UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 205409

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2007

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

For the transition period from _____________ to________________

Commission file number 333-29903

SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC.(Name of small business issuer in its charter)

Utah                                                                                                               30-0123229State or other jurisdiction of incorporation or organization                                (I.R.S. Employer Identification No.)

503 East Washington Avenue, Suite 2D, Newtown, Pennsylvania                    18940(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (215)968-0200

Securities registered pursuant to Section 12(b) of the Act:N/A

Securities registered pursuant to section 12(g) of the Act:N/A

Check whether the issuer is not required to file reportspursuant to Section 13 or 15(d) of the Exchange Act [X]

Note - Checking this box above will not relieve anyregistrant required to file reports pursuant to Section 13 of 15(d) of theExchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark if no disclosure of delinquent filerspursuant to Item 405 of Regulation S-B contained in this form, and no disclosurewill be contained, to the best of registrant's knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-KSBor any amendment to this Form 10-KSB [X]

Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No

The issuer's revenues for the year ended June 30, 2007 were$1,860,442.

The number of shares outstanding of the issuer's Common Stockas of September 17, 2007 was 33,682,017 shares. The aggregate market value ofthe Common Stock totaling 13,682,789 shares held by non-affiliates, based on theapproximate average of the bid and asked prices of $0.18 per share as ofSeptember 17, 2007, was $2,495,302.

Transitional Small Business Disclosure Format (Check One): [] Yes [X] No

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             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| Item 1 Description of Business                                                                                                            3
Item 1A Risk Factors.                                                                                                                        6 
Item 1B Unresolved Staff Comments    8 
Item 2 Description of Property    8 
Item 3 Legal Proceedings    9
Item 4 Submission of Matters to a    Vote of Security Holders 9 PART II 
Item 5 Market for Common Equity,    Related Stockholder Matters and
Small Business Issuer Purchases of    Equity Securities 10 
Item 6 Management's Discussion and    Analysis or Plan of Operation 11
Item 7 Financial Statements    15 
Item 8 Changes in and    Disagreements with Accountants on Accounting
and Financial Disclosure    29
Item 8A Controls and Procedures    32
Item 8A(T) Controls and Procedures33
Item 8B Other Information    33PART III 
Item 9 Directors, Executive    Officers, Promoters, Control Persons and     Corporate Governance; Compliance    with Section 16(a) of the
 
Exchange Act 33
Item 10 Executive Compensation    35
Item 11 Security Ownership of    Certain Beneficial Owners and
Management and Related Stockholder    Matters 36 
Item 12 Certain Relationships and    Related Transactions 37
Item 13 Exhibits    39
Item 14 Principal Accountant Fees    and Services 39  SIGNATURES
2
**PART I****Item 1. Description of Business**
Sovereign Exploration Associates International, Inc. (the"Company") was incorporated in Utah in 1980. The Company on January 13, 2004,elected to be treated as a business development company under the InvestmentCompany Act of 1940 (the "1940 Act"). A business development company is aninvestment company that invests primarily in, and makes available significantmanagerial assistance to, eligible portfolio companies that may not have readyaccess to capital through conventional financial channels.

There was a change in control of the Company on October 17,2005. The Company, then known as CALI Holdings, Inc., on that date entered intoan Exchange Agreement (the "Exchange Agreement") with Sovereign ExplorationAssociates International, Inc., a Pennsylvania Company now known as HistoricDiscoveries, Inc. ("Historic Discoveries"). As a result of the ExchangeAgreement, Historic Discoveries became a wholly-owned subsidiary of the Companyand the former shareholders of Historic Discoveries received 90% of the capitalstock of the Company. All of the Directors and officers of the Company resigned,and new Directors and officers took office. Immediately prior to and inconnection with the entry into the Exchange Agreement, the Company disposed ofsubstantially all of its assets. For a fuller description of these transactions,see Item 13 - Certain Relationships and Related Transactions.
*The Business of Historical Shipwreck Recovery*****
Searching for and salvaging historical shipwrecks is amultistage process. The Company generally seeks to identify and recoverartifacts from historical shipwrecks dating from 1500 to 1900. The wrecked shipsthemselves generally were made of wood and have completely disintegrated. TheCompany therefore seeks to recover valuable and historically interestingartifacts from the shipwreck sites.

An initial step is locating promising sites for exploration.The Company has conducted extensive research into historical shipwrecks. Itcurrently focuses on inshore, shallow-water sites that tend to be less costlyand to provide the Company with a higher likelihood of greater recovery-per-divethan achieved by deep-water recovery operations. The Company also takes intoaccount the effect of local laws, which vary in the degree to which a salvermust share recovered items with governmental authorities.

For any licenses that are owned by the Company, it mustobtain an exploratory or disturbance permit before commencing exploratoryoperations. The permit gives the holder the exclusive right to conductexploratory operations in the area covered by the permit. The Company holds orhas rights to a number of these permits and considers that they make up asignificant portion of its net worth; in many cases, the permits are owned by athird party who contracts with a subsidiary of the Company. During theexploratory operations, the Company seeks to locate shipwrecks and to confirmtheir identification through examination of a limited number of salvaged items.Both exploratory and salvage operations are dependent upon favorable weatherconditions. For operations off the coast of Nova Scotia, where several of theCompany's sites are located, these are restricted to the warmer months of theyear.

A separate recovery permit is required before the Company canmake any substantial recoveries from a site. Recoveries under a recovery permitrequire the involvement of a science team, which examines recovered items andturns its findings over to the applicable governmental authority. The artifactsmust be thoroughly documented in accordance with commonly accepted historicaland archaeological standards. These records will be retained by the Company andmade available to researchers by request. After items have been recovered andexamined, it generally is necessary to negotiate an in-kind sharing of recovereditems with the governmental authority. In the Company's experience, thisnegotiation can take a year or more. The Company then can began realizing on therecovered items through a deaccession process. An effort will be made to keep adeaccessioned artifact in the public domain by offering museums and similarinstitutions the opportunity to purchase the artifact at fair market value asdetermined by the average of no less then two independent appraisers adhering tothe standards of the Appraisers Association of America standards. Considerationwill be given to institutions in the region of origin.

3

The eventual deaccession will follow one of three options:

*Sale - In order of preference, artifacts may be sold for    fair market value to a museum, university or public institution collection;    by publicly advertised auction to the highest bidder; or by private sale    based upon fair market value.

*Exchange - With approval of the Board of Directors,    artifacts can be exchanged for another artifact from a qualified museum,    university or public institution collection to further complete the present    collection of that institution, when the exchanging institution has a policy    allowing for final deaccession to a private entity.

*Gift - With approval from the Board of Directors,    artifacts may be deaccessed to a qualified museum, university or public    institution collection to further complete a given collection.

Typically it will take a period of two to three years fromthe Company's location of a shipwreck to when it begins to realize on itsrecoveries. The Company may also realize returns from its intellectual propertyrights with respect to historically significant or interesting shipwrecks, suchas the development and sale of documentaries and television specials, but theseare expected to be no more than a secondary revenue source. They may, however,increase interest in sales of recovered artifacts. In an initial use of theCompany's intellectual property, the Company has entered into a mediapartnership with Principle Pictures, Inc., planning the creation of at leastfive television documentaries and a series of companion books, educationaltools, and interactive websites.
*The Company's Subsidiaries*
The Company conducts its operations through its subsidiariesand controlled companies. These entities generally lease all major equipment,including dive ships, for only the period of time it is actually used inoperation. However, equipment may be owned if it appears to be advantageous todo so, particularly with less costly technological materials, such ascompressors, small zodiac boats, and dive equipment for recovery teams, thatrequire minimal maintenance and have relatively long life-cycles. Operations areconducted primarily by part-time and contracted explorers, divers, historians,marine archaeologists, and other personnel. 

The Company, including its subsidiaries, has five (5)full-time employees.

The Company generally intends to finance specific recoveryefforts through a system of project finance. The Company will form aspecial-purpose entity, typically a limited liability company, to conduct aspecific recovery effort. The special-purpose entity will be managed by asubsidiary of the Company and will seek investment from affluent individuals tofund its operations. Such investors may be collectors who seek an in-kind shareof recovered items, individuals who are attracted by the opportunity toparticipate in a historically significant recovery effort, or investorsattracted by the entity's potentially large gains. The Company's share ofproceeds will be reduced by the share distributable to the entity's investors,which will vary with the amount of investment received.
*Historic Discoveries, Inc.*
Historic Discoveries is the Company's primary subsidiary andis wholly-owned by the Company. The Company acquired Historic Discoveries inconnection with the change in control on October 17, 2005, and it has since madeadditional investments in Historic Discoveries. Historic Discoveries has twowholly-owned subsidiaries, Artifact Recovery & Conservation Inc. ("ARC") and SeaResearch, Inc. ("SRI").

The Company and Historic Discoveries had agreed to distribute20% of the net profits arising out of the exploitation of permits, licenses,finder fees rights, contracts and other rights (collectively, "permits") held byARC to its former corporate parent, Sovereign Marine Explorations, Inc. ("SME"),and to distribute 20% of the net profits arising out of the exploitation ofpermits held by SRI to its former corporate parent, Sea Hunt, Inc. ("Sea Hunt").On May 19, 2007, the Company issued 10,000,000 shares of Convertible PreferredStock in exchange for this 20% net profits participation agreement. The stockcarries a 4 to1 conversion feature into 40,000,000 common shares of the Company.
**
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*Artifact Recovery & Conservation, Inc.*
ARC holds licenses for some of the Company's most promisingsites. ARC has already recovered substantial artifacts from Le Chameau, a Frenchship lost off Cape Lorembec, Cape Breton Island, Nova Scotia, on August 27,1725. The Chameau carried extensive ladings of specie, military supplies, tradegoods, and commercially-consigned freight, as well as the personal effects ofwealthy passengers. ARC submitted artifacts from the Chameau and other ships tothe Nova Scotia government for artifact selection in 2005, and the selectionprocess was completed in March 2006. 

