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


**Washington,
      D.C. 20549**








**FORM
      10-Q**








**(Mark
      One)**


**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
                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: (215)860-1051




**Cali
      Holdings, Inc.7658 Municipal Dr.Orlando, FL
      32819**


(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  ̈ Nox




Indicate by check mark whether the registrant is a shell
      company (as defined by Rule 12b-2 of the Exchange
      Act).   Yes  ̈ Nox




The number of shares of the issuers common stock, $0.001
      par
      value, outstanding as of November 10, 2005 was 2,287,896,950.




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  ̈ No ̈




-1-
 *Table
          of Contents*
   Table
        of Contents
  **Part
                  I.**
              **Financial
                  Information**
              **Page**Item
                  1.
              Financial
                  Statements
              3Notes
                  to Financial Statements
              7Item  2
              Management's
                  Discussion and Analysis of Financial Condition and Results
                  Operations
              17Item
                  3.
              Quantitative
                  and Qualitative
                  Disclosures About Market Risk
              32Item
                4
              Controls
                and Procedures33**Part
                  II.**
              **Other
                  Information**Item
                  1.
              Legal
                  Proceedings
              34Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              34Item
                  3.
              Defaults
                  upon Senior Securities
              34Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              34Item
                  5.
              Other
                  Information
              34Item
                  6.
              Exhibits
              34


-2-
 *Table
            of Contents*
 
 **Item
        1. Financial Statements**


**SOVEREIGN
                    EXPLORATION ASSOCIATES INTERNATIONAL,
                    INC.****F/K/A
                    CALI HOLDINGS INC.****BALANCE
                    SHEETS****SEPTEMBER
                    30, 2005 AND JUNE 30, 2005****ASSETS**
                
                
                **09/30/05**
                
                
                **06/30/05**Cash
                
                $
                33,397
                
                $
                31,034Investments,
                    at fair value
                
                
                1,112,800
                
                
                1,076,400Accounts
                    receivable
                
                
                25,057
                
                
                3,692Other
                    assets
                
                
                129,372
                
                
                254,207Fixed
                    assets, net of accumulated depreciation
                
                
                9,023
                
                
                9,658Goodwill
                
                
                489,000
                
                
                489,000Notes
                    receivable
                
                
                1,580,437
                
                
                1,141,097Security
                    deposit
                
                
                5,572
                
                
                5,572**TOTAL
                    ASSETS**
                
                $
                3,384,658
                
                $
                3,010,660**LIABILITIES
                    AND STOCKHOLDERS' (DEFICIT)EQUITY****LIABILITIES**Accounts
                    payable and accrued expenses
                
                $
                214,610
                
                $
                77,989Notes
                    payable
                
                
                281,700
                
                
                499,900**TOTAL
                    LIABILITIES**
                
                
                496,310
                
                
                577,889**STOCKHOLDERS'
                    EQUITY**Class
                    A - Preferred stock, no par value, 10,000,000 sharesauthorized,
                    3,725,000 issued and outstanding
                
                
                -
                
                
                -Class
                    B - Preferred stock, no par value, 10,000,000 sharesauthorized,
                    none issued and outstanding
                
                
                -
                
                
                -Class
                    C - Convertible Preferred stock, $.001 par value,10,000,000
                    shares issued and outstanding
                
                
                10,000
                
                
                10,000Class
                    D - Preferred stock, no par value, 10,000,000 sharesauthorized,
                    none issued and outstanding
                
                
                -
                
                
                -Common
                    stock, $.001 par value, 2,000,000,000 sharesauthorized;
                    622,030,283 and 53,430,283 issued; and472,030,283
                    and 53,430,283 outstanding respectively
                
                
                472,030
                
                
                53,430Additional
                    paid-in capital
                
                
                17,377,563
                
                
                17,262,963Stock
                    subscription receivable
                
                
                25,240
                
                
                (4,760
                )Accumulated
                    deficit
                
                
                (14,996,485
                )
                
                (14,888,862
                )**TOTAL
                    STOCKHOLDERS' EQUITY**
                
                
                2,888,348
                
                
                2,432,771**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                $
                3,384,658
                
                $
                3,010,660
 -3-
 *Table
              of Contents*
  **SOVEREIGN
                    EXPLORATION ASSOCIATES INTERNATIONAL,
                    INC.****F/K/A
                    CALI HOLDINGS INC.****STATEMENT
                    OF OPERATIONS****FOR
                    THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND
                    2004****9/30/2005**
                
                **9/30/2004****REVENUES**
                
                $
                396,366
                
                $
                45,000**OPERATING
                    EXPENSES**Depreciation
                    and amortization
                
                
                615
                
                
                642Professional
                    fees
                
                
                48,746
                
                
                100,171General
                    and administrative
                
                
                206,884
                
                
                242,828256,245
                
                
                343,641**NET
                    OPERATING INCOME (LOSS)**
                
                
                140,121
                
                
                (298,641
                )**NET
                    UNREALIZED DEPRECIATION ON INVESTMENTS**
                
                
                (199,600
                )
                
