UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549







FORM 10-Q











(Mark One)


þ

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





For the quarterly period ended March 31, 2010





or


o

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





For the transition period from _________ to __________.





Commission File Number 000-29461











SEAFARER EXPLORATION CORP.





(Exact name of registrant as specified in its charter)








Delaware
73-1556428(State or other jurisdiction ofincorporation or organization)
(I.R.S. Employer Identification No.)








14497 N. Dale Mabry Highway, Suite 209-N, Tampa, Florida 33618





(Address of principal executive offices)(Zip code)








(813) 448-3577


Registrant’s telephone number




















1








Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.





Yesþ Noo








Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).





Yeso Noþ





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer    o

Accelerated filer    o

Non-accelerated filer    o

Smaller reporting company    þ(Do not check if a smaller reporting company)





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





YesoNoþ





As of May 12, 2010, there were 380,758,136 shares of the registrant’s common stock, $.0001 par value per share, outstanding.



















































2


SEAFARER EXPLORATION CORP.


Form 10-Q


For the Quarterly Period Ended March 31, 2010





TABLE OF CONTENTS








PART I: FINANCIAL INFORMATION
4Item 1. Financial Statements (unaudited)
5Condensed Consolidated Balance Sheets: March 31, 2010 and December 31, 2009
5Condensed Consolidated Statements of Operations: For the three ended March 31, 2010 and 2009 and the period from inception (February 15, 2007) to March 31, 2010
6Condensed Consolidated Statements of Cash Flows: For the three months ended March 31, 2010 and 2009 and the period from inception (February 15, 2007) to March 31, 2010
7Notes to Condensed Consolidated Financial Statements
8Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
20Item 3. Quantitative and Qualitative Disclosures About Market Risk
23Item 4T. Controls and Procedures
23PART II: OTHER INFORMATION
24Item 1. Legal Proceedings
24Item 1A. Risk Factors
24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
25Item 3. Defaults Upon Senior Securities
25Item 4. Submission of Matters to a Vote of Security Holders
25Item 5. Other Information
25Item 6. Exhibits
26SIGNATURES
26
























































3


Part 1: Financial Information








Statements in this Form 10-Q Quarterly Report may be “forward-looking statements.”  Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions.  These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management.  These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.  Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those risks discussed in this Form 10-Q Quarterly Report, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other documents which we file with the Securities and Exchange Commission.





In addition, such statements could be affected by risks and uncertainties related to our financial condition, factors that affect our industry, market and customer acceptance, changes in technology, fluctuations in our quarterly results, our ability to continue and manage our growth, liquidity and other capital resource issues, competition, fulfillment of contractual obligations by other parties and general economic conditions.  Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q Quarterly Report, except as required by Federal Securities law.















































































































































4


Item 1. Financial Statements





SEAFARER EXPLORATION CORP. AND SUBSIDIARIES


(A Development Stage Company)


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)





(Unaudited)March 31, 2010



December 31, 2009ASSETSCurrent assets:Cash

$
83,651


$
1,015Notes receivable


37,534



36,705Deferred finance fees


24,315



--Deposits and other receivables


6,984



6,984Total current assets


152,484



44,704Property and equipment – net


246,461



254,585Total Assets

$
398,945


$
299,289LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)Current liabilities:Accounts payable and accrued liabilities

$
143,483


$
126,294Convertible notes payable


10,000



10,000Convertible notes payable – related parties


15,000



9,000Convertible notes payable, in default


15,300



15,300Convertible notes payable, in default – related parties


25,000



30,000Convertible note payable, at fair value


97,760



91,363Notes payable


40,000



--Notes payable – related parties


7,500



--Notes payable, in default


10,000



10,000Notes payable, in default – related parties


--



16,500Stockholder loans


31,900



33,900Total current liabilities


395,943



342,357Commitments and contingenciesMezzanine equity – common stock, par value $0.0001


41,333



129,000Stockholders’ equity (deficit):Preferred stock, $0.0001 par value –  50,000,000 shares authorized; no shares issued or outstanding at March 31, 2010 and December 31, 2009Common stock, $0.0001 par value – 500,000,000 shares authorized; 363,258,136 and 317,671,312 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively


35,566



31,767Additional paid-in capital


2,588,183



2,145,531Deficit accumulated during the development stage


(2,662,080
)


(2,349,366
)Total stockholders’ equity (deficit)


(38,331)



(172,068
)Total Liabilities and Stockholders’ Equity (Deficit)

$
398,945


$
299,289





See notes to condensed consolidated financial statements.




5




SEAFARER EXPLORATION CORP. AND SUBSIDIARIES


(A Development Stage Company)


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





February 15,2007Three months ended


(Inception) toMarch 31,


March 31,2010


2009


2010Revenue

$
--


$
--


$
--Expenses:Consulting and contractor expenses


191,656



32,892



1,716,689Vessel expenses


6,976



8,617



206,666Professional fees


51,425



13,320



211,774Travel and entertainment


3,693



7,879



145,698General and administrative expenses


7,343



6,306



137,146Rent expense


6,594



6,348



57,689Depreciation


8,124



8,125



78,539Loss on extinguishment of debt


41,500



--



41,500Other operating expenses


--



56



12,887Total operating expenses


317,311



83,543



2,608,588Loss from operations


(317,311)



(83,543)



(2,608,588)Other income (expense):Interest expense


(7,082)



(708)



(79,306)Interest income


11,679



1,870



25,814Total other income (expense)


4,597



1,162



(53,492)Net loss

$
(312,714)


$
(82,381)


$
(2,662,080)Net loss per share applicable to common stockholders — basic and diluted

$
(0.00)


$
(0.00)Shares used to compute basic and diluted net loss per share applicable to common stockholders


340,839,721



277,627,742





See notes to condensed consolidated financial statements.


































6





SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 February 15,2007Three months ended


(Inception) toMarch 31,


March 31,2010


2009


2010CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(312,714
)

$
(82,381
)

$
(2,662,080
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation


8,124



8,125



78,539Amortization of deferred finance costs


685



--



685Interest expense on issuance and fair value adjustment on convertible note payable


6,397



--



57,760Interest accrued on note receivable


(829)



--



(12,534)Write off of uncollectible deposit


--



--



20,000Loss on extinguishment of related party debt


41,500



--



41,500Stock issued for services


129,870



--



957,493Changes in operating assets and liabilities:Deposits and other receivables


--



--



(26,984
)Accounts payable and accrued liabilities


(592)



(82,832)



221,801Net cash used in operating activities


(127,559
)


(157,088
)


(1,323,820
)CASH FLOWS FROM INVESTING ACTIVITIES:Principle payments from notes receivable


--



118,130



(25,000)Acquisition of equipment


--



--



(325,000
)Net cash provided by (used in) investing activities


--



118,130



(350,000
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common stock


158,695



35,000



1,417,471Proceeds from the issuance of convertible notes


6,000



15,000



234,300Proceeds from the issuance of  notes payable


47,500



--



114,000Payments on notes payable


--



--



(40,000)Payments on loans from stockholders


(2,000)



13,500



31,700Net cash provided by financing activities


210,195



63,500



1,757,471NET INCREASE IN CASH


82,636



24,542



83,651CASH, BEGINNING OF PERIOD


1,015



474



--CASH, END OF PERIOD

$
83,651


$
25,016


$
83,651NONCASH FINANCING ACTIVITIES:Due to Organetix, Inc. reclassified to additional paid-in capital

$
--


$
--


$
91,500Common stock issued for loan financing fees

$
5,000


$
--


$
5,000Common stock issued to satisfy minimum value guarantee

$
87,667


$
--


$
87,667Convertible debt converted to common stock including accrued interest

$
65,218


$
50,000


$
188,251SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest

$
--


$
--


$
3,660
 
 
 See notes to condensed consolidated financial statements.





7
 
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


The accompanying condensed consolidated financial statements of Seafarer Exploration Corp. (“Seafarer” or the “Company”) are unaudited, but in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the Company’s financial position, results of operations, and cash flows as of and for the dates and periods presented. The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.





These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in the Company’s Transition Report on Form 10-K for the twelve months ended December 31, 2009, filed with the Securities and Exchange Commission (the “Commission”). The results of operations for the three month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2010 or for any future period.





NOTE 1 – DESCRIPTION OF BUSINESS





Seafarer Exploration Corp. (the “Company”), formerly Organetix, Inc. (“Organetix”), was incorporated on May 28, 2003 in the State of Delaware.





The principal business of the Company is to develop the infrastructure necessary to engage in the archaeologically-sensitive exploration and recovery of historic shipwrecks. During 2008, the Company changed its fiscal year end from April 30 to December 31.