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

ARC was notified on August 31, 2006, its application for aClass B recovery permit for the Fantome Cove treasure trove site has not beenapproved. A Class B permit is required before ARC can make any substantialrecoveries from the site. The Nova Scotia Department of Tourism, Culture &Heritage has recommended that ARC and Le Chameau Explorations Limited (awholly-owned subsidiary of the Company), secure permission from the UnitedKingdom. The Company's management and counsel believe that the admiralty andtreaty laws governing the site will substantiate ARC's and Le ChameauExplorations Limited's Interest as license holder. As of June 30, 2007, theCompany is arranging meetings with representatives from the United Kingdom andis waiting for Class B permit approval. 
*****Sea Research, Inc.*
SRI holds the rights to seven sites, several of which havemultiple ships. The wrecked ships are believed to have contained diversecargoes, including money, bullion, religious artifacts, jewelry, and otherpersonal items. SRI also owns an exploratory vessel, the Sea Quest, through itswholly-owned subsidiary, Sea Quest, Inc
*Sovereign Exploration Associates International of Spain, Inc.*
Sovereign Exploration Associates International of Spain, Inc.("SEAI - Spain"), a wholly-owned subsidiary of the Company, was acquired inNovember 2005 from unrelated parties in exchange for $800,000 of convertibledebentures. The debentures were due on November 15, 2006, with accrued interestat a rate of 6% per annum. The Company may, at any time prior to November 15,2006, convert the principal amount of the debentures into common stock of theCompany at the average closing price of the Company's common stock for the tenbusiness days prior to the conversion date. The debenture holders may, at anytime after November 15, 2006, convert the principal amount of the debenture intocommon stock of the Company at the average closing price of the Company's commonstock for the ten business days prior to the conversion date. SEAI - Spain hassecured the finder's rights to four shipwrecks in Spain with potential historicand intrinsic value. Effective November 15, 2006, the Company converted thedebentures into 848,000 (including accrued interest of $48,000) common shares ofthe Company at a price of $1.00 per share.

5
*Lavelle Holdings, Inc.

On June 11, 2007, the Company acquired 100% of the commonstock of the Lavelle Holdings, Inc., a company based in Texas, for considerationof $300,000 cash at closing plus a cash amount equal to five (5) times the netprofit of Lavelle Holdings, Inc. for a one (1) year period beginning on or thedate that is six (6) months after the closing date. This amount will be paid incash and/or stock on or before nineteen (19) months following the closing date.Management is unable to determine the amount of this contingent liability as ofthe balance sheet date of June 30, 2007. If the Company becomes insolvent duringthe nineteen (19) months following the closing date, the selling shareholdershave the right of refusal to repurchase the purchased stock from the Company.

In consideration for certain rights to purchase common stockof Lavelle Holdings, Inc. the Company paid $225,000, in cash, to the rightsholders, at closing. The total cash paid for this acquisition at closing on June11, 2007 was $525,000. Lavelle Holdings, Inc. is a wholly-owned subsidiary ofthe Company.
*LeChameau Explorations Limited*
On June 13, 2007, the Company acquired 100% of the issued andoutstanding capital stock of LeChameau Explorations Limited, a company based inNova Scotia, for total consideration of USD $274,009. The payment for the stockis in the form of a note agreement, which is collateralized by the common stockof the Company. The note is due June 13, 2008. If the Company defaults, the noteis convertible to the Company's common stock at a rate of 1.25 times theoutstanding liability as of its due date valued at the ten day average of thestock price prior to the conversion date. Under this acquisition, the Companynow owns twenty-five licenses under the Nova Scotia Treasure Trove Act.LeChameau Explorations Limited is a wholly-owned subsidiary of the Company.
****Cautionary Statement Regarding Forward-Looking Statements**
This Annual Report on Form 10-KSB may contain forward-lookingstatements which include assumptions about future market conditions, operationsand financial results. These statements are based on current expectations andare subject to risks and uncertainties. They are made pursuant to safe harborprovisions of the Private Securities Litigation Reform Act of 1995. TheCompany's actual results, performance or achievements in the future could differsignificantly from the results, performance or achievements discussed or impliedin such forward-looking statements herein and in prior Securities and ExchangeCommission ("SEC") filings by the Company. The Company assumes no obligation toupdate these forward-looking statements or to advise of changes in theassumptions on which they were based. Factors that could cause or contribute tosuch differences include, but are not limited to, changes in the competitiveenvironment of the Company, general economic and business conditions, industrytrends, and changes in government rules and regulations and environmental rulesand regulations.
**SEC Filings**
The Company's Quarterly Reports on Form 10-QSB for theperiods ended March 31, 2007, December 31, 2006 and September 30, 2006 werebased on preliminary information that has in some cases been corrected in thisAnnual Report on Form 10-KSB.

The Company is an SEC reporting company and, pursuant toSection 15(d) of the Securities Exchange Act of 1934, it is required to fileAnnual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, and CurrentReports on Form 8-K with the SEC. However, the Company is not registered underSection 12 of the Securities Exchange Act of 1934. Accordingly, the Company isnot required to provide proxy statements, information statements, or annualreports to its shareholders, although it may optionally do so, and its investorsare not required to file Forms 3, 4, or 5 or Schedules 13D or 13G with the SEC.

Further information about the Company is available at itswebsite, *www.sea-int.com*.Although the Company does not currently post its SEC filings on its websitebecause of its limited number of full-time personnel, those filings areavailable online via the SEC's EDGAR program at the SEC's website, *www.sec.gov.***Item 1A. Risk Factors.**
THE COMPANY'S BUSINESS INVOLVES A HIGH DEGREE OF RISK.SHAREHOLDERS AND INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORSAND THE OTHER INFORMATION INCLUDED IN THIS REPORT.
*The Company's Business Is Inherently Risky and Speculative*
The Company's business of historic shipwreck exploration andrecovery is inherently risky, and the risks predominate at each step of theCompany's business model.

6

The value of the Company is largely dependent on permitsgiving the Company (through its subsidiaries and controlled companies) theexclusive right to exploration and recovery for historical shipwrecks inspecified areas. The value of these permits is dependent, to a substantialdegree, upon the research and data assembled by the Company indicating that ahistorical shipwreck is likely to be in the area. Although the Company hasaccess to a substantial amount of research and data, which has been compiledduring various projects, all such research and data regarding shipwrecks isimprecise, incomplete and unreliable, as it is often composed of, or affectedby, numerous assumptions, rumors, "legends," historical and scientificinaccuracies, and inaccurate interpretations that have become a part of suchresearch and data over time. The shipwrecks sought by the Company generally havelong disintegrated, and confirming their locations is difficult. Even if theshipwrecks are accurately located in waters covered by the Company's permits,the shipwrecks may have been salvaged or may not have had anything of value onboard at the time of the sinking.

Underwater recovery operations are inherently difficult anddangerous and may be delayed or suspended by weather, sea conditions or othernatural hazards. Further, such operations may be undertaken more safely duringcertain months of the year than during others. These risks are particularlygreat in the waters off Nova Scotia, where many of the shipwrecks sought by theCompany are believed to be located. There can be no assurances that the Companywill be able to conduct search and/or recovery operations only during suchfavorable periods. In addition, even though sea conditions in a particularsearch location may be somewhat predictable, the possibility exists thatunexpected conditions in a search area may occur and that such unexpectedconditions might adversely affect operations. Further, it is possible thatnatural hazards may prevent or significantly delay search and recoveryoperations.

From time to time, it will be necessary to contract withthird parties for additional equipment and/or labor necessary for the locationand recovery of wreck sites. There can be no assurance that third partycontracts will be available to the Company. The availability of specializedrecovery equipment may present a problem, and the cost of obtaining the use ofsuch equipment to conduct recovery operations is uncertain and will depend on,in part, the location and condition of the wreckage to be recovered. Persons andentities other than the Company and its affiliates may claim title to theshipwrecks. Even if the Company is successful in locating and recoveringshipwrecks, there is no assurance of establishing the rights to propertyrecovered as against governmental entities, prior owners, or other attemptedsalvers claiming an interest therein. There is also a risk of theft of valuableitems at sea, both before and after their recovery, by pirates or poachers andwhile in transit to a safe destination.

Even after the location of a historical shipwreck has beenconfirmed, it may require a period of years before the Company can realizerevenue from salvage operations. The Company generally must obtain a recoverypermit before the Company can make any substantial recoveries from the site.Salvage operations generally require a substantial period of time to complete.Recovered items must be carefully examined by the Company's science team. TheCompany then must negotiate with applicable government authorities, whichgenerally are entitled to retain a portion of the recovered items. The issuanceof recovery permits and negotiations with governmental authorities may result indelays particularly if there is public sentiment against salvage, there aremultiple governmental claims to the shipwreck, or the recovered items areespecially valuable or historically significant.