                -**OTHER
                    INCOME (EXPENSE)**Interest
                    income
                
                
                23,515
                
                
                13,688Interest
                    expense
                
                
                (931
                )
                
                (12,151
                )Realized
                    loss on sale of investment
                
                
                (94,843
                )
                
                -Other
                
                
                24,114
                
                
                (9,219
                )(48,145
                )
                
                (7,682
                )**INCOME
                    (LOSS) BEFORE INCOME TAX**
                
                
                (107,623
                )
                
                (306,323
                )**DEFERRED
                    INCOME TAX (EXPENSE)**
                
                
                -
                
                
                -**NET
                    (LOSS)**
                
                $
                (107,623
                )
                $
                (306,323
                )**NET
                    (LOSS) PER SHARE BASIC AND FULLY DILUTED**
                
                $
                NIL
                
                $
                (2.34
                )**WEIGHTED
                    AVERAGE COMMON SHARES OUTSTANDING**
                
                
                239,140,609
                
                
                131,010
 -4-
 *Table
              of Contents*
  **SOVEREIGN
                    EXPLORATION ASSOCIATES INTERNATIONAL, INC.****F/K/A
                    CALI HOLDINGS INC.****STATEMENT
                    OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY****SEPTEMBER
                    30, 2005 AND JUNE 30, 2005****Additional**
                
                **Stock**
                
                **Accumulated****Preferred
                    Stock**
                
                **Common
                    Stock**
                
                **paid-in**
                
                **Subscription**
                
                **Income****Shares**
                
                **Par
                    Value**
                
                **Shares**
                
                **Par
                    Value**
                
                **capital**
                
                **receivable**
                
                **(Deficit)**
                
                **Total**BALANCE
                    JUNE 30, 2005
                
                
                10,000,000
                
                $
                10,000
                
                
                53,430,283
                
                $
                53,430
                
                $
                17,262,963
                
                $
                (4,760
                )
                $
                (14,888,862
                )
                $
                2,432,771STOCK
                    ISSUED FOR DEBENTURES
                
                
                -
                
                
                -
                
                
                418,600,000
                
                
                418,600
                
                
                114,600
                
                
                -
                
                
                -
                
                
                533,200STOCK
                    SUBSCRIPTION RECEIVABLE
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                30,000
                
                
                -
                
                
                30,000NET
                    LOSS
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (107,623
                )
                
                (107,623
                )BALANCE
                    SEMPTEMBER 30, 2005
                
                
                10,000,000
                
                $
                10,000
                
                
                472,030,283
                
                $
                472,030
                
                $
                17,377,563
                
                $
                25,240
                
                $
                (14,996,485
                )
                $
                2,888,348
 -5-
 *Table
            of Contents*


**SOVEREIGN
                  EXPLORATION ASSOCIATES INTERNATIONAL, INC.****F/K/A
                  CALI HOLDINGS INC.****STATEMENT
                  OF CASH FLOWS****SEPTEMBER
                  30, 2005 AND JUNE 30, 2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES:
              
              
              **9/30/2005**
              
              
              **9/30/2004**NET
                  INCOME (LOSS)
              
              $
              (107,623
              )
              $
              (306,323
              )RECONCILIATION
                  OF NET INCOME (LOSS) TO CASH FLOWS(USED
                  IN) PROVIDED BY OPERATING ACTIVITIESDepreciation
                  and amortization
              
              
              615
              
              
              642Stock
                  issued for services
              
              
              -
              
              
              52,250Unrealized
                  depreciation on investments
              
              
              199,600
              
              
              -Loss
                  on sale of investments
              
              
              94,843
              
              
              -Loss
                  on disposal of asset
              
              
              444
              
              
              -Bad
                  debt expense
              
              
              -
              
              
              5,643Investments
                  received in lieu of cash
              
              
              (345,000
              )
              
              -(Increase)
                  decrease in receivables
              
              
              (21,368
              )
              
              -(Increase)
                  decrease in other assets
              
              
              135,292
              
              
              (45,219
              )Increase
                  in accounts payable and accrued expenses
              
              
              136,623
              
              
              15,035CASH
                  FLOWS (USED IN) OPERATING ACTIVITIES
              
              
              93,426
              
              
              (277,972
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Increase
                  in notes receivable
              
              
              (439,339
              )
              
              (288,305
              )Disposition
                  of property and equipment
              
              
              -
              
              
              3,215Purchase
                  of property and equipment
              
              
              (424
              )
              
              (9,172
              )Sale
                  (purchase) of investments
              
              
              3,700
              
              
              (30,000
              )CASH
                  FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES
              
              
              (436,063
              )
              