The Company is in the development stage and its activities during the development stage include developing a business plan and raising capital.





In June of 2008, Seafarer Exploration, Inc. (“Seafarer Inc.”) merged with Organetix pursuant to a Share Exchange Agreement (the “Exchange Agreement”). The Exchange Agreement provided for the exchange of all of Seafarer Inc.’s common shares for 131,243,235 of Organetix post-merger common shares. Considering that Seafarer Inc.’s former stockholders controlled the majority of Organetix’s outstanding voting common stock, Seafarer Inc.’s management had actual operational control of Organetix and Organetix effectively succeeded its otherwise minimal operations to Seafarer Inc.’s operations.  Seafarer Inc. was considered the accounting acquirer in this reverse-merger transaction. A reverse-merger transaction with a non-operating public shell company is considered and accounted for as a capital transaction in substance; it is equivalent to the issuance of Seafarer Inc.’s common stock for the net monetary assets of Organetix, accompanied by a recapitalization. Accordingly, the accounting does not contemplate the recognition of unrecorded assets of the accounting acquiree, such as goodwill. On the date of the merger, Organetix was a blank-check public shell company and had no assets and no liabilities. Consolidated financial statements presented herein and subsequent to the merger reflect the consolidated financial assets and liabilities and operations of Seafarer Inc., at their historical costs, giving effect to the recapitalization, as if it had been Organetix during the periods presented.





In July of 2008, the Company changed its name from Organetix, Inc. to Seafarer Exploration Corp.





NOTE 2 - GOING CONCERN





These consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. As shown in the accompanying consolidated financial statements, the Company has incurred net losses of $2,662,080 since inception. Based on its historical rate of expenditures, the Company expects to expend its available cash in less than one month from May 21, 2010. Management's plans include raising capital through the equity markets to fund operations and eventually, the generating of revenue through its business. The Company does not expect to generate any revenues for the foreseeable future.





Failure to raise adequate capital and generate adequate revenues could result in the Company having to curtail or cease operations. The Company’s ability to raise additional capital through the future issuances of the common stock is unknown. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company's ability to continue as a going concern; however, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classifications of the liabilities that might be necessary should the Company be unable to continue as a going concern.


8
 
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





This summary of significant accounting policies of Seafarer Exploration Corp. is presented to assist in understanding the Company’s consolidated financial statements.  The consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity.  These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the consolidated financial statements.





Accounting Method





The Company’s consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.





Cash and Cash Equivalents





For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents.





Revenue Recognition





The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. For the periods ended March 31, 2010 and 2009, and for the period from inception to March 31, 2010, the Company did not report any revenues.





Earnings Per Share





The Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 260-10 which provides for calculation of "basic" and "diluted" earnings per share.  Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding for the period.  Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.  Basic and diluted losses per share were the same at the reporting dates as there were no common stock equivalents outstanding at March 31, 2010 and 2009.





Fair Value of Financial Instruments





Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157Fair Value Measurements  (“SFAS 157”), superseded by ASC 820-10, which defines fair value, establishes a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. The impact of adopting ASC 820-10 was not significant to the Company’s consolidated financial statements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:





●
Level 1 – Valuation based on quoted market prices in active markets for identical assets or liabilities.





●
Level 2 – Valuation based on quoted market prices for similar assets and liabilities in active markets.





●
Level 3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.





In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.  Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.  The valuation of our derivative liability is determined using Level 1 inputs, which consider (i) time value, (ii) current market and (iii) contractual prices.





Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2010 and 2009.  The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.  These financial instruments include cash, notes receivable, accounts payable and accrued expenses. The fair value of the Company’s debt instruments is estimated based on current rates that would be available for debt of similar terms, which is not significantly different from its stated value, except for the convertible note payable, at fair value, which has been revalued based on current market rates using Level 1 inputs.


9
 
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued


Income Taxes





The Company provides for federal and state income taxes payable, as well as for those deferred because of the timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The effect of a change in tax rates is recognized as income or expense in the period of the change. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized.





Upon inception, the Company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes (“FIN 48”), superseded by ASC 740-10. The Company did not recognize a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit as of the date of adoption. The Company did not recognize interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest related to unrecognized tax benefits in interest expense and penalties in other operating expenses.





Fixed Assets and Depreciation





Fixed assets are recorded at historical cost. Depreciation is computed on the straight-line method over the estimated useful lives of the respective assets. Currently the Company’s only asset is a diving vessel, which was purchased for $325,000 during 2008 and is being depreciated over a 10 year useful life.





Impairment of Long-Lived Assets





In accordance with ASC 360-10, the Company, on a regular basis, reviews the carrying amount of long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. The Company determines if the carrying amount of a long-lived asset is impaired based on anticipated undiscounted cash flows, before interest, from the use of the asset. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined based on appraised value of the assets or the anticipated cash flows from the use of the asset, discounted at a rate commensurate with the risk involved. There were no impairment charges recorded during the periods ended March 31, 2010 and 2009 or for the period from inception to March 31, 2010.





Employee Stock Based Compensation





The FASB issued SFAS No.123 (revised 2004),Share-Based Payment, which was superseded by ASC 718-10. ASC 718-10 provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As of March 31, 2010, the Company has not implemented an employee stock based compensation plan.





Non-Employee Stock Based Compensation





The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in EITF 96-18,Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services , which was superseded by ASC 505-50.  The Company issues compensatory shares for services including, but not limited to, executive management, accounting, archeological, operational, corporate communication and administrative consulting services.





Use of Estimates





The process of preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses.  Such estimates primarily relate to unsettled transactions and events as of the date of the consolidated financial statements.  Accordingly, upon settlement, actual results may differ from estimated amounts.





Convertible Notes Payable





The Company accounts for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40.


10
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- continued


Convertible Notes Payable- continued





The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.  As of March 31, 2010 and 2009, none of the Company’s convertible notes payable included a beneficial conversion option.





Recent Accounting Pronouncements





In October 2009, the Financial Accounting Standards Board issued an update to existing guidance on accounting for arrangement with multiple deliverables.  This update will allow companies to allocate consideration received for qualified separate deliverables using estimated selling price for both delivered and undelivered items when vendor-specific objective evidence or third-party evidence is unavailable.  Additional disclosures discussing the nature of multiple element arrangements, the types of deliverables under the arrangements, the general timing of their delivery, and significant factors and estimates used to determine the estimated selling prices will be required.  This guidance is effective prospectively for interim and annual periods after June 15, 2010.  The Company has not yet determined the impact on its consolidated financial statements.





In January 2010, the FASB issued Accounting Standards Update No. 2010-06, which provides additional guidance to improve disclosures regarding fair value adjustments.  This guidance requires two new disclosures: (1) transfers in and out of Level 1 and 2 measurements and the reasons for the transfers, and (2) a gross presentation of activity within the Level 3 roll forward.  The guidance also includes clarifications to existing disclosure requirements on the level of disaggregation and disclosures regarding inputs and valuation techniques.  The guidance applies to all techniques.  The guidance applies to all entities required to make disclosures about recurring and nonrecurring fair value measurements.  The effective date of this guidance is the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statement disclosures.





The Company does not believe that any other recently issued, but not yet effective, accounting pronouncements if currently adopted would have a material effect on the accompanying consolidated financial statements.





Subsequent Events





In accordance with FASB ASC 855, Subsequent Events, the Company evaluated subsequent events through the date the Company’s quarterly report on Form 10-Q was ready to issue.





NOTE 4 - LOSS PER SHARE





Components of loss per share for the respective periods are as follows:








For the Three Months Ended March 31, 2010


For the Three Months Ended March 31, 2009Net loss attributable to common stockholders

$
(312,714
)

$
(82,381
)Weighted average shares outstanding:Basic and diluted


340,839,721



277,627,742Loss per share:Basic and diluted

$
(0.00
)

$
(0.00
)








NOTE 5 - NOTES RECEIVABLE





At March 31, 2010 and December 31, 2009, the Company was owed a principal amount of $25,000 and accrued interest of $12,534 and $11,705, respectively, from three promissory notes due from a corporation. The notes bear interest at a rate of 4.5% per annum. The principal and interest were due at maturity, which was December 31, 2008, and the notes are technically in default.  The corporation made regular payments on the balance during 2009 and management believes that the remaining balance due is collectible.


11
 
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





NOTE 6 – CAPITAL STOCK





Common Stock





The Company is authorized to issue 500,000,000 shares of $0.0001 par value common stock.  All shares have equal voting rights, are non-assessable and have one vote per share.  Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.