Even if valuable items can be located and recovered, it isdifficult to predict the price that may be realized for these items. The itemsmay have been damaged by salt water or by natural sea conditions. The value ofthe recovered items will fluctuate with a precious metals market that has beenhighly volatile in recent years. Moreover, the entrance into the market of alarge supply of similar items from shipwrecks, including those located andrecovered by the Company, could itself depress the market for these items. Themethods and channels that may be used in the disposition of the recovered itemsare uncertain at present and may include one or a combination of severalalternatives. Ready access to buyers for disposition of any artifacts or othervaluable items recovered cannot be assured and delays in the disposition of suchitems are very possible.
*Need for Additional Capital*
Although the Company has recovered a number of valuable itemsin its salvage operations to date, it has not yet realized any revenues fromthese salvage operations, and any revenues it realizes in the near future areunlikely to be sufficient to fund the Company's operations. In addition, theCompany has minimal financial resources. Accordingly, the Company can continueits operations only if it or its subsidiaries or controlled companies can raiseadditional working capital.

7
*Legal and Political Risks*
Historical shipwreck recovery is highly regulated and can bea high-profile political issue, due to jurisdictional disputes, public concernover historically significant shipwrecks, and archaeological and environmentalconcerns. A localized group in Nova Scotia has forwarded the idea to repeal theNova Scotia Treasure Trove Act. This action remains on the horizon. However, theCompany's legal representation in Nova Scotia indicates the likelihood that itwill not move forward and if it does that the Company may be grandfathered for aperiod of time.
*Legal Exposure*
In the period leading up to the change in control of theCompany on October 17, 2005, the Company, under its prior management, disposedof a number of its assets for aggregate consideration of $20 and issued800,000,000 shares (800,000 shares on a split-adjusted basis) for considerationthe receipt of which the Company's present management has been unable toconfirm. In addition, in the period from October 17, 2005, to September 22,2006, although the Company had elected treatment as a business developmentcompany under the 1940 Act, the Company may not have met all of the requirementsfor treatment as a business development company, and some of the activities ofit or its affiliates raised questions under the 1940 Act. The Companyaccordingly could face legal exposure in the event of either private litigationor a SEC enforcement action with respect to events either before or after thechange in control. Neither the SEC nor any private litigant has expressed apresent intention of bringing such an action against the Company.
*Dependence on Key Personnel*
The Company's success will depend largely on the skills ofits key management personnel, who currently function without employmentcontacts. The loss of one or more of the Company's key management personnel maymaterially and adversely affect its business and results of operations. TheCompany cannot guarantee that it will be able to replace any key managementpersonnel in the event that their services become unavailable. 
*There is a Limited Public Trading Market for the Company's Securities.*
There is only a limited public trading market for theCompany's securities and no assurances can be given that a liquid market, oractive market, will develop or, if developed, that it will continue to bemaintained. 
*Limitation on the Use of Net Operating Loss Carryforwards*
Effective October 17, 2005, there was a change in control asdefined under Section 382 of the Internal Revenue Code. As of June 30, 2007, theCompany had federal net operating loss carryforwards of approximately $853,311portions of which expire yearly through 2027 (subject to certain limitations).This balance gives effect to annual limitations on the utilization of the losscarryforwards caused by "ownership changes" as defined in Section 382 of theInternal Revenue Code. If there is any additional ownership change, there can beno assurance as to the specific amount of net operating loss carryforwardsavailable in any post-change year since the calculation is based upon afact-dependent formula.
**Item 1B. Unresolved Staff Comments.

Not applicable.
**Item 2. Description of Property.**
The Company's principal offices are located at 503 WashingtonAvenue, Suite 2D, Newtown, Pennsylvania and 120 Alpine Road, West Palm Beach,Florida. The offices in Pennsylvania and Florida are leased by affiliates of theCompany and the Company utilizes some of the space. The offices are sufficientlyequipped for the business of the Company as now conducted.
****
8
**Item 3. Legal Proceedings.

On June 30, 2006, the Company entered into a SettlementAgreement and General Release ("Settlement Agreement") among members of theCompany's former management and their affiliates, James E. Jenkins, CharlesGianetto, KMA Capital Partners Ltd., KMA Capital Partners, Inc. and CF Holdings,LLC (collectively, the "Former Management Parties"). The purpose of theSettlement Agreement was to reach a comprehensive resolution to the disputesbetween the Company and the Former Management Parties, in particular anarbitration demand filed by KMA Capital Partners, Ltd. on or about December 29,2005 (American Arbitration Association Case No.: 33-180-00463-05) relating to anExchange Agreement dated October 17, 2005. The Settlement Agreement providesthat the Former Management Parties release all claims that they may have againstthe Company, its parents, subsidiaries, affiliates, predecessors, successors,assigns, partners, agents, representatives and attorneys (collectively,"affiliated parties") and that the Company releases all claims it may haveagainst the Former Management Parties. 

In a matter related to KMA Capital Partners Ltd, JamesJenkins and Charles Gianetto, filed as *KMA Capital Partners Ltd., v.Sovereign Exploration Association, Inc., et al*, in the Circuit Court of theNinth Judicial Circuit, in and for Orange County, Florida, the Company claimsthat KMA Capital Partners Ltd, James Jenkins and Charles Gianetto are in breachof a "Leak Out Agreement", which restricts the number of shares of the Company'scommon stock, traded as SVXA.OB, they are allowed to sell or transfer. As ofJune 30, 2006, the court entered an Order which limits Mr. Jenkins and Mr.Gianetto to selling no more than 2,000 shares of the Company's common stock pertrading day. As of June 30, 2007, there is no liability under this matter thatrequires the establishment of a liability within the accompanying consolidatedfinancial statements.

The Company is one of several defendants in a law suit, *Patricia A. Mullican v. Sovereign Exploration Associates International, Inc., etal*in the Circuit Court of the Ninth Judicial Circuit, in and for OrangeCounty, Florida. The plaintiff in this case is seeking damages for the allegedfailure to pay two (2) debentures issued by TS&B Holdings to Mr. Mullican (onefor $150,000 and the other for $250,000) as well as an unpaid promissory notefor $50,000 plus accrued interest on the debentures and the promissory notealong with attorney fees. TS&B Holdings, Inc. subsequently became Cali Holdings,Inc., which was acquired by the Company in October 2005. It is the Company'sposition that these debts are not its responsibility, to the extent that neitherthe debentures nor promissory notes were disclosed at the time Cali Holdings,Inc. was acquired by the Company. There are numerous defenses which the Companywill be relying upon to support its legal position that these obligations arenot its responsibility. As of June 30, 2007, the accompanying consolidatedfinancial statements do not provide for any liability in the event that theCompany is deemed responsible in this case.
**Item 4. Submission of Matters to a Vote of Security Holders.

Effective September 20, 2006, the shareholders of the Companyvoted, affirmative, to file the Company's election to withdrawal its BusinessDevelopment Company status under the Investment Company Act of 1940. 
****
9
** 

PART II

Item 5. Market for Registrant's Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities.**
Sovereign Exploration Associates International, Inc. CommonStock, par value $.001 per share ("Common Stock"), is traded over the counter onthe OTC Bulletin Board ("OTCBB") under the symbol "SVXA." The following tablesets forth, for the period indicated, the range of high and low closing pricesreported by the OTCBB. Such quotations represent prices between dealers and maynot include markups, markdowns, or commissions and may not necessarily representactual transactions.

Quarter Ended
High
Low
06/30/2006
$ 0.88
$ 0.45
09/30/2006
$ 0.63
$ 0.35
12/31/2006
$ 0.62
$ 0.26
03/31/2007
$ 0.78
$ 0.25
06/30/2007
$ 0.89
$ 0.30*Shareholders of Record*
As of September 17, 2007, there were ninety-three (93)shareholders of record of the Company's common stock.*Dividends*
The Company did not pay a cash dividend on its Common Stockduring the year ended June 30, 2007 and, by reason of its present financialstatus and its contemplated financial requirements, does not anticipate payingany cash dividends in the foreseeable future. It is anticipated that earnings,if any, which may be generated from operations will be used to finance theoperations of the Company.
**Unregistered/Registered Sales/Issuances of Equity Securitiesand Use of Proceeds**
On October 5, 2005, the Company, under prior management,issued 800,000 (split-adjusted) shares of Common Stock to KMA Capital PartnersLtd. The Company does not possess any documentation or knowledge regarding theconsideration for which these shares were issued to KMA Capital Partners Ltd.,nor has it been able to confirm that any consideration was received. The shareswere issued in a transaction exempt from registration under Section 4(2) of the1933 Act, and the shares originally bore a restrictive legend. Subsequently,prior management caused the legend to be removed, and 400,000 shares were soldon the open market in December 2005. These shares were the subject ofarbitration between current and prior management; see Item****13 - CertainRelationships and Related Transactions**.** The remaining 400,000 shares haveagain been legended. 
****
On November 15, 2005, the Company issued $800,000 ofconvertible debentures in exchange for finders' rights and other assets werebeing held by SEAI - Spain. The debentures were due on November 15, 2006 withaccrued interest at a rate of 6% per annum. The Company may, at any time priorto November 15, 2006, convert the principal amount of the debentures into CommonStock of the Company at the average closing price of the Company's common stockfor the ten business days prior to the conversion date. The debenture holdersmay, at any time after November 15, 2006, have converted the principal amount ofthe debentures into Common Stock of the Company at the average closing price ofthe Company's common stock for the ten business days prior to the conversiondate. The Company relied upon the exemption from registration contained inSection 4(2) of the 1933 Act. 

As of November 15, 2006, these debentures along with accruedinterest were converted into 848,000 common shares of the Company.