              (324,262
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from note payable
              
              
              315,000
              
              
              100,484Proceeds
                  from stock subscription
              
              
              30,000
              
              
              -Issuance
                  of common stock
              
              
              -
              
              
              146,000CASH
                  FLOWS PROVIDED BY FINANCING ACTIVITIES
              
              
              345,000
              
              
              246,484NET
                  INCREASE (DECREASE) IN CASH
              
              
              2,363
              
              
              (355,750
              )CASH,
                  BEGINNING OF THE PERIOD
              
              
              31,034
              
              
              431,746CASH,
                  END OF THE PERIOD
              
              $
              33,397
              
              $
              75,996**Supplementary
                  Disclosure of Cash Flow Information:****Cash
                  paid during the period for:**Interest
              
              $
              10
              
              $
              12,151




-6-
 *Table
          of Contents*


**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 in a variety of industries throughout the United States.
      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 results of operations for the three months ended September 30,
      2005 and 2004 are 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.





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 and expenses.





-7-
 *Table
          of Contents*


Advertising
      Costs





Advertising
      costs, except for costs associated with direct-response advertising, are charged
      to operations when incurred.





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 Note K, any references to amounts per share or weighted
      average common shares have been restated to reflect reverse splits.





Cash
      and Cash Equivalents





For
      the
      purpose of the statement of cash flows, cash and cash equivalents includes
      time
      deposits with original maturities of three months or less.





Segments





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








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 an
      impairment occurs, it will be recorded as an expense in that period. During
      the
      three months ending September 30, 2005 and 2004, no adjustments for impairment
      to goodwill have been made.





-8-
 *Table
          of Contents*





**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.





Upon
      conversion to a BDC, the Company engaged independent business valuation experts
      to value selected portfolio companies, which had significant activity in the
      Company’s first year as a BDC. The Board of Directors states all other portfolio
      companies and investments at fair market value as determined under a good faith
      standard. The Company analyzes the investments on a regular basis and records
      unrealized gains or losses if and when an investment significantly gains or
      loses market value as determined by a good faith standard.





The
      Company has investments in 5 controlled (portfolio) corporations as of September
      30, 2005.








Sports
      Nation, Inc.





Sports
      Nation, Inc. is involved in all aspects of the sports memorabilia merchandising
      industry. Sports Nation’s management has over 50 years of combined experience in
      product development, licensing, mass merchandise, retail, and direct marketing
      & sales. Through years of specializing in sourcing and selling the finest
      caliber sports memorabilia and collectible products, Sports Nation has forged
      numerous strategic relationships with companies and individuals in sports
      marketing, including agents and athletes, manufacturers, authenticators, and
      retailers.





Sports
      Nation, Inc. is a Nevada Corporation, which is owned 100% by the
      Company.








TSB
      Financial Services, Inc.





TSB
      Financial Services, Inc. obtains financing for various commercial real estate
      transactions through strategic relationships with outside funding sources and
      provides professional consulting services to portfolio companies of SEAI, Inc.
      and other outside companies. TSB Financial
      Services, Inc. serves customers from its headquarters in Orlando,
      Florida.


TSB
      Financial Services, Inc. is a Florida Corporation, which is owned 100% by the
      Company.





TS&B
      Gaming & Entertainment Corporation





TS&B
      Gaming & Entertainment Corporation was formed on March 18, 2004 to invest in
      gaming, hotels and other ventures. TS&B Gaming & Entertainment
      Corporation has had minimal business activity through September 30,
      2005.





TS&B
      Gaming & Entertainment Corporation is a Florida corporation that is 100%
      owned by the Company.


-9-
 *Table
          of Contents*


TS
      & B Ventures, Inc.





TS
&
      B Ventures, Inc. was formed in April, 2004 to raise money from the private
      equity market. TS & B Ventures, Inc. has had minimal business activity
      through September 30, 2005.





TS
&
      B Ventures, Inc. is a Florida corporation that is 100% owned by the
      Company.





Wellstone
      Acquisition Corporation





Wellstone
      Acquisition Corporation is a non-reporting Securities and Exchange Commission
      registrant. Wellstone Acquisition had no business activity for the year ending
      September 30, 2005.





Wellstone
      Acquisition Corporation is a Delaware corporation that is owned 66 2/3% by
      the
      Company.





Other
      Investments





The
      Company has investments in three other companies as of September 30,
      2005.





Gulf
      Coast Records, LLC





Gulf
      Coast Records, LLC is an independent record label for recording artist Glenn
      Cummings. Glenn Cummings has released his debut CD “BIG” and his second single
      entitled “Good Old Days”.





Gulf
      Coast Records, LLC is a Florida Limited Liability Company in which the Company
      has a 49% limited partnership interest. In addition, the Company receives an
      ongoing monthly management fee in the amount of $5,000.