At March 31, 2010 and 2009, respectively, the Company had 2,166,667 and 3,966,668 common shares issued and outstanding that were subject to anti-dilution protection guaranteeing the stockholders a minimum value ranging from $0.015 to $0.020 per share. The anti-dilution protection extends through the date upon which all registration restrictions expires, typically one year from the date the shares were issued, and is based upon the trading market value at the end of that period. Due to the fact that the number of shares required to settle this minimum value guaranty will not be known until the registration restrictions have expired, the Company cannot guarantee with certainty that it will have enough authorized shares to settle these agreements. Accordingly, these shares have been accounted for in accordance with the ASC 480-10. Pursuant to this guidance, the shares subject to the anti-dilution protection were valued at $41,333 and $129,000 at March 31, 2010 and December 31, 2009, respectively, and are required to be classified as mezzanine equity until such time as the anti-dilution feature expires.





NOTE 7 - INCOME TAXES





The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes are as follows:





For the Three Months Ended March 31, 2010


For the Year Ended December 31, 2009Income tax at federal statutory rate


(34.00
)%


(34.00
)%State tax, net of federal effect


(3.96
) %


(3.96
)%37.96
%


37.96
%Valuation allowance


(37.96
)%


(37.96
)%Effective rate


0.00
%


0.00
%





Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.





As of March 31, 2010 and December 31, 2009, the Company’s only significant deferred income tax asset was an estimated net tax operating loss of $2,662,080 and $2,349,366, respectively, that is available to offset future taxable income, if any, in future periods, subject to expiration and other limitations imposed by the Internal Revenue Service.  Management has considered the Company's operating losses incurred to date and believes that a full valuation allowance against the deferred tax assets is required as of March 31, 2010 and 2009.





NOTE 8 - LEASE OBLIGATION





Corporate Office





The Company leases 823 square feet of office space located at 14497 North Dale Mabry Highway, Suite 209N, Tampa, Florida 33618. The base rental rate, including taxes, is $1,284 per month, plus additional monthly charges for operating expenses and services used by the Company. The term of the lease agreement commenced on October 1, 2008 and expired on March 31, 2010. The Company is currently utilizing this space on a month-to-month basis.





Operations House





The Company has an operating lease for a house located in the vicinity of Jupiter, Florida. The Company uses the house to docks its salvage vessels, perform maintenance and upkeep on its vessels, store equipment and gear and to provide temporary work-related living quarters for its divers and other personnel involved in its exploration and recovery operations. The base rental rate is $3,300 per month, not including deposits and late fees, and the Company must also pay for utilities, including electric, water, etc. The Company agreed to pay additional fees over the course of the lease to cover deposits and the last month’s lease payment. he term of the lease agreement commenced on August 1, 2009 and expires on July 31, 2010.





NOTE 9 - CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE





Upon inception, the Company evaluates each financial instrument to determine whether it meets the definition of “conventional convertible” debt under paragraph 4 of EITF 00-19, which was superseded by ASC 815, and EITF 05-02, which was superseded by ASC 470.


12
 
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE 9 - CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE - continued





Convertible Notes Payable





The following table reflects the convertible notes payable, other than the one remeasured to fair value, which is discussed in Note 10, as of March 31, 2010 and December 31, 2009:





Issue Date
Maturity Date

March 31, 2010


December 31, 2009


Interest Rate


Conversion

RateConvertible notes payable:November 30, 2009
May 30, 2010

$
10,000


$
10,000



6.00
%

$
0.0050Convertible notes payable – related parties:December 16, 2009
December 16, 2010


15,000



9,000



6.00
%

$
0.0050Convertible notes payable, in default:August 28, 2009
November 1, 2009


4,300



4,300



10.00
%

$
0.0150September 1, 2009
November 1, 2009


11,000



11,000



10.00
%

$
0.015015,300



15,300Convertible notes payable – related parties, in default:July 23, 2007
September 1, 2008


15,000



15,000



6.00
%

$
0.0144January 7, 2009
January 7, 2010


--



5,000



10.00
%

$
0.0150January 9, 2009
January 9, 2010


10,000



10,000



10.00
%

$
0.015025,000



30,000$
65,300


$
64,300





The convertible notes payable classified as “in default” are in default as of the date this quarterly report on Form 10-Q was ready for issue.





Notes Payable





The following table reflects the notes payable as of March 31, 2010 and December 31, 2009:





Issue Date
Maturity Date

March 31, 2010


December 31, 2009


Interest RateNotes payable:February 22, 2010
August 22, 2010

$
20,000


$
--



3.00
%February 24, 2010
August 24, 2010


20,000



--



3.00
%40,000



--Notes payable  – related parties:February 24, 2010
February 24, 2011


7,500



--



6.00
%Notes payable, in default:May 6, 2009
July 3, 2009


10,000



10,000



5.00
%Notes payable, in default  – related parties:September 9, 2008
September 9, 2009


--



9,000



8.00
%September 29, 2008
September 29, 2009


--



7,500



8.00
%--



16,500$
57,500


$
26,500








13


NOTE 9 - CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE continued





Stockholder Loans





The following table reflects the stockholder loans as of March 31, 2010 and December 31, 2009:





Issue Date
Maturity Date

March 31, 2010


December 31, 2009


Interest RateVarious
None stated

$
22,900


$
22,900



8.00
%Various
None stated


9,000



11,000



1.00
%$
31,900


$
33,900





During the three months ended March 31, 2010 the Company settled a $7,500 related party note payable that was in default. The debt was satisfied through the issuance of 7,000,000 shares of the Company’s common stock. The Company recorded an extinguishment loss of $41,500 representing the difference between the carrying amount of the debt and the fair value of the common stock issued.





At March 31, 2010 and December 31, 2009, combined accrued interest on the convertible notes payable, notes payable and stockholder loans was $6,932 and $48,497, respectively, and included in accounts payable and accrued liabilities on the accompanying balance sheets.





NOTE 10 – CONVERTIBLE NOTE PAYABLE, AT FAIR VALUE





On November 4, 2009, the Company entered into a convertible note payable with a corporation.  The convertible note payable, with a face value of $40,000, bears interest at 8.0% per annum and is due on May 4, 2010.  The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at the lesser of (1) the Variable Conversion Price or (2) a Fixed Conversion Price of $0.25.  The Variable Conversion Price is defined as 42% multiplied by the average of the lowest three trading prices for the Company’s common stock during the ten trading day period ending one trading day prior to the date the convertible note payable is sent by the holder to the Company.  The conversion feature is subject to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the conversion price.  The holder has the option to redeem the convertible note payable for cash in the event of defaults or certain other contingent events (the “Default Put”).





In the evaluation of the financing arrangement, the Company concluded that the conversion feature did not meet the conditions set forth in current accounting standards for equity classification.  Since equity classification is not available for the conversion feature, it requires bifurcation and liability classification, at fair value. The Company also concluded that the Default Put required bifurcation because, while puts on debt instruments are generally considered clearly and closely related to the host, the Default Put is indexed to certain events that are not associated with the convertible note payable.





Rather than accounting for the derivatives in accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities , SFAS No. 155,Accounting for Certain Hybrid Financial Instruments,  both superseded by ASC 815, permits both holders and issuers of certain hybrid financial instruments, at inception, to irrevocably elect to measure the instrument in its entirety at fair value, with changes in fair value recognized in earnings. Pursuant to paragraph 5 of ASC 815-15-25, the fair value election may be made on an instrument-by- instrument basis at the time the hybrid financial instrument is acquired, issued or when a previously recognized financial instrument is subject to a re-measurement, but it is required to be supported by concurrent documentation or a preexisting documented policy for automatic election. However, the fair value election is not available for a hybrid financial instrument, unless the instrument contains an embedded derivative that ASC 815-15-25-1 would require to be bifurcated.  The Company elected to account for the hybrid contract under the guidance of ASC 815-15-25-4.





At March 31, 2010, December 31, 2009 and November 4, 2009 (date of issuance), the convertible note payable, at fair value, was recorded at $97,760, $91,363 and $120,058, respectively.





In connection with the issuance of the convertible note payable on November 4, 2009, the Company encountered the unusual circumstance of a day-one derivative loss related to the recognition of (i) the hybrid note and (ii) the derivative instrument arising from the fair value measurement due to the fair value of the hybrid note and embedded derivative exceeding the proceeds that the Company received from the arrangement.  Therefore, the Company was required to record a loss on the derivative financial instrument.  In addition, the fair value will change in future periods, based upon changes in the Company’s common stock price and changes in other assumptions and market indicators used in the valuation techniques.  These future changes will be currently recognized in interest expense or interest income on the Company’s statement of operations.

