10
*For the year ended June 30, 2007:*
The Company issued the following common shares:

 

*Issuance of    common shares - settlement - prior management                                            

910,000

(1)

 

*Conversion of    convertible debt - acquisition of SEAI - Spain                                           

848,000

 

*Conversion of    convertible debt - private individual                                                             

95,851

 

*Issuance of    common shares - Rule 506 - Regulation D                                                    

700,000

(2)

 

*Issuance of    common shares - Rule 144 - Regulation D                                                    

350,000

 

*Issuance of    common shares - Services - S-8                                                                   

735,000

Total common shares issued were 3,638,851; the par value ofthe common shares and the additional paid-in capital increased by $2,069,537.

(1)       Subject to a leak-out agreement

(2)       $175,000 cash was received for the issuance of common stock

The balance of the increase in additional paid in capital of$1,407,177 was non-cash issuances of common stock, additional capitalcontributions, and conversion of convertible debt.

In each case when securities were issued in reliance upon anexemption from registration pursuant to Section 4(2) of the 1933 Act, therecipients took the securities for investment purposes without a view todistribution and had access to information concerning the Company and itsbusiness prospects, as required by the Securities Act. In addition, there was nogeneral solicitation or advertising for the purchase of the Company'ssecurities. The securities were issued only to persons with whom the Company hada direct personal preexisting relationship, and after a thorough discussion.Finally, the Company's stock transfer agent has been instructed not to transferany of such shares, unless such shares are registered for resale or there is anexemption with respect to their transfer. All certificates representing theremaining shares bear restrictive legends as required by the 1933 Act. 
****
On March 7, 2007, the Board of Directors approved the FormS-8 registration for the 2006 Stock Incentive Plan for Employees andConsultants. 3,000,000 shares of the Company's common stock were registered withthe SEC in order to provide employees and consultants of the Company and itssubsidiaries with an increased incentive to make significant and extraordinarycontributions to the long-term performance and growth of the Company and itssubsidiaries, to join the interest of employees and consultants with theinterest of the shareholders of the Company, and to facilitate attracting andretaining employees and consultants of exceptional ability.
**Item 6. Management's Discussion and Analysis or Plan ofOperation**
The following information should be read in conjunction withthe consolidated financial statements and notes thereto appearing elsewhere inthis Form 10-KSB.
*Overview*
The Company was a financial service company providingfinancing and advisory services to small and medium-sized companies throughoutthe United States. Effective January 5, 2004, the Company's shareholdersapproved the proposal to allow the Company to elect to be treated as a businessdevelopment company ("BDC") under the 1940 Act. The Company on September 22,2006, withdrew its election to be treated as a BDC. Following the withdrawal ofits election, the Company carries on a marine recovery and explorationsbusiness, which it conducts through subsidiaries and controlled companies, andwill be managed so that it will not be subject to the provisions of the 1940Act. On June 11, 2007, the Company acquired 100% of the outstanding common stockof Lavelle Holding, Inc. On June 13, 2007 the Company acquired 100% of theoutstanding common stock of LeChameau Explorations Limited. 

11

 

For the year ended June 30, 2006 and prior years, the Companyprepared its financial statements in accordance with accounting principlesgenerally accepted in the United States of America for investment companies.Because the Company has withdrawn its BDC election and will not in futureperiods prepare its financial statements as an investment company, the financialstatements discussed herein for the year ended June 30, 2007 are not comparableto any prior years.

The increasing complexity of the business environment andapplicable authoritative accounting guidance required the Company to closelymonitor its accounting policies. The Company had identified three criticalaccounting policies that require significant judgment. The following summary ofthe Company's critical accounting policies is intended to enhance your abilityto assess its financial condition and results of operation and the potentialvolatility due to changes in estimates. 
*Valuation of Investments*
The Company is no longer subject to valuing its privateinvestments as value is defined in Section 2(a)(41) of the 1940 Act, (i) themarket price for those securities for which a market quotation is readilyavailable and (ii) for all other securities and assets, fair value is determinedin good faith by the board of directors. 

As of September 17, 2007, the following is a list of theprivate companies in which the Company had an investment in and notesreceivable, stated at the lower of cost or market value; 

Name of Company                        

 

Cost                        

 

FMV

Gulf Coast Records, LLC -

Investment and Note Receivable    
    $    1,006,717    $-
Reds Caribbean - Investment        
    $    51,962    $51,962
Totals                                           

$

1,058,679 

$
51,962

See the accompanying Balance Sheet dated June 30, 2007contained herein. The investments are reflected at the lower of cost or market.Since there is typically no readily ascertainable market value for theinvestments in its portfolio, the Company valued substantially all of itsinvestments at the lower of cost or market as determined in good faith by theboard of directors pursuant to a valuation policy and consistent valuationprocess. Because of the inherent uncertainty in determining the fair value ofinvestments that do not have a readily ascertainable market value, the fairvalue of its investments determined in good faith by the board of directors maydiffer significantly from the values that would have been used had a readymarket existed for the investments, and the differences could be material.

Initially, the fair value of each such portfolio investmentwas based upon original cost. There is no single standard for determining fairvalue in good faith. As a result, determining fair value requires the judgmentbe applied to the specific facts and circumstances of each portfolio investment.The Board of Directors considers fair value to be the amount which the Companymay reasonably expect to receive for portfolio securities when sold on thevaluation date. 
*Gulf Coast Records, LLC*
The investment (a 49% minority interest) and note receivablein Gulf Coast Records, LLC was acquired as part of the Exchange Agreement datedOctober 17, 2005. In the year ended June 30, 2006, while reporting under the 40Act as a business development company, the Board of Directors agreed withmanagement's assessment to write this investment down to zero based on theinformation received from the management of Gulf Coast Records, LLC. For theyear ended June 30, 2007, the investment in and note receivable to Gulf Coast isbeing carried as zero, which is the lower of cost or market.

12

*Reds Caribbean*
The investment (a 30% minority interest) in Reds Caribbeanwas acquired in the stock purchase agreement with the shareholders of LavelleHoldings, Inc. on June 11, 2007. As of June 30, 2007, the Company is recordingthis newly acquired investment at its cost of $51,962.

For the year ended June 30, 2007 and for future years, theCompany expects to not record any changes in estimated fair value or have any"net increase (decrease) in unrealized (depreciation) appreciation" in itsstatement of operations.
*Valuation of Loans and Debt Securities*
The Company did not value its loans or debt securities abovecost, but loans and debt securities were subject to fair value write-down whenthe asset is considered impaired with respect to the Company's investments. Asof June 30, 2007, the note receivable to Gulf Coast Records, LLC of $832,849 wasconsidered impaired and continues to be carried as zero. The investment is RedsCaribbean was acquired in June 2007 in conjunction with the acquisition ofLavelle Holdings, which is not considered as impaired and it is being carried atits cost.
*Financial Condition**For the year ended June 30, 2007:*
Total assets increased by $2,659,057 or 112% to $5,025,497.Cash increased by $541,766 primarily because of the $1,000,000 cash the Companyreceived under the note payable in June 2007. Accounts receivable of $323,493 isthat of Lavelle Holdings, Inc., a wholly-owned subsidiary of the Company.

Investments of $51,962 represent Lavelle Holdings, Inc'sminority ownership in Reds Caribbean. 

The cash and cash equivalents were approximately 10.8% oftotal assets as of June 30, 2007.

Capitalized costs and permits increased by $1,616,836 whichwas primarily funded by the issuance of common stock, proceeds from notespayable and proceeds from related party notes payable.

Results of Operations
*For the year ended June 30, 2007:*
Revenue was $1,860,442.

Loss from operations was $634,135 primarily due to the lackof significant revenues and the related cost of being a public company. TheCompany has yet to realize any revenue from the artifacts it has recoveredto-date.

Net loss was $777,316; interest expense of $144,532 wasincurred due to the accrued interest on the notes payable, the debenture payableand the related party notes payable.

Net cash used in operating activities was $2,423,336primarily from the increase of $1,616,836 in costs incurred for the Company'scapitalized costs and permits in its diving operations, and acquisition ofLeChameau Explorations Limited in June 2007 and the net loss of $777,316. TheCompany issued stock for services with a value of $376,200
*Interest Income*
Interest income for the year ended June 30, 2007 was $1,351.The interest income was from a money market savings account that the Companymaintained in Florida. 

13
*Operating Expenses*
Total operating expenses for the year ended June 30, 2007were $1,019,945. The operating expenses consisted of $116,144 in salaries andwages incurred by Lavelle Holdings, Inc.; $585,304 in general administrativeexpenses and $318,497 in legal and professional fees. A significant amount ofthe legal and accounting fees of approximately $150,000 incurred during the yearended June 30, 2007 were due to the Company's withdrawal of its election to be aBusiness Development Company (BDC) under the 1940 Act in September 2006.