The
      Gulf
      Coast Records team includes Bryan Switzer, former manager of a major record
      label and H.L. Voelker who acted as production consultant on Glenn's
      album.





On
      June
      30, 2004 Gulf Coast Records formed Hare Scramble, LLC. Hare Scramble, LLC is
      a
      Florida Limited Liability Company involved in music publishing and is 100%
      owned
      by Gulf Coast Records, LLC.





On
      July
      27, 2005, the Company retained a legal firm to assist in filing a selling
      stockholder registration statement for its to-be-formed portfolio company Gulf
      Coast Records, Inc. and its to-be-wholly-owned subsidiary Gulf Coast Records,
      LLC. The purpose of the offering is to make Gulf Coast a separate SEC reporting
      company and to secure a qualification for quotation of its securities on the
      Over the Counter Bulletin Board.





On
      July
      28, 2005 Gulf Coast Records entered into a joint venture with Brick Agency,
      LLC
      which was recently formed by Bryan Switzer. Brick Agency is a stand alone artist
      management company that will sign Glenn Cummings and other established artists
      to management contracts.





-10-
 *Table
          of Contents*


KMA
      Capital Partners, Ltd .





KMA
      Capital Partners, Ltd. provides business consulting and financial services
      to
      small and mid-cap companies.





KMA
      Capital Partners, Ltd. is a Florida Limited Partnership in which the Company
      has
      a 25% interest.





NEX2U,
      Inc.





NEX2U
      is
      in the multimedia catalog industry.  Through
      the new patent-pending STM(TM) Technology, NEX2U takes existing print catalogs
      and transforms them into highly interactive, highly profitable direct mail
      experiences.





The
      Company owns less than 7% of the outstanding stock of NEX2U, Inc.








Dispositions
      of Investments





On
      September 21, 2005, the company sold its 51% interest in Buehler Earth and
      Waterworks, LLC for $110,000 to Buehler’s managing member.




As
      referenced in Note L, the company on October 17, 2005 divested all of its
      portfolio companies at the time of the agreement with Sovereign Exploration
      Associates International, Inc. with the exception of Gulf Coast Records, LLC
      which shall be divested upon the filing of Form SB-2.








**NOTE
      C - FIXED ASSETS**





The
      Company owns computer and office equipment with useful lives ranging from 5
      - 7
      years.


Depreciation
      expense for the three months ended September 30, 2005 and 2004 was $615 and
      $642, respectively.








**NOTE
      D - STOCK ISSUED FOR SERVICES**





During
      the three months ended September 30, 2004 the Company 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 three months ended September 30, 2005 and 2004, the Company recognized
      unrealized loss of the Company’s investments in the amount of $199,600 and $0,
      respectively.


-11-
 *Table
          of Contents*


**NOTE
      F- INCOME TAXES**





Net
      deferred tax liabilities consist of deferred taxes related to unrealized gains
      on investments at September 30, 2004. The net deferred tax asset consists of
      deferred taxes related to a receivable allowance at September 30, 2004. There
      is
      a deferred tax asset of approximately $2,026,177 due to tax net operating loss
      carryforwards reduced to zero by a valuation allowance as of September 30,
      2005
      and no deferred tax liabilities at September 30, 2005.





Deferred
                Tax Assets:
            
            **9/30/2005**
            
            **9/30/2004**Receivable
                Allowance
            
            $
            -
            
            $
            27,200Loss
                Carryforwards
            
            
            2,026,177
            
            
            1,577,650Less
                Valuation Allowance
            
            
            (2,026,177
            )
            
            (1,577,650
            )Net
                Deferred Tax Assets
            
            $
            -
            
            $
            27,200Deferred
                Tax LiabilitiesUnrealized
                Gains
            
            $
            -
            
            $
            102,524





At
      September 30, 2005, the Company has approximately $6,414,480 of tax net
      operating loss carryforwards that expire as follows:










**Expiration
                Date**
            **Amount**2022
            $2,350,4692023
            1,581,5662024
            1,486,9502025
            995,495$6,414,480




As
      discussed in Note L, the Company entered into an exchange agreement with
      Sovereign Exploration Associates International, Inc. on October 17, 2005. In
      the
      exchange, substantial ownership of the company was transferred and according
      to
      IRS Regulations, this is a transaction that will eliminate all of the loss
      carryforwards for income tax purposes.





**NOTE
      G - COMMITMENTS**





The
      Company leases office and operating facilities under short-term operating
      leases.





Rent
      expense for the three months ended September 30, 2005 and 2004 was $21,325
      and
      $49,485 respectively.