14
 
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE 10 – CONVERTIBLE NOTE PAYABLE, AT FAIR VALUE - continued


The following tables summarize the effects on earnings associated with changes in the fair values of the convertible note payable, at fair value for the periods ended March 31, 2010 and 2009:





For the

Three Months Ended

For the

Three Months EndedMarch 31,

March 31,2010

2009Interest expense recorded upon issuance of the convertible note payable

$
--


$
(80,058
)Interest recapture on fair value re-measurement of the convertible note payable


(6,397)



28,695$
(6,397)


$
51,363





NOTE 11 – MATERIAL AGREEMENT





Purchase and Sale Agreement for the DaVinci Project Research Materials





In December 2008, the Company entered into a purchase and sale agreement with a corporation to acquire the DaVinci Research Materials. The DaVinci Research Materials purportedly contain information as to the theoretical location of a deepwater shipwreck site that has been named the “DaVinci Project”. As used in the agreement with the corporation, the DaVinci Research Materials refers to any and all of the documents, data, records, reports, maps, compilations, computer models, writings and materials that are, in any way, related to the DaVinci Project. As of March 31, 2010, the Company had paid a total of $23,000 to the corporation towards the purchase of the DaVinci Research Materials; however, the Company was not able to obtain the financing required to meet its financial obligations under the agreement and, therefore, was not able to secure the information regarding the DaVinci Project. As such, the Company believes that the party who controls access to the DaVinci Project information has sold the information to another buyer. If another buyer has acquired the DaVinci Project information, then that buyer would have a significant advantage over the Company in terms of potentially locating the DaVinci Project deepwater shipwreck site, and the Company would have virtually no chance to ever make an exclusive claim, or possibly any claim at all, on the deepwater shipwreck site. As a result of these developments the Company believes that it is no longer feasible to continue to pursue the DaVinci Project; however, the Company does intend to explore its legal rights based on the previous payments made to acquire the DaVinci Project research information.





Agreement with Tulco Resources, Ltd.





In March of 2007, the Company entered into a contract with Tulco Resources, Ltd. (“Tulco”) which granted the Company the exclusive rights to explore, locate, identify, and salvage a possible shipwreck within the territorial limits of the State of Florida, off of Palm Beach County, in the vicinity of Juno Beach, Florida (the “Exploration Agreement”). Tulco has alleged that the Exploration Agreement expired sometime during or prior to March of 2009 and the Company did not have any rights to explore the Juno Beach site in the years 2009, 2010 and beyond and the Company does not have any ownership rights to any artifacts that have been recovered from the site. The Company has strongly disagreed with Tulco’s stance regarding its rights to explore the site in 2009 due in part to Tulco’s past failures to obtain and/or maintain the required state permits and approvals for the site which caused delays to the Company’s previous diving seasons and resulted in significant expenses being incurred by the Company in regards to its efforts to secure the agreements and permits. The Company and Tulco have been in protracted negotiations regarding a renewal of the Exploration Agreement since last year. As of the date of this report, the Company and Tulco have not executed a renewal to the Exploration agreement. Based on the length of time these negotiations have been ongoing there is a possibility that the Company and Tulco have reached an impasse and there may not be a renewal to the Exploration Agreement. Further delays in executing the renewal agreement may cause a partial or total cancellation to the 2010 diving season at the Juno Beach shipwreck site and the Company may not be able to explore the site in future years. The Exploration Agreement with Tulco is a key contract to the Company implementing its business plan. If the Exploration Agreement with Tulco is not satisfactorily renewed, then such consequence may have a material adverse effect on the Company and its prospects.





Florida Division of Historical Resources Agreement





On November 4, 2008, the Company entered into an agreement with the Florida Division of Historical Resources (“FLDHR”) and Tulco regarding the Research and Recovery of Archeological Material (the “FLDHR Agreement”). The FLDHR Agreement expired on November 4, 2009. The FLDHR granted the Company and Tulco permission to remove artifacts from the Juno Beach Shipwreck site, in accordance with the covenants and conditions provided in the FLDHR Agreement. The Company has provided written notification to the FLDHR of its intent to renew the FLDHR Agreement. Pending a renewal to the FLDHR Agreement, the Company cannot conduct artifact recovery operations at the Juno Beach Shipwreck site. The Company does not have any oral agreements with the FLDHR allowing it to conduct artifact recovery operations at the Juno Beach Shipwreck site while the FLDHR Agreement is in the renewal process. The Company has provided additional information for the FLDHR to review for compliance. If the FLDHR Agreement is not renewed or if there are continued delays in the renewal process, then the Company may not be able to explore the Juno Beach Shipwreck site during the 2010 dive season and plans to explore the site in future years may have to be altered or cancelled. If the FLDHR Agreement is not renewed, then such consequence may have a significant material adverse effect on the Company and its prospects.


15
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE 11 – MATERIAL AGREEMENT - continued





Other Agreements





In October 2009, the Company entered into a six-month consulting agreement with a corporation to provide the Company with for various consulting services, including management consulting, business advisory, stockholder information and public relations services, mergers and acquisitions consulting, corporate finance, corporate finance relations, introductions to financial relations companies, contacting the Company’s existing stockholders and introducing the Company to various members of the financial community.  Under the terms of the agreement, the Company agreed to pay the corporation $2,000 per month and to issue 5,000,000 shares of the Company’s restricted common stock for a total purchase price of $2,500. During the period ended March 31, 2010 the consultant was issued 2,000,000 shares of the Company’s restricted common stock and these shares are included as an expense in consulting and contractor fees in the accompanying income statement. The Company and the consultant agreed in a written addendum to extend the term of the original agreement to July 15, 2010.





Agreements Entered Into During the Period ended March 31, 2010





The Company entered into an agreement with a corporation to provide various “above the water” photography services over a four day period. The photographs will be completely edited and the Company will own all rights to the photographs. The photography company agreed to accept 2,000,000 restricted shares of the Company’s common stock in lieu of a cash payment of $12,000. All of the shares were issued to the principal of the corporation and these shares are included as an expense in consulting and contractor fees in the accompanying income statement. The Company must use the services prior to December 31, 2010. As of the date of this report the photography services have not yet been rendered. The Company also paid the principal of the photography company $600 to cover time and travel expenses related to consulting for the photography services.





The Company entered into an agreement with a corporation to charter a yacht for the purposes of taking a photographer to obtain photographs of various “above the water” sites and areas on the East Coast of Florida. The Company will have the right to use the yacht for three days of photography services at a price of $1,200 per day for a total cost of $3,600. The Company must use the yacht charter service during the period of March 30, 2010 through December 31, 2010. The agreement required the Company to prepay the $3,600 in order to secure the rights to use the boat. As of the date of this report the Company has not yet used the services.





NOTE 12 – DIVISON OF ARTIFACTS AND TREASURE





Under the Exploration Agreement that was originally executed in March of 2007, the Company was required to split any artifacts or treasure that it successfully recovers from the Juno Beach Shipwreck site with the FLDHR and Tulco. Tulco has alleged that the Exploration Agreement expired sometime prior to March of 2009 and the Company has no further rights to explore the Juno Beach site or rights to any of the artifacts that have been recovered from the site. The division of artifacts and treasure was previously agreed to be:





20% to the FLDHR


40% to Tulco


40% to the Company





More specifically, the FLDHR has the right to select up to 20% of the total value of recovered artifacts and treasure for the State's museum collection. After the FLDHR has selected those artifacts and treasure that it feels will complement its collection, then the Company and Tulco will split the remaining artifacts and treasure equally.





In addition to the division of artifacts with the FLDHR and Tulco, the Company has entered into agreements where it may be required to pay additional percentages of its net share of any artifacts that it recovers at the Juno Beach Shipwreck site:





●
In exchange for the use of an individual’s boat, the Company has an agreement to pay that individual a fee that is a net 1.0% of the Company’s share of any artifacts that are located at the Juno Beach Shipwreck. The 1.0% is net of the division of artifacts with the FLDHR and Tulco.





●
The Company has an agreement with an individual to conduct a search for artifacts within a specified radius of certain coordinates that are located within the Juno Beach Shipwreck site. In consideration for the individual successfully locating artifacts in the specified areas, the Company has agreed to pay the individual a fee that is a net 2.5% of the Company’s share of any artifacts that are located at the Juno Beach Shipwreck. The 2.5% is net of the division of artifacts with the FLDHR and Tulco.





●
The Company may elect to pay its divers or other personnel involved in the search for artifacts by giving them a percentage of the artifacts that they locate after a division of artifacts takes place with the FLDHR and Tulco. At the present time, the Company does not have any written or oral agreements to pay any of its dive personnel a net percentage of any recovered artifacts; however, the Company reserves the right to do so in the future.