The officers of the Company agreed to write-down theiraccrued and unpaid salaries and reimbursable expenses to zero ($0) for the yearended June 30, 2007 in the amount of $446,403. The due to related parties on theaccompanying consolidated balance sheet includes the accrued and unpaid salariesand reimbursable expenses incurred through June 30, 2006 of $1,598,340 lessadjustments of $360,614 to equal $1,237,726 as of June 30, 2007
*Liquidity and Capital Resources*
At June 30, 2007, the Company had $542,336 in cash and cashequivalents. The Company does not expect its cash on hand and cash generatedfrom operations to be adequate to meet its cash needs at its current level ofoperations, including the next twelve months. The Company intends to seek toraise additional funds from investors, either directly or through its subsidiaryor controlled companies, including special-purpose entities formed to conductspecific marine salvage operations. There can be no assurance that the Company'sfund-raising efforts will be successful. The Company also expects to realizesome revenues from the sale of previously salvaged artifacts by a subsidiary,although these revenues by themselves are not expected to be sufficient to fundthe Company's operating costs. The Company expects that its wholly-ownedsubsidiary, Lavelle Holdings, Inc., will generate cash from it own operations tobe sufficient for its operations during the next twelve (12) months.
*Debt Financing*
On June 4, 2007, the Company received $1,000,000 cash under apromissory note. Under the terms of the note, Company is obligated to pay thenote in one payment of all outstanding principal plus all accrued unpaidinterest on or before the six month anniversary of the closing date unless theholders agree to extend the note, in which case the note shall become a demandnote, payable upon demand or at such later date as specified by holders toCompany in writing, in holders sole discretion. The Company's stock is thecollateral that supports this note. Unless otherwise agreed or required byapplicable law, payments will be applied first to any accrued unpaid interest;then to principal; then to any late charges; and then to any unpaid collectioncosts. The annual interest rate for this Note is computed on a 365 days per yearbasis. Company will pay Holders at Holders address or at such other place asHolders may designate in writing. The interest rate on this Note is six percent(6%) per annum calculated on the principal amount of the Note then outstanding.Company may make a prepayment, in whole or in part, of this Note without theprior consent of Holders with no prepayment penalty. At the maturity date of thenote, the holders shall be entitled to purchase 250,000 shares of common stockof the Company at a price of $.20 per share. The holders will also be entitledto purchase an additional 250,000 shares of common stock of the Company at theclosing price of the Company stock as reported on the OTCBB on the closing date(June 4, 2007) and, in addition, these shares must be exercised within one yearfrom the closing date.

All proceeds of the equity and debt financing for the yearended June 30, 2007 were used for the stated operations of the Company. As ofJune 30, 2007, the Company maintained a cash balance in checking and moneymarket accounts of $542,336 at five (5) banking institutions located inPennsylvania, Florida, Texas and Nova Scotia.
*Quantitative and Qualitative Disclosures about Market Risk*
The Company's investment activities contained elements ofrisk. The portion of the Company's investment portfolio consisting of equity orequity-linked debt securities in private companies was subject to valuationrisk. Because there was typically no public market for the equity andequity-linked debt securities in which it invested, the valuation of the equityinterest in the portfolio is stated at "fair value" and determined in good faithby the Board of Directors on a quarterly basis in accordance with the Company'sinvestment valuation policy. In the absence of a readily

14

ascertainable market value, the estimated value of theCompany's portfolio may have differed significantly from the value that would beplaced on the portfolio if a ready market for the investments existed. At timesa portion of the Company's portfolio may have included marketable securitiestraded in the over-the-counter market. In addition, there may have been aportion of the Company's portfolio for which no regular trading market existed.In order to realize the full value of a security, the market must have traded inan orderly fashion or a willing purchaser must be available when a sale is to bemade. Should an economic or other event occur that would not allow the marketsto trade in an orderly fashion the Company may not have been able to realize thefair value of its marketable investments or other investments in a timelymanner.

As of June 30, 2007, the Company did not have any off-balancesheet investments or hedging investments.
*Impact of Inflation*
The Company does not believe that its business was materiallyaffected by inflation, other than the impact inflation may have on thesecurities markets, the valuations of business enterprises and the relationshipof such valuation to underlying earnings, all of which will influence the valueof the Company's investments.
**Item 7. Financial Statements**
 
**FINANCIAL STATEMENTS**
 

Report of Independent Registered Public Accounting Firm  

Consolidated Balance Sheet - June 30, 2007

Consolidated Statements of Operations - Year ended June 30, 2007

Consolidated Statements of Stockholders' Equity (Deficit) - Year ended June  30, 2007 

Consolidated Statements of Cash Flows - Year ended June 30, 2007  

Notes to Consolidated Financial Statements

15

 
**Report of Independent Registered Public Accounting Firm

 

 **
To the Board of Directors Sovereign Exploration Associates International, Inc. Newtown, Pennsylvania

We have audited the balance sheet of Sovereign ExplorationAssociates International, Inc. as of June 30, 2007, and the related statement ofoperations, changes in stockholders' equity and cash flows for the years thenended. These financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that ouraudits provided a reasonable basis for our opinion.

In our opinion, the financial statements referred to abovepresent fairly, in all material respects, the financial position of SovereignExploration Associates International, Inc. as of June 30, 2007, and the resultsof operations and cash flows for the year then ended, in conformity with U.S.generally accepted accounting principles.

The accompanying consolidated financial statements have beenprepared assuming Sovereign Exploration Associates International, Inc. willcontinue as a going concern. As discussed in Note 2 to the consolidatedfinancial statements, the Company has incurred an accumulated deficit ofapproximately $19,850,000 and net losses of approximately $777,000 for thefiscal year ended June 30, 2007. This raises substantial doubt about theCompany's ability to continue as a going concern. Management's plans in regardto these matters are also described in Note 2. The financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2, the Company changed its method ofaccounting from fair value to historical cost in 2007.

 
*/s/Baumann, Raymondo & Company PA*
Baumann, Raymondo & Company PA

Tampa, Florida

October 11, 2007

 

 

 

 

16
**SOVEREIGN    EXPLORATION ASSOCIATES INTERNATIONAL, INC.****AND    SUBSIDIARIES**CONSOLIDATED    BALANCE SHEETJune 30, 2007AssetsCurrent assetsCash and cash    equivalents
$ 542,336 Accounts    receivable
323,493 Total current    assets 
865,829 Other assetsCapitalized costs    and permits
3,982,706 Research vessel
125,000 Investments, net    of allowance of $173,868
51,962 Notes receivable,    net of allowance of $832,849
- Total other    assets
4,159,668 Total assets
$ 5,025,497 Liabilities    and Shareholders' Equity (Deficit)Current    liabilitiesAccounts payable    and accrued expenses
$ 752,657 Related party    notes payable
3,459,359 Due to related    parties
1,237,726 Notes payable
1,000,000 Debentures    payable 
99,174 Total current    liabilities
6,548,916 Total liabilities
6,548,916 Commitments and    contingencies
- Shareholders'    equity (deficit)Preferred stock,    Series A, $0 par value, 100,000,000 sharesauthorized;    10,000,000 issued and outstanding as June 30, 2007
- Common stock,    $.001 par value, 250,000,000,000 shares authorized;    29,842,017 issued and outstanding as of June 30, 2007 
29,842 Additional    paid-in capital
19,100,845 Minority interest
(803,530)Accumulated    deficit
(19,850,576)Total    shareholders' equity (deficit) 
(1,523,419)Total liabilities    and shareholders' equity (deficit)
$ 5,025,497 See accompanying    notes to consolidated financial statements, which are an integral part of    the financial statements.
17
**SOVEREIGN    EXPLORATION ASSOCIATES INTERNATIONAL, INC.****AND    SUBSIDIARIES**CONSOLIDATED    STATEMENT OF OPERATIONSFor the year ended June 30, 2007Revenue
$ 1,860,442 Cost of sales
1,474,632 Gross Profit
385,810 Operating    expensesSalaries and    wages
116,144 General and    administrative
585,304 Legal and    professional fees
318,497 Total operating    expenses
1,019,945 Income (loss)    from operations
(634,135)Other income    (expenses)Interest income
1,351 Interest expense
(144,532)Total other    income (expenses)
(143,181)Operating income    (loss) for income taxes
(777,316)Provision for    income taxes 
- Net income (loss)
$ (777,316)Net operating    loss per common shareBasic
$ (0.03)Diluted
$ (0.03)Net loss per    common shareBasic
$ (0.03)Diluted
$ (0.03)Weighted    average of common shares outstandingBasic
27,580,209 Diluted
30,132,628 Dividends    declared per common share
$                    - See accompanying    notes to consolidated financial statements, which are an integral part of    the financial statements.
18

 
**SOVEREIGN    EXPLORATION ASSOCIATES INTERNATIONAL, INC.****AND    SUBSIDIARIES**CONSOLIDATED    STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)For the year ended June 30, 2007
Series A
Additional 
Preferred Stock
Common Stock
paid-in
Minority
Accumulated
Shares
Par Value
Shares
Par Value
capital
Interest
Deficit
Total  
 
 
 
 
 
 Balance, June 30,    2006 (Restated)- $           -        26,203,166 $    26,203 $    17,031,278     $(803,530)    $(19,073,260)    $(2,819,309)Capital    contribution - Sea Quest
- 
- 
- 
- 
125,000 
- 
- 
125,000 Issuance of    common sharessettlement    agreement
- 
- 
910,000 
910 
363,090 
- 
- 
364,000 Conversion of    convertible debt to common shares
- 
- 
848,000 
848 
847,152 
- 
- 
848,000 Conversion of    convertible debt to common shares
- 
- 
95,851 
96 
34,410 
- 
- 
34,506 Issuance of    common stockpursuant to Rule    506 under Regulation D
- 
700,000 
700 
174,300 
- 
- 
175,000 Issuance of    common stockpursuant to Rule    144
- 
- 
350,000 
350 
150,150 
- 
- 
150,500 Issuance of    common stock underRegulation S
- 
- 
735,000 
735 
375,465 
- 
- 
376,200 Issuance of    Series A Preferred Stockin exchange for    revenue participationagreement
10,000,000 
- 
- 
- 
- 
- 
- 
- Net loss
- 
- 
- 
- 
- 
- 
(777,316)
(777,316)Balance, June 30,    200710,000,000 $           - 29,842,017 $ 29,842 $ 19,100,845 $(803,530)$(19,850,576)$(1,523,419)See    accompanying notes to consolidated financial statements, which are an    integral part of the financial statements.
 