-12-
 *Table
          of Contents*


**NOTE
      H - NOTES PAYABLE**





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. As of September 30, 2005, the shares
                have
                not been issued into the escrow account.
            $95,850Escrow
                Agreement with Sequoia International, Inc. in which the Company has
                received $166,850 and will in turn disburse 556,166,667 shares into
                an
                escrow account at the discretion of Sequoia. As of September 30,
                2005, the
                shares have not been issued into the escrow account.
            166,8508%
                convertible debenture to an individual due no later than June 1,
                2006
                convertible to 50% of the closing bid price of the common stock on
                the
                date the Company issues such conversion notice.
            19,000Total
            281,700Less
                Current Portion
            (281,700)$                               
                0





The
      Company incurred $931 of interest expense for the three months ended September
      30, 2005.




-13-
 *Table
          of Contents*


**NOTE
      I - NOTES RECEIVABLE**





8%
                note receivable due from Gulf Coast Records, LLC. There is no repayment
                schedule.
            $817,949Non-interest
                bearing note receivable from Buehler Earth and Waterworks due in
                quarterly
                installments of $10,000 each quarter beginning January 1, 2006 and
                due
                every quarter until January 1, 2009.
            110,000Note
                Receivable due from KMA Capital Partners, LLC. There is no repayment
                schedule and interest accrues monthly at 8%.
            77,7985
                % note receivable from Krone-Mace, LLC due in quarterly installments
                beginning September 30, 2005. Amount due each quarter is 50% of the
                net
                revenue of Cummings Financial Services, Inc. Net revenue is defined
                as the
                gross revenues less all expenses as calculated by Cummings Financial
                Services, Inc. accountant. All payments are first applied to interest
                and
                may be prepaid without penalty. The note is due and payable in full
                on
                June 2, 2010.
            401,000Non-interest
                bearing note receivable from TSB Financial. There is no repayment
                schedule.
            21,899Non-interest
                bearing note receivable from TSB Ventures. There is no repayment
                schedule.
            763Non-interest
                bearing note receivable from TSB Gaming and Entertainment. There
                is no
                repayment schedule.
            1,0285%
                note receivable from Sovereign Marine Explorations. There is no repayment
                schedule.
            150,000Total
            $1,580,437





-14-
 *Table
          of Contents*


**NOTE
      J -**  **STOCKHOLDERS’
      EQUITY**




As
      of September 30, 2005 the authorized capital of the company is 2,000,000,000
      shares of common voting stock par value $.001 per share. On
      September 30, 2005, the Company entered into a Share Purchase and Reserve
      Agreement with Sprout Investments, LLC in which the Company, in exchange for
      $30,000, will place 150,000,000 free trading Regulation E shares in reserve
      for
      Sprout to receive at a time of their discretion. The Agreement also states
      that
      as long as the shares are held in reserve, Sprout shall not be the “beneficial
      owner” as this term is defined in the SEC Rules and Regulations. No shares had
      been transferred as of September 30, 2005. The Company recorded this transaction
      as a stock subscription in the equity section of the balance sheet. In addition,
      because of this unique transaction the Company as of September 30, 2005 has
      622,030,283 shares issued and 472,030,283 shares outstanding. The 150,000,000
      shares held in reserve for Sprout are issued but not outstanding.




The
      Company has authorized 10,000,000 shares of Class A, no par, preferred stock
      and
      has issued and outstanding 3,725,000 shares. The Class A preferred stock has
      conversion rights to the Company’s common voting stock of 4-1. The
      Company has authorized but not issued 10,000,000 shares of Class B, no par,
      preferred stock. The
      Company has authorized and
      issued 10,000,000 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
      Company has authorized but not issued 10,000,000 shares of Class D, no par,
      preferred stock.


As
      of the date of this report no preferred shares have been converted to common
      stock.








**NOTE
      K -**  **CONCENTRATION
      OF CREDIT RISK**





Financial
      instruments, which potentially expose the Company to concentrations of credit
      risk, consist principally of cash.





The
      Company maintains its cash accounts with financial institutions located in
      Florida. 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 and $0 as of September 30, 2005 and 2004,
      respectively. Historically, the Company has not experienced any losses on its
      deposits in excess of federally insured guarantees.





**NOTE
      L - REVERSE STOCK SPLITS**





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.




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.





-15-
 *Table
          of Contents*





**NOTE
      M - SUBSEQUENT EVENTS**





On
      October 14, 2005, the Company issued the 556,166,667 shares referred to in
      Note
      H to Sequoia International, Inc. and therefore, has satisfied the Escrow
      Agreement with Sequoia International, Inc.





On
      October 14, 2005, the Company issued the 191,700,000 shares referred to in
      Note
      H to
      an
      individual and
      therefore, has satisfied the Escrow Agreement with that individual.





On
      October 20, 2005 the Company executed and closed a definitive agreement with
      Sovereign Exploration Associates International, Inc. (SEAI), a marine
      exploration company headquartered in Pennsylvania. SEAI, a privately held
      company, was recently formed through the merger of Sea Research, Inc., and Artifact
      Recovery & Conservation, Inc. T he
      Company decided to strategically focus its business efforts on financing the
      recovery of shipwrecks that have cargo of historic, archeological and intrinsic
      value. SEAI brings executive management, skilled recovery teams, equipment
      and
      agreements for twelve (12) sites containing over 15 ships of historic,
      archeological and intrinsic value.