●
The Company has become aware that an individual has made a claim that he has a legally valid and binding agreement with Tulco to receive a percentage of any artifacts recovered from the Juno Beach Shipwreck. The individual has purportedly claimed that his agreement with Tulco was executed several years prior to the Company and Tulco entering into the Exploration Agreement in March 2007. The Company has not been able to verify the legal standing of this claim. If this alleged agreement exists and is legally valid and binding, or if there are other agreements that have a valid, legal claim on the Juno Beach Shipwreck site, then such consequences may have a material adverse effect on the Company and its prospects.








16





NOTE 13 – LEGAL PROCEEDINGS





On December 11, 2009, the Company, its CEO and transfer agent were named as defendants in Case Number 09-CA-030763, filed in the Circuit Court of Hillsborough County, Florida, by 31 individuals and 1 corporation. The lawsuit alleges that the Company, its CEO, and its transfer agent wrongfully refused to remove the restrictive legend from certain shares of the Company’s common stock that are collectively owned by the plaintiffs, which prevented the plaintiffs from selling or transferring their shares of the Company’s common stock.  The plaintiffs allege that they have lost approximately $1,041,000 as of the date of the lawsuit. The plaintiffs are seeking actual damages in an amount greater than $15,000, punitive damages to be determined at trial, injunctive relief requiring the defendants to reissue the plaintiff’s stock without the restrictive legends, injunctive relief barring the defendants from removing the stock legends from any Seafarer stock until the dispute with the plaintiffs is fully resolved, injunctive relief barring the defendants from selling their Seafarer stock, directly or indirectly, until the dispute with the plaintiffs is fully resolved, a declaratory judgment that plaintiffs are entitled to have their shares reissued without the restrictive legend, such other incidental and consequential damages as may be proven at trial, costs, interest, and legal expenses allowed by law and such other further relief as the court may deem just and proper.  The Company contends that the restrictive legends were either (i) not qualified for removal under Rule 144 promulgated under the Securities Act of 1933, (ii) the plaintiffs failed to provide sufficient facts supporting removal of the restrictive legends, or (iii) the plaintiffs failed to provide sufficient facts to demonstrate that the distribution was not part of a plan or scheme to evade the registration requirements of the Securities Act of 1933. The Company intends to mount a vigorous defense to such claims and has filed a motion to dismiss the plaintiffs’ complaint.





On December 17, 2009, the Company was named a defendant in Case Number 09-012905CO39, filed in the Circuit Court of Pinellas County, Florida, by a limited liability company, of which the Company’s CEO is a minority, non-controlling member.  The lawsuit alleges that the Company has failed and/or refused to pay for services rendered by the plaintiff, in breach of an agreement between the two parties. The plaintiff is seeking judgment against the Company in the amount of $13,520, plus damages that may accrue after the filing of the lawsuit, together with prejudgment interest, recoverable costs associated with the lawsuit and such other relief as may be appropriate under the circumstances.  The Company contends that the plaintiff has been paid in full for all services rendered, and intends to mount a vigorous defense to such claims.





On March 1, 2010, the Company, its CEO, Director, Chief Financial Officer (“CFO”), registered agent and Director of Compliance and Safety were named as defendants in Case Number 10000397CC, filed in the County Court of Martin County, Florida, by a person who formerly provided services to the Company as a captain, diver and general laborer. In the lawsuit, the plaintiff alleges that a former Company employee attacked the plaintiff, causing the plaintiff physical injuries, that the Company allowed personal items belonging to the plaintiff to be stolen from the Company’s dive house and that the Company wrongfully evicted the Plaintiff from the Company’s dive house. The plaintiff is seeking judgment against the Company and the above named individuals in the amount of $10,488, exclusive of court costs, fees and process of service. The Company believes that the plaintiff has no legal basis to hold the Company, or its executives and directors, accountable for alleged criminal activity by third parties. The Company also believes that there is no basis for the plaintiff’s remaining claims and intends to mount a vigorous defense to such claims.





On March 1, 2010, the Company, its CEO, Director, CFO, registered agent and Director of Compliance and Safety were named as defendants in Case Number 10000599CA, filed in the Circuit Court of Martin County, Florida, by a person who formerly provided services to the Company as a captain, diver and general laborer. The Company is not aware of the nature of the complaint or the alleged damages because it has not been served with this lawsuit.





On March 2, 2010, the Company filed a complaint naming a person who formerly provided services as a captain, diver, and general laborer to the Company as a defendant in the Circuit Court of Hillsborough County, Florida case number 10-CA-004674. The lawsuit contains numerous counts against the defendant, including civil theft, breach of contract, libel and negligence. Among other matters, the Company alleges that the defendant caused extensive damage to the Company’s main salvage vessel due to negligent operation, breached his separation agreement with the Company, and has made false and defamatory statements damaging the Company’s reputation. The Company believes that the defendant has engaged is such malicious and defamatory campaign as revenge for his termination by the Company and in effort to obtain additional payments from the Company. The Company intends to vigorously prosecute the defendant, both through civil action and in any related criminal complaints. In civil court, the Company is seeking injunctive relief and damages in an amount greater than $15,000, punitive damages to be determined at trial, costs and legal expenses allowed by law, and such other further relief as the court may deem just and proper. In addition, the Company believes that there may be additional parties that have conspired with, and have assisted, the defendant in making defamatory statements, and in tortuously interfering with certain business relationships of the Company. The Company intends to vigorously pursue all available courses of legal action against any parties who may be involved.


17
 
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE 14 – RELATED PARTY TRANSACTIONS





During the period ended March 31, 2010, the Company entered into a convertible loan agreement in the amount of $6,000 with a person who is related to the Company’s CEO. This loan pays interest at a rate of 6% per annum and the principle and accrued interest are due on or before January 25, 2011.  The note is not secured and is convertible at the lender’s option into shares of the Company’s common stock at a rate of $0.005 per share.





During the period ended March 31, 2010, the Company entered into a loan agreement in the amount of $7,500 with a corporation. The Company’s CEO is a director of the corporation and the Company’s CFO has provided services to an affiliate of the corporation. The loan is not secured and pays interest at a rate of 6% per annum and the principle and accrued interest are due on or before February 24, 2011.





The Company has a previous convertible note payable with a Director of the Company, Pelle Ojasu. This convertible note payable, with a face value of $15,000, was issued prior to the June 2008 merger discussed in Note 1 and bears interest at a rate of 6% per annum.  The note is convertible, at the note holder’s option, into the Company’s common stock at a post merger adjusted price of $0.0144 per share.  The convertible note payable was due on or before September 1, 2008, and is secured.  This convertible note payable is currently in default due to non-payment of principal and interest.





The Company has a previous convertible note payable due to a person related to the Company’s CEO with a face amount of $10,000. This note bears interest at a rate of 10% per annum with interest payment to be paid monthly and is convertible at the note holder’s option into the Company’s common stock at $0.015 per share.  The convertible note payable was due on or before January 9, 2010 and is secured.  This convertible note payable is in default due to non-payment of principal and interest.





At March 31, 2010, the Company owed one of its Directors, Pelle Ojasu, $22,800. These loans were received by the Company in 2009 and are recorded on the Company’s balance sheet as stockholder loans. The Company does not have a written loan agreement with Mr. Ojasu for these loans. These loans are not secured and the Company has agreed to pay Mr. Ojasu interest at a rate of 8% per annum on the borrowed funds and to repay the principal amount at a future date, which has not yet been determined.





At March 31, 2010, the Company owed a limited liability company that is owned and controlled by a person related to the Company’s CEO $9,000. These loans are recorded on the Company’s balance sheet as stockholder loans. The loans are not secured and the Company has agreed to pay the limited liability company 1% interest per annum on the borrowed funds and to repay the principal amount at a future date, which has not yet been determined. The Company repaid $2,000 to the limited liability company during the period ended March 31, 2010.





At March 31, 2010, the Company has a note payable agreement in the amount of $9,000 with a person who is related to the Company’s CEO.  The note payable is convertible at the lender’s option into the Company’s common stock at $0.005 per share. The loan bears interest at a rate of 6% and is unsecured.  The principal amount of the loan plus accrued interest is due on or before December 16, 2010.





During the period ended March 31, 2010, a promissory note holder who is related to the Company’s CEO, agreed to assign the balance of the note of $9,000, which was in default to non-payment of principal and interest, to an investor pursuant to a wrap around agreement between the Company, the note holder and the investor. Under the agreement the investor agreed to repay the note holder the past due principal balance of $9,000. The investor elected to convert the $9,000 principal balance of the note into 1,666,667 shares of the Company’s common stock.