19

 
**SOVEREIGN    EXPLORATION ASSOCIATES INTERNATIONAL, INC.****AND    SUBSIDIARIES**CONSOLIDATED    STATEMENT OF CASH FLOWSFor the year ended June 30, 2007Operating    activities:Net loss
$ (777,316)Adjustments to    reconcile net loss from operations to net cash (used    in) operating activities: Stock    issued for services
376,200  (Increase)    decrease in:  Capitalized    costs and permits 
(1,616,836) Accounts    receivable 
(323,493) Increase    (decrease) in:  Accounts    payable and accrued expenses 
278,723  Due to    related parties 
(360,614) Net cash    (used in) operating activities 
(2,423,336) Investing    activities:  Acquisition    of research vessel - Sea Quest 
(125,000) Purchase of    minority interest 
(51,962) Net cash    used in investing activities 
(176,962) Financing    activities:  Proceeds    from the issuance of common stock 
175,000  Proceeds    from notes payable 
1,000,000  Proceeds    from related party notes payable 
1,967,064  Net cash    provided by financing activities 
3,142,064  Net    increase in cash and cash equivalents 
541,766  Cash and    cash equivalents , beginning of year 
570  Cash and    cash equivalents, end of year 
$ 542,336  Supplemental    disclosure of cash flow information:  Interest    paid 
$       263  Taxes paid    
- See accompanying    notes to consolidated financial statements, which are an integral part of    the financial statements.
20

 
**SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________

NOTE 1 NATURE OF ORGANIZATION

Sovereign Exploration Associates International, Inc. (the"Company") was incorporated in the state of Utah in 1980. 

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

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

On September 22, 2006, the Company filed a notification ofwithdrawal of business development company election on Form N-54C notifying theSEC that, pursuant to the provisions of Section 54(c) of the Investment CompanyAct of 1940 ("Investment Company Act" or "1940 Act"), the Company withdrew itselection to be subject to Sections 55 through 65 of the 1940 Act. Accordingly,the Company is no longer subject to the Investment Company Act but will continueas an operating reporting public company subject to the Securities Exchange Actof 1934. 
**NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
Basis of Presentation 

The election to withdraw the Company as a BDC under theInvestment Company Act effective September 22, 2006 has resulted in asignificant change in the Company's required method of accounting. BDC financialstatement presentation and the related accounting principles utilize the fairvalue method of accounting used by investment companies, which allows BDCs torecognize income and value their investments at market value as opposed tohistorical cost. In addition, majority-owned subsidiaries BDCs are notconsolidated and instead, investments in those subsidiaries are reflected on thebalance sheet as an investment in and advances to affiliates, at fair value. 

As an operating company, the required financial statementpresentation and accounting for securities held by the Company utilize eitherfair value or historical cost methods of accounting, depending on theclassification of the investment and the Company's intent with respect to theperiod of time it intends to hold the investment, and the Company and itssubsidiaries are reflected for financial accounting purposes as a consolidatedentity. The change in accounting due to the conversion to an operating companyfrom a BDC is considered a change in accounting principle.   

As an operating company, the Company consolidates itsfinancial statements with subsidiaries, thus eliminating the investment in andadvances to affiliates account that was reflected on the Company's balance sheetas of June 30, 2006.

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

21
**SOVEREIGN EXPLORATIONASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________

Pursuant to paragraph 11 of FAS #154: The Company has deemedit impracticable to apply the effects of a change in accounting principleretroactively because the following conditions apply as of June 30, 2007:
-  The Company has  made every reasonable effort to apply the requirement; however, we are unable  to do so.Retrospective  application of the change in accounting principle requires assumptions about  prior management's intent in prior periods that can not now be independently  substantiated. Retrospective  application of the accounting principle requires significant estimates of  amounts that at this time, it is impossible to distinguish objectively  information about those estimates that: (a) provides evidence of circumstances  that existed on the date(s) at which those amounts would be recognized,  measured, or disclosed under retrospective application, and (b) would have  been available when the financial statements for that prior period were  issued.
As of June 30, 2007, the Company's subsidiaries weredevelopment stage enterprises, except for Gulf Coast Records, LLC, which isaccounted for on the equity method of accounting. In addition, Lavelle Holdings,Inc. is a subsea consulting services company wherein it provides projectmanagement, personnel, equipment and specialized services to the petroleum, marine, andaviation industries and is not in its development stage. 
Statement of Financial Accounting Standards No. 7, Accountingand Reporting by Development Stage Enterprises, defines a development stageenterprise as one that is devoting substantially all of its efforts toestablishing a new business and either planned principal operations have notcommenced or planned principal operations have commenced but there has been nosignificant revenue. Several artifacts have been recovered, but for the yearended June 30, 2007, there was no revenue from the Company's HistoricalShipwreck Recovery business.

The accompanying financial statements have been prepared on agoing-concern basis, which contemplates the continuation of operations,realization of assets and liquidation of liabilities in the ordinary course ofbusiness. The Company's subsidiaries have capitalized all of their oceanexplorations and archaeologically sensitive recoveries of artifacts, treasuretrove and/or cargo from shipwrecks costs to-date. As of June 30, 2007, theCompany incurred an accumulated deficit of $19,850,576 and incurred a loss of$777,316 for the year ended June 30, 2007. The Company plans to obtainadditional financing through the sale of publicly traded stock, limitedliability company member units of its subsidiaries and/or debt financing. Thereis no assurance these efforts will be successful. The financial statements donot include any adjustments relating to the recoverability and classificationsof reported asset amounts or the amounts of liabilities that might result fromthe outcome of that uncertainty. 

Principles of Consolidation

The accompanying consolidated financial statements, aspresented herein, are prepared on the accrual basis of accounting under theprinciples of consolidation consisting of the accounts of the Company and itssubsidiaries.

As of June 30, 2007, the Company's subsidiaries and therelated equity ownership are as follows:

Historic Discoveries, Inc.

Historic Discoveries is a wholly-owned subsidiary of theCompany. Historic Discoveries has two wholly-owned subsidiaries, ArtifactRecovery & Conservation, Inc. ("ARC") and Sea Research, Inc. ("SRI").

22

 
**SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________
Artifact Recovery & Conservation, Inc.

ARC is the managing member of Fantome Cove Treasure Trove150, LLC, of which it owns a 97.05% equity interest. ARC is also the managingmember of Interspace Exploration, LLC, of which it owns a 74% equity interest.

As of June 30, 2007, the minority interest in Fantome CoveTreasure Trove 150, LLC and Interspace Exploration, LLCis $803,530.

Sovereign Exploration Associates International of Spain, Inc.

Sovereign Exploration Associates International of Spain, Inc.("SEAI - Spain"), a wholly-owned subsidiary of the Company, was acquired inNovember 2005 from unrelated parties in exchange for $800,000 of convertibledebentures. The debentures were due on November 15, 2006, with accrued interestat a rate of 6% per annum. The Company may, at any time prior to November 15,2006, convert the principal amount of the debentures into common stock of theCompany at the average closing price of the Company's common stock for the tenbusiness days prior to the conversion date. The debenture holders may, at anytime after November 15, 2006, convert the principal amount of the debenture intocommon stock of the Company at the average closing price of the Company's commonstock for the ten business days prior to the conversion date. SEAI - Spain hassecured the finder's rights to four shipwrecks in Spain with potential historicand intrinsic value. Effective November 15, 2006, the Company converted thedebentures into 848,000 (including accrued interest of $48,000) common shares ofthe Company at a price of $1.00 per share.
*Lavelle Holdings, Inc*.*
On June 11, 2007, the Company acquired 100% of the commonstock of the Lavelle Holdings, Inc., a company based in Texas, for considerationof $300,000 cash at closing plus a cash amount equal to five (5) times the netprofit of Lavelle Holdings, Inc. for a one (1) year period beginning on or thedate that is six (6) months after the closing date. This amount will be paid incash and/or stock on or before nineteen (19) months following the closing date.Management is unable to determine the amount of this contingent liability as ofthe balance sheet date of June 30, 2007. If the Company becomes insolvent duringthe nineteen (19) months following the closing date, the selling shareholdershave the right of refusal to repurchase the purchased stock from the Company. Inconsideration for certain rights to purchase common stock of Lavelle Holdings,Inc. the Company paid $225,000, in cash, to the rights holders at closing. Thetotal cash paid for this acquisition at closing on June 11, 2007 was $525,000.Lavelle Holdings, Inc. is a wholly-owned subsidiary of the Company.
*LeChameau Explorations Limited*
On June 13, 2007, the Company acquired 100% of the issued andoutstanding capital stock of LeChameau Explorations Limited, a company based inNova Scotia, for total consideration of USD $274,009. The payment for the stockis in the form of a note agreement, which is collateralized by the common stockof the Company. The note is due June 13, 2008. If the Company defaults, the noteis convertible to the Company's common stock at a rate of 1.25 times theoutstanding liability as of its due date valued at the ten day average of thestock price prior to the conversion date. Under this acquisition, the Companynow owns twenty-five licenses under the Nova Scotia Treasure Trove Act.LeChameau Explorations Limited is a wholly-owned subsidiary of the Company.
*Investments*
The Company accounts for investments, where the Company holdsfrom 20% up to 50%, in the common stock, or membership interest, of an entity,using the equity method. 