The
      agreement involved the exchange of SEAI stock for 90% of the stock of Cali
      Holdings, Inc. and pursuant thereto, SEAI became a wholly-owned subsidiary
      of
      the Company. The new management team will be comprised of key individuals from
      SEAI; Robert Baca and Curtis Sprouse of SEAI will assume the CEO and COO
      positions effective immediately. Future announcements on the SEAI web site
      will
      address current site operations along with artifacts recovered to date and
      future projects.





The
      Company had
      divested all its portfolio companies in existence at the time of execution
      of
      the Agreement, with the exception of Gulf Coast Records, LLC (GCR), which shall
      be divested by the
      Company upon the
      filing of a Form SB-2 for GCR. A Form SB-2 is being prepared for GCR, and as
      part of the closing of this agreement, the
      Company shall
      provide to SEAI a full release from any and all liability from GCR or its
      members. All of the
      Company’s portfolio companies (active or inactive) are listed in the
      Company ’s
      Form
      10K of June 30, 2005. The Bill of Sale and related documents divest the
      Company of all
      said portfolio companies.








-16-
 *Table
          of Contents*


**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 position
          and results of operations. The information below should be read in conjunction
          with the financial statements, the Company’s report on Form 10Q and the
          Company’s recently filed Form 8K describing the October 20, 2005 definitive
          agreement with Sovereign Exploration Associates International, Inc.
          (SEAI).
  Among
          other material items, the October 20, 2005 agreement required CALI Holdings,
          Inc. to divest all its portfolio companies in existence at the time of
          the
          execution of the agreement, with the sole exception of Gulf Coast Records,
          which
          shall be divested upon the filing of a Form SB-2. The agreement also required
          a
          full release from any and all liability from Gulf Coast Records.
  The
          reader of this discussion and related Form 10Q for September 30, 2005 and
          the
          recently filed Form 8K 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 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’s investments in portfolio companies typically range from $100,000 to
        $1,000,000. 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’s principal offices are located at 7658 Municipal Drive, Orlando,
        Florida. The office is equipped with an integrated network of computers for
        word
        processing, financial analysis, accounting and loan services. The Company
        believes its office space is suitable for its needs for the foreseeable
        future.
 
 On
        October 26, 2005 the Company changed its name from CALI Holdings, Inc. to Sovereign
        Exploration Associates International (SEAI), Inc. (the Company).
 The
        Company provides
        equity and long-term debt financing to small and medium-sized private companies
        in a variety of industries throughout the United States. 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 5 controlled (portfolio) companies as of September
        30, 2005.
 
 1.  Sports
        Nation, Inc.
 
 Sports
        Nation, Inc. is involved in all aspects of the sports memorabilia merchandising
        industry. Sports Nation’s management has over 50 years of combined experience in
        product development, licensing, mass merchandise, retail, and direct marketing
        & sales. Through years of specializing in sourcing and selling the finest
        caliber sports memorabilia and collectible products, Sports Nation has forged
        numerous strategic relationships with companies and individuals in sports
        marketing, including agents and athletes, manufacturers, authenticators,
        and
        retailers.
 
 Sports
        Nation, Inc. is a Nevada Corporation, which is owned 100% by the
        Company.
 
 -17-
 *Table
            of Contents*
 2.  TSB
        Financial Services, Inc.
 
 TSB
        Financial Services, Inc. obtains financing for various commercial real estate
        transactions through strategic relationships with outside funding sources
        and
        provides professional consulting services to portfolio companies and other
        outside companies. TSB Financial Services, Inc. serves customers nationally
        from
        its headquarters in Orlando, Florida.
 
 TSB
        Financial Services, Inc. is a Florida Corporation, which is owned 100% by
        the
        Company.
 
 3.
        Wellstone Acquisition Corporation
 
 Wellstone
        Acquisition Corporation is a non-reporting Securities & Exchange Commission
        registrant. This Company had no business activity for the three months ended
        September 30, 2005.
 
 Wellstone
        Acquisition Corporation is a Delaware corporation that is owned 66% by the
        Company.
 
 4.  TS&B
        Gaming and Entertainment Corporation
 
 TS&B
        Gaming and Entertainment Corporation was formed on March 18, 2004 to invest
        in
        gaming, entertainment and other such ventures. TS&B Gaming and Entertainment
        had no business activity through September 30, 2005.
 
 TS&B
        Gaming & Entertainment Corporation is a Florida corporation that is 100%
        owned by the Company.
 
 5.  TS&B
        Ventures, Inc.
 
 TS&B
        Ventures, Inc. was formed on April 16, 2004 to seek private investment into
        the
        Company’s various portfolio companies. TS&B Ventures, Inc. had no business
        activity through September 30, 2005.
 