During the period ended March 31, 2010, a promissory note holder who is a corporation agreed to assign the principal balance of the note which had an original principal balance of $12,500 and was in default due to non-payment of remaining principal and accrued interest, to an investor pursuant to an asset purchase agreement and assignment of debt agreement.. The Company’s CEO is a director of the corporation and the Company’s CFO has provided services to an affiliate of the corporation. Under the agreement the investor agreed to repay the note holder $12,500 to settle the note. The asset purchase agreement was later amended to reflect that the remaining principal balance owed was only $7,500. The investor elected to convert the remaining principal balance of $7,500 into 7,000,000 shares of the Company’s common stock.





During the period ended March 31, 2010, a convertible note holder who is related to the Company’s CEO elected to convert the note with a face value of $5,000 into 1,840,267 shares of the Company’s common stock.





During the period ended March 31, 2010, the Company paid $1,000 to a limited liability company that is owned and controlled by a person who is related to the Company’s CEO for stock transfer agency fees. Additionally, a Director of the Company, Pelle Ojasu, owns a minority, non-controlling interest in the limited liability company. At March 31, 2010, the Company owed the limited liability company $2,347.90 for transfer agency services rendered and this amount is included in accounts payable and accrued liabilities in the accompanying balance sheet. At March 31, 2010 the Company also has a separate consulting agreement with the limited liability company. Pursuant to the consulting agreement, the Company had previously issued the limited liability company 2,000,000 shares of its restricted common stock and recorded $24,000 of expense during the period ended December 31, 2009.


18
 
 SEAFARER EXPLORATION CORP. AND SUBSIDIARIES
 (A Development Stage Company)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE 14 – RELATED PARTY TRANSACTIONS - continued





During the period ended March 31, 2010, the Company issued 100,000 shares of its restricted common stock to one a person who is related to the Company’s CEO. The shares were issued to show appreciation for the person’s past service and as an incentive and an inducement to continue providing services to the Company. The shares were recorded as an expense of $900 in consulting and contractor fees in the accompanying income statement.





During the period ended March 31, 2010, the Company issued 2,000,000 shares of its restricted common stock to one of its Directors, Pelle Ojasu. The shares were issued to show appreciation for Mr. Ojasu’s past service as a Director and as an incentive and an inducement for Mr. Ojasu to continue providing services as a Director of the Company without receiving cash compensation. The shares were recorded an expense of $22,500 expense in consulting and contractor fees in the accompanying income statement.





During the period ended March 31, 2010, the Company issued 4,000,000 shares of its restricted common stock to a limited liability company controlled by its CFO. The shares were issued to show appreciation for our CFO’s willingness to provide services to the Company at below market compensation rates and as an incentive and an inducement to continue to provide services to the Company. The shares were recorded as an expense of $36,000 in consulting and contractor fees in the accompanying income statement.





NOTE 15 – SUBSEQUENT EVENTS





On April 22, 2010, the Company entered into an agreement with an individual to join the Company’s advisory council. Under the advisory council agreements, the advisors agreed to provide various advisory services to the Company including making recommendations for both the short term and the long term business strategies to be employed by the Company, monitoring and assessing the Company's business and advising the Company’s Board of Directors with respect to an appropriate business strategy on an ongoing basis, commenting on proposed corporate decisions and identifying and evaluating alternative courses of action, making suggestions to strengthen the Company's operations, identifying and evaluating external threats and opportunities to the Company, evaluating and making ongoing recommendations to the Board with respect to the Company's business, and providing such other advisory or consulting services as may be appropriate from time to time. The term of each of the advisory council agreements is for one year. The advisor was issued 1,200,000 restricted shares of common stock that will vest at a rate of 100,000 per month during the term of the agreement.  If the advisory council agreement is terminated prior to the expiration of the one year term, then the advisor has agreed to return to the Company for cancellation any portion of the shares that have not vested. Under the advisory council agreements the Company has agreed to reimburse the advisor for pre-approved expenses.





On April 1, 2010, the Company entered into a convertible note payable with a corporation.  The convertible note payable, with a face value of $50,000, bears interest at 8.0% per annum and is due on January 7, 2011.  The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at the Variable Conversion Price which is defined as 58% multiplied by the average of the lowest three trading prices for the Company’s common stock during the ten trading day period ending one trading day prior to the date the convertible note payable is sent by the holder to the Company.  The conversion feature is subject to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the Variable Conversion Price.  The holder has the option to redeem the convertible note payable for cash in the event of defaults or certain other contingent events. The Company believes that this note will require fair value measurement.





On April 16, 2010, the Company entered into a consulting agreement with a corporation. Under the terms of the agreement the consultant agreed to aid the Company in terms of market awareness and to identify investors, underwriters, joint venture partners, lenders, and/or guarantors for the Company. The Company agreed to pay the consultant $10,000 and 1,600,000 shares of its restricted common stock. The agreement stipulates that the consultant is acting in a consulting capacity only and the consultant has no authority to enter into any commitments on the Company’s behalf or negotiate the terms of any financing.





On May3, 2010, the Company repaid stockholder loans totaling $15,000 to a Director of the Company, Pelle Ojasu. The repayment of the stockholder loans leaves a balance of $7,800 still owed to Mr. Ojasu. The Company had previously agreed to pay Mr. Ojasu an interest at a rate of 8% per annum on the borrowed funds however no interest has been repaid. The Company has agreed to repay the remaining principal loan balance of $7,800 to Mr. Ojasu at a future date which has not yet been determined.





On various dates subsequent to March 31, 2010, the Company repaid stockholder loans in the amount of $9,000 to a limited liability company that is owned and controlled by a person who is related to the Company’s CEO. The repayment of the $9,000 represents the entire principal balance that was owed to the limited liability company. The Company has not repaid the limited liability company any interest for providing the loans.





.























19








Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations





FORWARD LOOKING STATEMENTS





The following discussion contains certain forward-looking statements that are subject to business and economic risks and uncertainties, and which speak only as of the date of this annual report. No one should place strong or undue reliance on any forward-looking statements. The use in this Form 10-Q of such words as "believes", "plans", "anticipates", "expects", "intends", and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. The Company’s actual results or actions may differ materially from these forward-looking statements for due to many factors and the success of the Company is dependent on our efforts and many other factors including, primarily, our ability to raise additional capital. Such factors include, among others, the following: our ability to continue as a going concern, general economic and business conditions; competition; success of operating initiatives; our ability to raise capital and the terms thereof; changes in business strategy or development plans; future revenues; the continuity, experience and quality of our management; changes in or failure to comply with government regulations or the lack of government authorization to continue our projects; and other factors referenced in the Form 10-Q. This Item should be read in conjunction with the financial statements,  the related notes and with the understanding that the Company’s actual future results may be materially different from what is currently expected or projected by the Company.





We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  Such forward-looking statements are based on the beliefs and estimates of our management, as well as on assumptions made by and information currently available to us at the time such statements were made. Forward looking statements are subject to a variety of risks and uncertainties, which could cause actual events or results to differ from those reflected in the forward looking statements, including, without limitation, the failure to successfully locate cargo and artifacts from the Juno Beach shipwreck site and a number of other risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements, either as a result of the matters set forth or incorporated in this Report generally and certain economic and business factors, some of which may be beyond our control.





We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.





Overview





General





The Company’s principal business plan is to develop the infrastructure to engage in the archaeologically-sensitive exploration and recovery of historic shipwrecks. The exploration and recovery of historic shipwrecks involves a multi-year, multi stage process and it may take many years and/or be prohibitively expensive to locate and recover, if any are ever located at all, valuable artifacts from historic shipwrecks.





The exploration and recovery of historic shipwrecks is extremely speculative, and there is a very high degree of risk inherent in this type of business venture. The chance that the Company will actually recover artifacts of any significant value is remote. There is a possibility that the Company will be forced to cease its operations if it is not successful in eventually locating valuable artifacts at historic shipwreck sites. Furthermore, there are a number of significant issues regarding this type of business that make it very challenging for a small public company and there is a high probability that the Company may fail in its efforts. If the Company were to fail, then it is likely that there would be complete loss of all capital invested in or borrowed by the Company.





Plan of Operation





During the periods ended March 31, 2010 and 2009, the Company has taken the following steps to implement its business plan:





●
To date, the Company has devoted its time towards establishing its business to develop the infrastructure capable of exploring, salvaging and recovering historic shipwrecks. The Company has performed some exploration and recovery activities.