23
**SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________
The investment is initially recorded at cost and the carryingamount is adjusted to recognize the Company's proportionate share of theearnings or losses of the investee after the date of acquisition. The amount ofthe adjustment is included in the determination of net income or loss of theCompany in the period of the adjustment. Any dividends received from theinvestee reduce the carrying value of the investment. 
*Gulf Coast Records, LLC*
The investment (a 49% minority interest) and note receivablein Gulf Coast Records, LLC was acquired as part of the Exchange Agreement datedOctober 17, 2005. In the year ended June 30, 2006, while reporting under the1940 Act as a business development company, the Board of Directors agreed withmanagement's assessment to write this investment down to zero based on theinformation received from the management of Gulf Coast Records, LLC. For theyear ended June 30, 2007, the investment in and note receivable to Gulf Coastare being carried at a zero value, which is the lower of cost or market.
*Reds Caribbean*
The investment (a 30% minority interest) in Reds Caribbeanwas acquired in the stock purchase agreement with the shareholders of LavelleHoldings, Inc. on June 11, 2007. As of June 30, 2007, the Company is recordingthis newly acquired investment at its cost of $51,962. The Company owns a 30%equity interest in Reds Caribbean and the net asset value of the 30% equityinterest is $0.

Revenue Recognition

The Company recognizes revenue using the accrual method ofaccounting wherein revenue is recognized when earned and expenses and costs arerecognized when incurred. 

Allowance for Bad Debts

As of June 30, 2007, the allowance for bad debts was $0.Management of the Company reviews the billing and collection activity on ayearly basis and provides for an allowance for bad debts based on itsexpectations for cash collections. The $323,493 in accounts receivable and theallowance for bad debts of $0 were all for Lavelle Holdings, Inc., awholly-owned subsidiary of the Company. 

Economic Dependence 

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

Fair Value of Financial Instruments

The Company measures its financial assets and liabilities inaccordance with generally accepted accounting principles. For certain of theCompany's financial instruments, including cash and cash equivalents, accountsreceivable, accounts payable and accrued payroll and other expenses, thecarrying amounts approximate fair value due to their short maturities. Theamount shown for notes payable also approximates fair value because the currentinterest rates offered to the Company for debt of similar maturities aresubstantially the same.

24
**SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________
Use of Estimates

The preparation of financial statements in conformity withgenerally accepted accounting principles in the United States of Americarequires management to make estimates and assumptions that affect certainreported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reported amountsof revenues and expenses during the reporting period. Accordingly, actualresults could differ from those estimates.

Cash and Cash Equivalents

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

Advertising costs

For the year ended, the Company did not incur any advertisingcosts.

Segments

The Company operates as one segment as defined by theStatement of Financial Accounting Standards No. 131 *Disclosures aboutSegments of an Enterprise and Related Information.*
Foreign Currency Translation

The accompanying consolidated financial statements are stated in UnitedStates Dollars (USD). 

New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board ("FASB")issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes,an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies theaccounting for uncertainty in income taxes by prescribing the recognitionthreshold a tax position is required to meet before being recognized in thefinancial statements. It also provides guidance on derecognizing,classification, interest and penalties, accounting in interim periods,disclosure and transition. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006. The cumulative effects, if any, of applying FIN 48 will berecorded as an adjustment to retained earnings as of the beginning of the periodof adoption. Additionally, in May 2007, the FASB published FASB Staff PositionNo. FIN 48-1, "Definition of Settlement in FASB Interpretation No. 48" ("FSP FIN48-1"). FSP FIN 48-1 is an amendment to FIN 48. It clarifies how an enterpriseshould determine whether a tax position is effectively settled for the purposeof recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effectiveupon the initial adoption of FIN 48. The Company does not expect the adoption ofFIN 48 to have an effect on its financial statements.

In September 2006, the Financial Accounting Standards Board("FASB") issued Statement of Financial Accounting Standards No. 157 ("FAS 157"),Fair Value Measurements, which defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles ("GAAP"), andexpands disclosures about fair value measurements. FAS 157 applies under otheraccounting pronouncements that require or permit fair value measurements. Priorto FAS 157, there were different definitions of fair value and limited guidancefor applying those definitions in GAAP. Moreover, that guidance was dispersedamong the many accounting pronouncements that require fair Value measurements.Differences in that guidance created inconsistencies that added to thecomplexity in applying GAAP. The changes to current practice resulting from theapplication of FAS 157 relate to the definition of fair value, the methods usedto measure fair value, and the expanded disclosures about fair valuemeasurements. 

25
** 

SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________

FAS 157 is effective for financial statements issued forfiscal years beginning after November 15, 2007, and interim periods within thosefiscal years. The Company does not expect the adoption of FAS 157 to have aneffect on its financial statements.

NOTE 3 FIXED ASSETS

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

NOTE 4 CAPITALIZED COSTS

As of June 30, 2007, the Company accounted for its oceanexploration and archaeologically sensitive recoveries of artifacts, treasuretrove and/or cargo from shipwrecks costs incurred to-date as capitalized costs.

NOTE 5 STOCK ISSUED FOR SERVICES

During the year ended June 30, 2007, the Company issued735,000 shares of common stock for services rendered on behalf of the Company.The value of the stock issued for services rendered for the year ended June 30,2007 was $376,200.

NOTE 6 INCOME TAXES

Pursuant to the Exchange Agreement dated October 17, 2005,substantial ownership of the Company was transferred and according to provisionsof the Internal Revenue Code, this transaction eliminated all of the losscarryforwards for federal income tax purposes starting with fiscal year thatended June 30, 2006.
The Company has approximately $777,316 in gross deferred taxassets at June 30, 2007, resulting from net operating loss carryforwards. Avaluation allowance has been recorded to fully offset these deferred tax assetsbecause the future realization of the related income tax benefits is uncertain.As of June 30, 2007, the Company has federal net operating loss carry forwardsof approximately $777,316 available to offset future taxable income through2027.

For the year ended June 30, 2007, the difference between thetax provision at the statutory federal income tax rate and the tax provisionattributable to loss before income taxes is as follows (in percentages):
Statutory federal    income tax rate
34%State taxes - net of    federal benefits
5%Valuation allowance
39%Income tax rate -    net
0%
Net change in valuation was $303,153

26

 
**SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________

NOTE 7 LEASE ARRANGEMENTS

The Company maintains shared office space in Pennsylvania andFlorida with unrelated companies controlled by certain officers of the Company.The Company shares office space with these companies at no cost. Rent expensefor the year ended June 30, 2007 was $0 

NOTE 8 DEBENTURES PAYABLE
5.25% convertible    debenture to a company dated June 29, 2005 with an initialprincipal balance    of $40,000 due no later than June 29, 2008; outstandingprincipal and    interest. This convertible debenture is currently in dispute.$ 99,174    Total notes    payable, current$ 99,174 
For the year ended June 30, 2007, the Company incurredinterest expense on this convertible debenture of $7,263. This convertibledebenture was incurred prior to October 2005 by prior management and continuesto be in dispute because of issues related to the conversion rates. 

During the year ended June 30, 2007, the Company issued95,851 shares of common stock at a per share price of $.36 in the settlement ofa convertible note payable with a balance including principal and accruedinterest of $34,506.

NOTE 9 AGREEMENTS

Prior to the Exchange Agreement of October 17, 2005, there isa Revenue Agreement as outlined in Exhibit B of the Exchange Agreement, thatrequires 20% revenue participation payable to the original owners of the permitsfrom the net recovery of the shipwrecks for the permits that have been assignedto the subsidiaries of one of the Company's subsidiaries, Historic Discoveries,Inc. The 20% revenue participation allows Historic Discoveries, Inc. to deferpermit transfer fees and align site permit cost with revenue generation,eliminating the exposure associated with sites that do not produce a materialnumber of artifacts. Historic Discoveries, Inc. is only required to pay the 20%revenue participation when sites produce net revenue. The 20% revenueparticipation also provides Historic Discoveries, Inc. the right of firstrefusal on future sites, creating a mechanism for Historic Discoveries, Inc. andits operating companies to build site inventory while deferring the associatedcost and reducing financial risk. The Revenue Agreement with the original ownerswas executed prior to October 17, 2005. The original owners of these permits arethe beneficial owners of the controlling interest in the stock received in theExchange Agreement. Additionally, officers and directors of the Company holdcertain executive positions in Historic Discoveries, Inc. and its subsidiaries.The Company and Historic Discoveries had agreed to distribute 20% of the netprofits arising out of the exploitation of permits, licenses, finder feesrights, contracts and other rights (collectively, "permits") held by ARC to itsformer corporate parent, Sovereign Marine Explorations, Inc. ("SME"), and todistribute 20% of the net profits arising out of the exploitation of permitsheld by SRI to its former corporate parent, Sea Hunt, Inc. ("Sea Hunt"). 

On May 19, 2007, the Company issued 10,000,000 shares ofConvertible Preferred Stock in exchange for this 20% net profits participationagreement. The stock carries a 4 to1 conversion feature which allows the holdersto convert into 40,000,000 common shares of the Company.

The Fantome project (Fantome Cove Treasure Trove License 150,LLC. a subsidiary of ARC) sold a 2.06% equity interest for a capital investmentof $411,530, and the LeChameau project (Interspace Explorations, LLC, asubsidiary of ARC) sold a 26.0% ownership interest and 40% profit participationinterest for $392,000. Total minority interest in these two entities is$803,530.