 TS&B
        Ventures, Inc. is a Florida corporation that is 100% owned by the
        Company.
 
 *Other
        Investments*
 
 The
        Company has investments in three other companies as of September 30,
        2005.
 
 1.
              Gulf
                  Coast Records, LLC
 
 Gulf
        Coast Records, LLC, a Florida Limited Liability Company, is an independent
        record label. Currently, Gulf Coast Records is developing recording artist
        Glenn
        Cummings. Gulf Coast Records has released Glenn Cummings debut single and
        album
        entitled “BIG” and second hit single “Good Old Days.”
 
 -18-
 *Table
            of Contents*
 The
        Gulf
        Coast Records team includes Bryan Switzer, former manager of a major record
        label and H.L. Voelker who acted as production consultant on Glenn's
        album.
 
 On
        June
        30, 2004 Gulf Coast Records formed Hare Scramble, LLC. Hare Scramble, LLC
        is a
        Florida Limited Liability Company involved in music publishing and is 100%
        owned
        by Gulf Coast Records, LLC.
 
 On
        July
        27, 2005, the
        Company retained
        a legal firm to assist in filing a selling stockholder registration statement
        for its to-be-formed portfolio company Gulf Coast Records, Inc. and its
        to-be-wholly-owned subsidiary Gulf Coast Records, LLC. The purpose of the
        offering is to make Gulf Coast a separate SEC reporting company and to secure
        a
        qualification for quotation of its securities on the Over the Counter Bulletin
        Board.
 
 On
        July
        28, 2005 Gulf Coast Records entered into a joint venture with Brick Agency,
        LLC
        which was recently formed by Bryan Switzer. Brick Agency is a stand alone
        artist
        management company that will sign Glenn Cummings and other established artists
        into management contracts.
 
 2.
              KMA
                  Capital Partners, Ltd.
 
 KMA
        Capital Partners, Ltd *.* provides
        business consulting and financial services to the Company and to small and
        mid-cap companies.
 
 KMA
        Capital Partners, Ltd. is a Florida Limited Partnership in which the Company
        has
        a 25% limited partnership interest.
  3.  NEX2U,
        Inc.
 
 NEX2U
        is
        in the multimedia catalog industry.  Through
        the new patent-pending STM(TM) Technology, NEX2U takes existing print catalogs
        and transforms them into highly interactive, highly profitable direct mail
        experiences.
 
 The
        Company owns
        less than 7% of the outstanding stock of NEX2U.
 
 *Dispositions
        of Investments*
 
 On
        September 21, 2005, the company sold its 51% interest in Buehler Earth and
        Waterworks, LLC for $110,000 to Buehler’s managing member.
 
 As
        referenced in Note L, the company on October 17, 2005 divested all of its
        portfolio companies at the time of the agreement with Sovereign Exploration
        Associates International, Inc. with the exception of Gulf Coast Records,
        LLC
        which shall be divested upon the filing of Form SB-2.
  *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.
 
 -19-
 *Table
            of Contents*
 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 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.
 
 The
        Company’s private finance portfolio currently includes investments in a variety
        of industries including record company, publishing company and financial
        services and sports memorabilia.
 
 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 provide 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 we provide 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.
 
 -20-
 *Table
            of Contents*
 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.
 
 -21-
 *Table
            of Contents*
 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 Code of Ethics
        is
        filed as an exhibit to this 10Q, which will be on file at the SEC.
 
 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.
 
 -22-
 *Table
            of Contents*
 *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
        September 30, 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 Annual Report, including the financial statements
        and the related notes and the schedules as exhibits to this Annual
        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.
  -23-
 *Table
            of Contents*
 *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.
  *Investing
        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 Manufacturing and Distribution;
        Product Marketing and Sales; Financial Services; and Sports, Entertainment
&
Gaming; and Management Services 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.
  -24-
 *Table
            of Contents*
 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.
  -25-
 *Table
            of Contents*
 *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.
  -26-
 *Table
            of Contents*
 *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.
  -27-
 *Table
            of Contents*
 *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 elsew here
        in
        this Form 10-Q.
  *Forward
        Looking Statements*
  This
        Form
        10-Q 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 Annual 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 Annual 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’s investments in portfolio companies typically range from $100,000 to
        $1,000,000. 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.
 