●
Although the Company has not generated revenues to date our development activities continue to evolve. We have been a development stage company since inception, in accordance with ASC 915-10.





●
The Company completed the acquisition of Seafarer Inc., and as a result we are no longer a shell company as defined in Rule 144(i) under the Securities Act of 1933.  As discussed in Note 1 to our consolidated financial statements, the acquisition of Seafarer Inc. was characterized as a reverse-acquisition. Accordingly, the results of operations discussed in this Item 7, relate to the consolidated financial assets and liabilities and operations of Seafarer, Inc., as if it had been Organetix during the periods being discussed.





20


Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations - continued


The Company has evaluated various opportunities to enter into agreements or contracts to conduct exploration and recovery operations at known historic shipwreck locations or potential locations. The Company has previously spent some of its efforts exploring a historic shipwreck site located off of Juno Beach, Florida. The Company has been engaged in negotiations since last year to renew the Exploration Agreement regarding the Juno Beach site; however, as of the date of this report, the Exploration Agreement has not been renewed. The Company is also in the process of attempting to renew the Agreement with the Florida Department of Historical Resources that expired in November of 2009; however, as of the date of this report, this Agreement also has not been renewed.  Extended delays in renewing these agreements for the Juno Beach Shipwreck site could cause a partial or total cancellation of the Company’s plans to explore the site during the 2010 dive season. If the Company is unable to renew these agreements, then it may not be able to perform exploration and recovery operations in future years at the Juno Beach Shipwreck site. If the Company is not able to conduct exploration and recovery operations at the Juno Beach Shipwreck site, then it may seek to perform exploration and recovery operations at an alternate shipwreck site or sites.





The Company previously entered into a purchase and sale agreement with a corporation to obtain information regarding the theoretical location and details of a deepwater shipwreck that has been referred to as the DaVinci Project. The Company was not able to obtain the financing required to meet its obligations under the agreement and therefore was not able to secure the information regarding the DaVinci Project. As such, the Company believes that the party who controls access to the DaVinci Project information has sold the information to another buyer. If another buyer has acquired the DaVinci Project information, then that buyer would have a significant advantage over the Company in terms of potentially locating the DaVinci Project deepwater shipwreck site, and the Company would have virtually no chance to ever make an exclusive claim, or possibly any claim at all, on the deepwater shipwreck site. As a result of these developments the Company believes that it is no longer feasible to continue to pursue the DaVinci Project; however, the Company does intend to explore its legal rights based on the previous payments made to acquire the DaVinci Project research information.





If the Company is not able to perform any exploration or recovery operations, then it may have to suspend or cease its operations. If the Company ceases its previously stated efforts, there are not any plans to pursue other business opportunities.





Limited Operating History





To date, the Company has devoted its time towards establishing its business and no revenues have been generated. As such, the Company is considered as being in the development stage, since its inception, in accordance with ASC 915-10. The Company has not currently generated any revenue from operations and does not expect to report any significant revenue from operations for the foreseeable future.





The Company is a development stage company. In a development stage company, management devotes most of its activities to establishing a new business. At March 31, 2010, the Company had a working capital deficit of $253,459. The Company is in immediate need of further working capital and is seeking options, with respect to financing, in the form of debt, equity or a combination thereof. Since inception, the Company has funded its operations through common stock issuances and loans in order to meet its strategic objectives; however, there can be no assurance that the Company will be able to obtain further funds to continue with its efforts to establish a new business.





The Company expects to continue to incur significant operating losses and to generate negative cash flow from operating activities, while building its infrastructure in order to explore and attempt to salvage artifacts from historic shipwreck sites and establishing itself in the marketplace. Based on our historical rate of expenditures, the Company expects to expend its available cash in less than one month from May 21, 2010.





The Company’s ability to eliminate operating losses and to generate positive cash flow from operations in the future will depend upon a variety of factors, many of which it is unable to control. If the Company is unable to implement the Company’s business plan successfully, it may not be able to eliminate operating losses, generate positive cash flow or achieve or sustain profitability, which may have a material adverse effect on the Company’s business, operations, and financial results, as well as its ability to make payments on its debt obligations, and the Company may be forced to cease its operations. The Company’s lack of operating cash flow and reliance on the sale of its commons stock and loans to fund operations is extremely risky. If the Company is unable to continue to raise capital or obtain loans or other financing on terms that are acceptable to the Company, or at all, then it is highly likely that the Company will be forced to cease it operations. If the Company ceases its operations, then it is likely that all capital invested in and/or borrowed by the Company will be lost.





Results of Operations





Since February 15, 2007, our inception, we have generated no revenues.  Our operating and other expenses from inception through March 31, 2010 are $2,662,080, of which $312,714 and $82,381 was incurred during the three month period ended March 31, 2010 and 2009, respectively. Our major expenses in both periods were for consulting and independent contractor expenses, mostly related to fees for executive, management, accounting, operations, archeological, administrative, corporate communications, financial relations, corporate development, and advisory council services.


21


Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations - continued


The Company’s net loss for the period ended March 31, 2010 was $312,714, as compared to a net loss of $82,381 for the period ended March 31, 2009. The increase in the net loss for the period ended March 31, 2010, was primarily due to a significant increase in stock based compensation that was paid for consulting and contractor expenses for executive, management, accounting, operations, archeological, administrative, corporate communications, financial relations, corporate development, and advisory council services. During the period ended March 31, 2010, the Company incurred consulting and contractor expenses of $191,656 versus $32,892 for the period ended March 31, 2009. The increase in consulting expenses was largely due to as significant increase in stock based compensation paid to various consultants. For the period ended March 31, 2010, the Company incurred professional fees of $51,425 as compared to $13,320 for the period ended March 31, 2009. The period over period increase in professional fees was due to the Company incurring higher legal fees in 2010 in conjunction with various legal actions and the Company paying a larger portion of its annual audit fees in the first quarter as opposed to later in the year. The Company incurred travel and entertainment expenses of $3,693 during the period ended March 31, 2010 as compared to $7,879 during the period ended March 31, 2009. The decrease in travel and entertainment is due to a reduced budget for travel and entertainment expenses as a part of the Company’s efforts to control expenses.





Liquidity and Capital Resources





As of March 31, 2010, we had cash on hand of $83,651. Since February 15, 2007, our inception, we have generated no revenues.





During the three month period ended March 31, 2010, the Company has funded operations through the receipt of $158,695 from the issuance of common stock under subscription agreements and $53,500 from the issuance of notes payable.





The Company is presently seeking additional financing. Based on our historical rate of expenditures, we expect to expend our available cash in less than one month from May 21, 2010. The Company depends upon activities such as subsequent offerings of its common stock or debt financing in order to operate and grow the business. The Company has no specific plans for selling its common stock and no arrangements for debt financing.  There can be no assurance the Company will be successful in raising additional capital. There may be other risks and circumstances that management may be unable to predict.





The Company’s ability to obtain additional financing will be subject to a variety of uncertainties. These conditions raise substantial doubt about our ability to continue as a going concern. The inability to raise additional funds on terms favorable to the Company, or at all, could have a material adverse effect on the Company’s business, financial condition and results of operations. If the Company is unable to obtain additional capital, it will be forced to scale back planned expenditures, which would adversely affect its business and financial condition.





Notes payable and convertible notes payable, in default





At March 31, 2010, the Company had convertible notes payable, notes payable and stockholder loans of $122,800, of which $50,300 were in default.  The following table reflects the convertible notes payable and notes payable in default at March 31, 2010:





Issue Date

Maturity Date

Carrying Value


Interest Rate


Conversion RateConvertible notes payable, in default:August 28, 2009

November 1, 2009

$
4,300



10.00
%

$
0.0150September 1, 2009

November 1, 2009


11,000



10.00
%

$
0.015015,300Convertible notes payable, in default – related parties:July 23, 2007

September 1, 2008


15,000



6.00
%

$
0.0144January 9, 2009

January 9, 2010


10,000



10.00
%

$
0.015025,000Notes payable, in default:May 6, 2009

July 3, 2009


10,000



5.00
%

NATotal

$
50,300





The Company does not have additional sources of debt financing to refinance its convertible notes payable and notes payable that are currently in default.  If the Company is unable to obtain additional capital, such lenders may file suit, including suit to foreclose on the assets held as collateral for the obligations arising under the secured notes. If any of the lenders file suit to foreclose on the assets held as collateral, then the Company may be forced to significantly scale back or cease its operations.








22


Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations - continued


Critical Accounting Estimates





Management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the amounts reported herein. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.





Off-Balance Sheet Arrangements





None.





Item 3. Quantitative and Qualitative Disclosures About Market Risk





Not required for smaller reporting companies.





