciation) on investment".



At times a portion of the Company's portfolio may include
marketable securities traded in the over-the-counter market. In addition, there
may be a portion of the Company's portfolio for which no regular trading market
exists. In order to realize the full value of a security, the market must trade
in an orderly fashion or a willing purchaser must be available when a sale is to
be made. Should an economic or other event occur that would not allow the
markets to trade in an orderly fashion the Company may not be able to realize
the fair value of its marketable investments or other investments in a timely
manner.



As of December 31, 2005, the Company did not have any
off-balance sheet investments or hedging investments.



Impact of Inflation



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



Item 4. Control & Procedures



Evaluation of Disclosure Control and Procedures



Management, with the participation of the principal executive
officer and principal financial officer, has evaluated the effectiveness of
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the end of the period covered by this Quarterly Report on Form 10-Q/A. Based
on such evaluation, the principal executive officer and principal financial
officer have concluded that as of such date, the disclosure controls and
procedures were deficient and designed new controls and procedures to ensure
that information required to be disclosed by management in reports that are
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported with the time periods specified in applicable SEC rules and forms were
effective. The new controls designed by the principal executive officer and
principal financial officer are effective in ensuring that reports that are
filed or submitted under the Exchange Act are accurate and do not contain any
material misstatements.



Changes in Internal Control Over Financial Reporting



Subsequent to the Company's evaluation as stated above, there
have been no significant changes in internal control or in other factors that
could significantly affect those controls subsequent to our evaluation,
including corrective actions with regard to significant deficiencies and
material weaknesses.



PART II - OTHER INFORMATION



Item 1. Legal Proceedings



There are no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of its property is
subject. A debenture holder has claimed that the Company has defaulted on the
issuance of stock underlying the convertible debenture.  The Company
disputes the issuance of stock and the event of default; however, management
does not believe that the outcome of this dispute will materially affect the
Company as a result of the Company's collateral position against prior
management relating to the note. The Company is in dispute with prior management
which filed for arbitration to recover stock and the balance owed on a note. The
Company has counter-claimed, inter alia, for the return of monies paid
and breach of fiduciary duties; however, management does not believe that the
outcome of this dispute will materially affect the Company.



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



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 un-related individual and 50% owned by Sea Hunt Holding, LLC, which
is owned by the Chairman of the Company.



On October 5, 2005, the prior management issued 800,000
shares of restricted common stock to KMA Capital Partners, Ltd. 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.
Although the shares were restricted, 400,000 shares were subsequently sold in
December 2005. These shares are the subject of legal proceedings between current
and prior management.



Subsequent to the reverse split on January 17, 2006, pursuant
to the Exchange Agreement of October 17, 2005, the Company issued 11,791,368
shares of the Company's common stock to Sovereign Marine Explorations, Inc.("SME")
in exchange for its 50% interest in Historic Discoveries, Inc., and 11,791,368
to Sea Hunt, Inc. ("SH") in exchange for its 50% interest in Historic
Discoveries, Inc.Officers and directors of the Company hold certain
executive positions in Historic Discoveries, Inc., SME, and SH.



The 100,000 shares of common stock, the 800,000 shares of
common stock, and both blocks of 11,791,368 shares of common stock were issued
in reliance upon an exemption from registration pursuant to Section 4(2) of the
Securities Act. The recipients of the shares took the securities for investment
purposes without a view to distribution and had access to information concerning
the Company and its business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the purchase of
the Company's shares. The 100,000 shares of common stock were sold, and the
800,000 shares of common stock and both blocks of 11,791,368 shares of common
stock were issued only to persons with whom the Company had a direct personal
preexisting relationship, and after a thorough discussion. Finally, the
Company's stock transfer agent has been instructed not to transfer any of such
shares, unless such shares are registered for resale or there is an exemption
with respect to their transfer. All certificates representing the remaining
shares bear restrictive legends as required by the Securities Act.



Item 3. Defaults Upon Senior Securities



A debenture holder has claimed that the Company has defaulted
on the issuance of stock underlying the convertible debenture.  The Company
disputes the issuance of stock and the event of default; however, management
does not believe that the outcome of this dispute will materially affect the
Company.



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

NOT APPLICABLE



Item 5. Other Information



Effective October 17, 2005, the Company acquired all of the
shares of Historic Discoveries, Inc. pursuant to the Exchange Agreement dated
October 17, 2005 between the Company and Historic Discoveries, Inc. ("Exchange
Agreement"). Historic Discoveries, Inc., a privately held company, is a marine
exploration company headquartered in Pennsylvania. Pursuant to the Exchange
Agreement, prior management disposed of all of its existing portfolio companies
other than Gulf Coast Records LLC. 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 its investment.
Historic Discoveries, Inc. and Sea Hunt, Inc. were issued shares equal to ninety
percent of all of the issued and outstanding shares of the Company. Prior
management agreed to indemnify Historic Discoveries, Inc. from all claims for a
period of 1 year, and collateralized the indemnification with previous
management's interest in the Company's stock.



Item 6. Exhibits



|Exhibit No. | Description                                                                                                                                                            
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1        | Certification of President and Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
    the Sarbanes Oxley Act of 2002
|            |                                                                                                                                                                        
|31.2        | Certification of Chief Financial Officer pursuant to 18
    U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes
    Oxley Act of 2002              
|            |                                                                                                                                                                        
|32.1        | Certification of President and Chief Executive Officer
    pursuant to 18 U.S.C. Section 906, as adopted pursuant to Section 302 of the
    Sarbanes Oxley Act of 2002 
|            |                                                                                                                                                                        
|32.2        | Certification of Chief Financial Officer pursuant to 18
    U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
    Oxley Act of 2002              



In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





|                   |                                                      |                   
|------------------ | ---------------------------------------------------- | ------------------
|                   | Sovereign Exploration Associates International, INC.
|                   |                                                      |                   
|Date: May 19, 2006 | By:                                                  | /s/ Robert D. Baca
|                   | Robert D. Baca                                      
|                   | Chief Financial Officer                             







In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:





|                   |                                                      |                   
|------------------ | ---------------------------------------------------- | ------------------
|                   | Sovereign Exploration Associates International, INC.
|                   |                                                      |                   
|Date: May 19, 2006 | By:                                                  | /s/ Robert D. Baca
|                   | Robert D. Baca                                      
|                   | President, CEO                                      









|                   |                                                      |                   
|------------------ | ---------------------------------------------------- | ------------------
|                   | Sovereign Exploration Associates International, INC.
|                   |                                                      |                   
|Date: May 19, 2006 | By:                                                  | /s/ Robert D. Baca
|                   | Robert D. Baca                                      
|                   | Chief Financial Officer