 -28-
 *Table
            of Contents*
 *Critical
        Accounting Policies and Estimates*
 
 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 Note A to the consolidated
        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
        September 30, 2005 32.88%  of the
        Company’s total assets represented investments recorded at fair value. 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.”
  -29-
 *Table
            of Contents*
 *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 increased by $373,998 or 12.42% to $3,384,658 during the three
        months ending September 30, 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 September 30, 2005.
  September
                  30,
                  2005Investment
                  at Cost
              
              $
              560,579Unrealized
                  appreciation, net
              
              
              552,221Investment
                  at fair value
              
              $
              1,112,800
  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 1.16% of net assets as of September
        30,
        2005.
  -30-
 *Table
            of Contents*
 *Results
        of Operations*
 
 The
        results of operations for the three months ended September 30, 2005 reflect
        the
        Company’s results as a business development company under the Investment Company
        Act of 1940. The results of operations prior to January 1, 2004 reflect the
        Company’s results of operations prior to operating as a business development
        company under the Investment Company Act of 1940. The principal difference
        between these two reporting periods relate to accounting for investments.
        See
        Note A to the Financial Statements. In addition, certain prior year items
        have
        been reclassified to conform to the current year presentation as a business
        development company.
 
 *Dividends
        and Interest*
 
 Dividends
        and interest income on investments for the three months ended September 30,
        2005
        and September 30, 2004 was $23,515 and $13,688 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 three months ended September 30, 2005 and September 30, 2004
        were
        $30,000 and $45,000 respectively. The
        management fees decreased mainly due to the sale of the Company’s portfolio
        investments in the last two quarters.
 
 *Operating
        Expenses*
 
 Total
        operating expenses for the three months ended September 30, 2005 and September
        30, 2004 was $256,245 and $343,641. A
        significant component of total operating expenses was general and administrative
        expenses of $206,884 and $242,828 for the three months ending September 30,
        2005
        and 2004, respectively. The decrease in general and administrative expenses
        is
        attributable to the Company’s efficient use of its personnel and operating
        supplies. A second component of total operating expenses was professional
        fees
        of $48,746 for the three months ending September 30, 2005 and $100,171 for
        the
        three months ending September 30, 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
        September 30, 2005 and June 30, 2005, the Company had $33,397 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.
 
 
 -31-
 *Table
            of Contents*
 Private
        Portfolio Company Investments
 
 The
        following is a list of the private companies in which the Company had an
        investment in and the cost and fair market value of such securities at September
        30, 2005:
 
 
 **Name
                  of Company**
              
              **Cost**
              
              **FMV**Sports
                  Nation
              
              $
              25,000
              
              $
              46,000Gulf
                  Coast Records, LLC
              
              
              173,868
              
              
              575,000TSB
                  Financial Services, Inc.
              
              
              -
              
              
              250,000Wellstone
                  Acquisition Corporation
              
              
              632
              
              
              75,000KMA
                  Capital Partners, Ltd.
              
              
              -
              
              
              -TS
                  & B Gaming & Entertainment Corporation
              
              
              79
              
              
              1,000TS
                  & B Ventures, Inc.
              
              
              -
              
              
              600NEX2U
              
              
              361,000
              
              
              165,200Total
              
              $
              560,579
              
              $
              1,112,800
 
 **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.
 
 -32-
 *Table
            of Contents*
 As
        of
        September 30, 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 Annual Report on Form 10-K. 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 designed 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.
 
 *Changes
        in Internal Control Over Financial Reporting*
 
 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.
 
 -33-
 *Table
            of Contents*
 **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. The Company
        is in dispute with one of its debenture holders over the issuance of stock,
        but
        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**
 NOT
        APPLICABLE
 
 **Item
        3. Defaults Upon Senior Securities**
 NOT
        APPLICABLE
 
 **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 Sovereign
          Exploration Associates International, Inc. ("SEAI") pursuant to the Exchange
          Agreement dated October 17, 2005 between the Company and SEAI ("Exchange
          Agreement"). SEAI, a privately held company, is a marine exploration company
          headquartered in Pennsylvania. Pursuant to the Exchange Agreement, the
          Company
          disposed of all of its existing portfolio companies other than Gulf Coast
          Records LLC. The Company intends to divest its interests in Gulf Coast
          Records,
          LLC and is in the process of preparing a Form SB-2 registration statement.
          SEAI
          is replacing assets divested by CALI equal to or greater than those divested.
          SEAI has received a full release from Gulf Coast Records, LLC. As part
          of the
          transaction, SEAI was issued shares equal to ninety percent of all of the
          issued
          and outstanding shares of the Company. Previous management agreed to indemnify
          SEAI from 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 200231.2
              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 200232.1
              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 200232.2
              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: November
                14, 2005
              By:
              /s/ Robert
                D.
                BacaRobert
                D. BacaChief
                Financial Officer
  -34-
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            of Contents*
  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: November
                  14, 2005
                By:
                /s/ Robert
                  D.
                  BacaRobert
                  D. BacaPresident,
                  CEO
  ****
 **Sovereign
                  Exploration Associates International**,
                  INC.****Date: November
                  14, 2005
                By:
                /s/ Robert
                  D.
                  BacaRobert
                  D. BacaChief
                  Financial Officer
  -35-
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            of Contents*