Item 4T. Controls and Procedures





Evaluation of disclosure controls and procedures





Under the supervision and with the participation of our principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of March 31, 2010.  Based on this evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as of the end of such periods are not effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.





Internal Control Over Financial Reporting





Management has not made any change in our internal control over financial reporting during the three months ended March 31, 2010. The Company has limited resources and as a result, management has concluded that material weaknesses in financial reporting currently exist, including those described below.  These material weaknesses were described in Item 9A(T) of the Company’s Form 10-K for the year ended December 31, 2009.





* The Company has an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.





* We have not achieved the optimal level of segregation of duties relative to key financial reporting functions.





* We do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is management’s view that an audit committee, comprised of independent board members, and an independent financial expert is an important entity-level control over the Company's financial statements.





* We have not achieved an optimal segregation of duties for executive officers of the Company.












































23




Part II. Other Information





Item 1. Legal Proceedings





On December 11, 2009, the Company, its CEO and transfer agent were named as defendants in Case Number 09-CA-030763, filed in the Circuit Court of Hillsborough County, Florida, by 31 individuals and 1 corporation. The lawsuit alleges that the Company, its CEO, and its transfer agent wrongfully refused to remove the restrictive legend from certain shares of the Company’s common stock that are collectively owned by the plaintiffs, which prevented the plaintiffs from selling or transferring their shares of the Company’s common stock.  The plaintiffs allege that they have lost approximately $1,041,000 as of the date of the lawsuit. The plaintiffs are seeking actual damages in an amount greater than $15,000, punitive damages to be determined at trial, injunctive relief requiring the defendants to reissue the plaintiff’s stock without the restrictive legends, injunctive relief barring the defendants from removing the stock legends from any Seafarer stock until the dispute with the plaintiffs is fully resolved, injunctive relief barring the defendants from selling their Seafarer stock, directly or indirectly, until the dispute with the plaintiffs is fully resolved, a declaratory judgment that plaintiffs are entitled to have their shares reissued without the restrictive legend, such other incidental and consequential damages as may be proven at trial, costs, interest, and legal expenses allowed by law and such other further relief as the court may deem just and proper.  The Company contends that the restrictive legends were either (i) not qualified for removal under Rule 144 promulgated under the Securities Act of 1933, (ii) the plaintiffs failed to provide sufficient facts supporting removal of the restrictive legends, or (iii) the plaintiffs failed to provide sufficient facts to demonstrate that the distribution was not part of a plan or scheme to evade the registration requirements of the Securities Act of 1933. The Company intends to mount a vigorous defense to such claims and has filed a motion to dismiss the plaintiffs’ complaint.





On December 17, 2009, the Company was named a defendant in Case Number 09-012905CO39, filed in the Circuit Court of Pinellas County, Florida, by a limited liability company, of which the Company’s CEO is a minority, non-controlling member.  The lawsuit alleges that the Company has failed and/or refused to pay for services rendered by the plaintiff, in breach of an agreement between the two parties. The plaintiff is seeking judgment against the Company in the amount of $13,520, plus damages that may accrue after the filing of the lawsuit, together with prejudgment interest, recoverable costs associated with the lawsuit and such other relief as may be appropriate under the circumstances.  The Company contends that the plaintiff has been paid in full for all services rendered, and intends to mount a vigorous defense to such claims.





On March 1, 2010, the Company, its CEO, Director, Chief Financial Officer (“CFO”), registered agent and Director of Compliance and Safety were named as defendants in Case Number 10000397CC, filed in the County Court of Martin County, Florida, by a person who formerly provided services to the Company as a captain, diver and general laborer. In the lawsuit, the plaintiff alleges that a former Company employee attacked the plaintiff, causing the plaintiff physical injuries, that the Company allowed personal items belonging to the plaintiff to be stolen from the Company’s dive house and that the Company wrongfully evicted the Plaintiff from the Company’s dive house. The plaintiff is seeking judgment against the Company and the above named individuals in the amount of $10,488, exclusive of court costs, fees and process of service. The Company believes that the plaintiff has no legal basis to hold the Company, or its executives and directors, accountable for alleged criminal activity by third parties. The Company also believes that there is no basis for the plaintiff’s remaining claims and intends to mount a vigorous defense to such claims.





On March 1, 2010, the Company, its CEO, Director, CFO, registered agent and Director of Compliance and Safety were named as defendants in Case Number 10000599CA, filed in the Circuit Court of Martin County, Florida, by a person who formerly provided services to the Company as a captain, diver and general laborer. The Company is not aware of the nature of the complaint or the alleged damages because it has not been served with this lawsuit.





On March 2, 2010, the Company filed a complaint naming a person who formerly provided services as a captain, diver, and general laborer to the Company as a defendant in the Circuit Court of Hillsborough County, Florida case number 10-CA-004674. The lawsuit contains numerous counts against the defendant, including civil theft, breach of contract, libel and negligence. Among other matters, the Company alleges that the defendant caused extensive damage to the Company’s main salvage vessel due to negligent operation, breached his separation agreement with the Company, and has made false and defamatory statements damaging the Company’s reputation. The Company believes that the defendant has engaged is such malicious and defamatory campaign as revenge for his termination by the Company and in effort to obtain additional payments from the Company. The Company intends to vigorously prosecute the defendant, both through civil action and in any related criminal complaints. In civil court, the Company is seeking injunctive relief and damages in an amount greater than $15,000, punitive damages to be determined at trial, costs and legal expenses allowed by law, and such other further relief as the court may deem just and proper. In addition, the Company believes that there may be additional parties that have conspired with, and have assisted, the defendant in making defamatory statements, and in tortuously interfering with certain business relationships of the Company. The Company intends to vigorously pursue all available courses of legal action against any parties who may be involved.





Item 1A.Risk Factors





Not required.


24


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





During the three month period ended March 31, 2010, the Company issued 12,050,000 restricted common shares to various consultants. Some of these shares were issued under existing consulting agreements and some of the shares were issued to show appreciation by the Company and provide incentive to various consultants who have previously provided services to the Company at rates below the market value of their services and/or who in some cases have been willing to defer cash payments for their services rendered. Additionally the Company desired to provide an inducement to several of these consultants to continue to provide services to the Company. Company believes that the issuance of the securities was exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering and based on the fact that such securities were issued for services to sophisticated or accredited investors and persons who are thoroughly familiar with the Company’s proposed business by virtue of their affiliation with the Company.





On various dates during the three month period ended March 31, 2010, the Company sold 22,200,000 shares of its restricted common stock for proceeds of $158,695. The proceeds were used for general corporate purposes, working capital and the repayment of debt.





Exemptions from Registration for Sales of Restricted Securities.





The issuance of securities referenced above were issued to persons who the Company believes were either “accredited investors,” or “sophisticated investors” who, by reason of education, business acumen, experience or other factors, were fully capable of evaluating the risks and merits of an investment in us; and each had prior access to all material information about us. None of these transactions involved a public offering. An appropriate restrictive legend was placed on each certificate that has been issued, prohibiting public resale of the shares, except subject to an effective registration statement under the Securities Act of 1933, as amended (the “Act”) or in compliance with Rule 144. The Company believes that the offer and sale of these securities was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) under the Securities Act of 1933 (the “Act”) thereof,  and/or Regulation D. There may be additional exemptions available to the Company.





Issuance of Securities Due to Conversion of Notes





During the period ended March 31, 2010, the holders of convertible promissory note converted and promissory notes that were acquired under asset purchase agreements with an aggregate face value of $21,500 converted their notes into 10,506,934 shares of the Company’s common stock. The Company believes that the offer and sale of these securities were exempt from the registration requirements of the Securities Act pursuant to Sections 3(a)(9) under the Securities Act of 1933, as amended.





Item 3. Defaults Upon Senior Securities





See Part I, Item 2, notes payable and convertible notes payable, in default, for discussion of defaults on certain debt obligations of the Company.





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





None.





Item 5. Other Information





None.





































25





Item 6. Exhibits





Set forth below is a list of the exhibits to this quarterly report on Form 10-Q.








Exhibit Number
Description*31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of theSecurities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.*31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securitiesand Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of2002.*32.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) ofthe Securities and Exchange Act of 1934, as amended, and 18 U.S.C. 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002.*32.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securitiesand Exchange Act of 1934, as amended, and 18 U.S.C. 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.








* Filed herewith.














SIGNATURE





Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.








Seafarer Exploration Corp.Date: May 21, 2010
By:
/s/ Kyle KennedyKyle Kennedy

President, Chief Executive Officer, Chairman of the Board























26