27

 
**SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________

NOTE 10 SETTLEMENT AGREEMENT AND GENERAL RELEASE

Effective June 30, 2006, the Company entered into aSettlement Agreement and General Release (the "Settlement Agreement") withFormer Management, KMA Capital Partners, Inc., and CF Holdings, LLC(collectively, the "Settlement Agreement Parties") in order to reach acomprehensive resolution of their disputes. The Settlement Agreement providesthat the Settlement Agreement Parties release all claims that they may haveagainst the Company, its parents, subsidiaries, affiliates, predecessors,successors, assigns, partners, agents, representatives, and attorneys(collectively, "affiliated parties") and that the Company releases all claims itmay have against the Settlement Agreement Parties and their respectiveaffiliated parties. On December 26, 2006, 910,000 common shares were issuedpursuant to the Settlement Agreement effective June 30, 2006. These 910,000common shares are subject to a Leak-Out Agreement and are restricted under Rule144.

NOTE 11 SHAREHOLDERS' EQUITY AND ISSUANCE OF STOCK

As of June 30, 2007, the authorized capital of the Companywas 250,000,000 shares of common stock (with voting rights), par value $.001.

For the year ended June 30, 2007, the Company issued thefollowing common shares:

 

*Issuance of common shares - settlement - prior management                            

910,000 

(1)

 

*Conversion of convertible debt - acquisition of SEAI - Spain                           

848,000 

 

*Conversion of convertible debt - private individual                                             

95,851 

 

*Issuance of common shares - Rule 506 - Regulation D                                    

700,000 

(2)

 

*Issuance of common shares - Rule 144 - Regulation D                                    

350,000 

 

*Issuance of common shares - Services - S-8                                                   

735,000 

Total common shares issued were 3,638,851; (1) Subject to aleak-out agreement; (2) $175,000 cash was received for the issuance of commonstock

NOTE 12 CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially expose the Companyto concentrations of credit risk, consist principally of cash. As of June 30,2007, the Company maintains its cash accounts with financial institutionslocated in Pennsylvania, Florida, Texas and Nova Scotia. The Federal DepositInsurance Corporation (FDIC) guarantees the Company's deposits in US-basedfinancial institutions up to $100,000.

The Company's deposits with financial institutions thatexceeded federally insured guarantees amounted to $257,186 as of June 30, 2007.Historically, the Company has not experienced any losses on its deposits inexcess of federally insured guarantees.

As of June 30, 2007, the Company accounts for its investmentin Gulf Coast Records, LLC on the equity method of accounting. The amount of$832,849 was offset by an allowance to reduce the market value of this note andinvestment to zero from Gulf Coast Records as of June 30, 2006. Currentmanagement is reviewing its options regarding this company and whether it wantsto maintain its position or divest its holdings in the future, while activelynegotiating with the management of Gulf Coast Records, LLC regarding therecovery of the Company's investment. Prior to June 30, 2006, the Companyreceived information from the management of Gulf Coast Records, LLC that hascaused the Company to reduce the fair market value to zero.

28

 
**SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________

NOTE 13 NOTES PAYABLE 

On June 4, 2007, the Company received $1,000,000 cash under apromissory note. Under the terms of the note, Company is obligated to pay thenote in one payment of all outstanding principal plus all accrued unpaidinterest on or before the six month anniversary of the closing date unless theholders agree to extend the note, in which case the note shall become a demandnote, payable upon demand or at such later date as specified by holders toCompany in writing, in holders sole discretion. The Company's stock is thecollateral that supports this note. Unless otherwise agreed or required byapplicable law, payments will be applied first to any accrued unpaid interest;then to principal; then to any late charges; and then to any unpaid collectioncosts. The annual interest rate for this Note is computed on a 365 days per yearbasis. Company will pay Holders at Holders address or at such other place asHolders may designate in writing. The interest rate on this Note is six percent(6%) per annum calculated on the principal amount of the Note then outstanding.Company may make a prepayment, in whole or in part, of this Note without theprior consent of Holders with no prepayment penalty. At the maturity date of thenote, the holders shall be entitled to purchase 250,000 shares of common stockof the Company at a price of $.20 per share. The holders will also be entitledto purchase an additional 250,000 shares of common stock of the Company at theclosing price of the Company stock as reported on the OTCBB on the closing dateand, in addition, these shares must be exercised within one year from theclosing date. As of June 30, 2007, the value of this option to purchase commonstock of the Company was $12,500. The closing price of the common stock on June30, 2007 was $.69 and on June 4, 2007 it was $.64

NOTE 14 RELATED PARTY TRANSACTIONS

ACCRUED PAYROLL AND EXPENSES; DUE TO RELATED PARTIES

The officers of the Company agreed to write-down theiraccrued and unpaid salaries and reimbursable expenses to zero for the year endedJune 30, 2007 in the amount of $446,403. As of June 30, 2007, the due to relatedparties on the balance sheet includes the accrued and unpaid salaries andreimbursable expenses incurred through June 30, 2006.

OFFICERS AND DIRECTORS OF THE COMPANY

Certain officers and directors of the Company hold certainexecutive positions in Historic Discoveries, Inc., Sea Research, Inc. and theirrespective subsidiaries.

29
**SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________

NOTE 15 RELATED PARTY NOTES PAYABLE 

As of June 30, 2007, the related party notes payable were as follows:
****
Demand note    payable of $350,000 plus accrued interest
at 6% per annum    for the purchase of the originalpermits$ 408,240 Term Note payable    of $274,009 due June 13, 2008 plusat 6% per annum    for the acquisition of LeChameauLeChameau Explorations Limited - June 13, 2007275,836 Demand Note    payable of $250,000 plus accrued interestat 6% per annum    for the balance of the FantomeCove Project259,329 Demand Note    payable of $500,000 plus accrued interestof $3,444 per    month as a direct pass through fromNova Savings Bank - July 10, 2006541,328 Term Note payable    of $160,000 due on November 15, 2007plus accrued    interest of the lesser of 0.9% or the legalrate under Texas law - November 15, 2006161,440 Term Note payable    of $600,000 due on November 15, 2007plus accrued    interest of the lesser of 0.9% or the legalrate under Texas law - November 15, 2006671,111 Demand note payable - advances to Sea Research, Inc.574,355 Demand note    payable - advances to Sovereign ExplorationAssociates International, Inc.81,720 Demand note    payable - advances to Interspace Explorations    Limited plus accrued interest at 6% perannum.486,000 **Total related party notes payable - all current****$ 3,459,359**
30
**SOVEREIGN EXPLORATION ASSOCIATESINTERNATIONAL, INC. AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

JUNE 30, 2007

__________________________________________________________________________________________________

NOTE 16 LEGAL PROCEEDINGS

On June 30, 2006, the Company entered into a SettlementAgreement and General Release ("Settlement Agreement") among members of theCompany's former management and their affiliates, James E. Jenkins, CharlesGianetto, KMA Capital Partners Ltd., KMA Capital Partners, Inc. and CF Holdings,LLC (collectively, the "Former Management Parties"). The purpose of theSettlement Agreement was to reach a comprehensive resolution to the disputesbetween the Company and the Former Management Parties, in particular anarbitration demand filed by KMA Capital Partners, Ltd. on or about December 29,2005 (American Arbitration Association Case No.: 33-180-00463-05) relating to anExchange Agreement dated October 17, 2005. The Settlement Agreement providesthat the Former Management Parties release all claims that they may have againstthe Company, its parents, subsidiaries, affiliates, predecessors, successors,assigns, partners, agents, representatives and attorneys (collectively,"affiliated parties") and that the Company releases all claims it may haveagainst the Former Management Parties. 

In a matter related to KMA Capital Partners Ltd, JamesJenkins and Charles Gianetto, filed as *KMA Capital Partners Ltd., v.Sovereign Exploration Association, Inc., et al*, in the Circuit Court of theNinth Judicial Circuit, in and for Orange County, Florida, the Company claimsthat KMA Capital Partners Ltd, James Jenkins and Charles Gianetto are in breachof a "Leak Out Agreement", which restricts the number of shares of the Company'scommon stock, traded as SVXA.OB, they are allowed to sell or transfer. As ofJune 30, 2007, the court entered an Order which limits Mr. Jenkins and Mr.Gianetto to selling no more than 2,000 shares of the Company's common stock pertrading day. As of June 30, 2007, there is no liability under this matter thatrequires the establishment of a liability within the accompanying consolidatedfinancial statements.

The Company is one of several defendants in a law suit, *Patricia A. Mullican v. Sovereign Exploration Associates International, Inc., etal*in the Circuit Court of the Ninth Judicial Circuit, in and for OrangeCounty, Florida. The plaintiff in this case is seeking damages for the allegedfailure to pay two (2) debentures issued by TS&B Holdings to Mr. Mullican (onefor $150,000 and the other for $250,000) as well as an unpaid promissory notefor $50,000 plus accrued interest on the debentures and the promissory notealong with attorney fees. TS&B Holdings, Inc. subsequently became Cali Holdings,Inc., which was acquired by the Company in October 2005. It is the Company'sposition that these debts are not its responsibility, to the extent that neitherthe debentures nor promissory notes were disclosed at the time Cali Holdings,Inc. was acquired by the Company. There are numerous defenses which the Companywill be relying upon to support its legal position that these obligations arenot its responsibility. As of June 30, 2007, the accompanying consolidatedfinancial statements do not provide for any liability in the event that theCompany is deemed responsible in this case.
****
On February 9, 2007 the Company filed suit in The Province ofNova Scotia seeking an application for judicial review to in effect ask theprovince to order the Nova Scotia Museum to issue the proper permits to theCompany. The Company believes the Nova Scotia Museum acted improperly in notissuing the necessary permits in 2006 and should not have recognized the claimsmade by the United Kingdom. The Company believes its rights are protected underthe Special Places Protection Act, The Treasure Act and many other acts andconsiderations of established law governing these types of permits.

31
**Item 8. Changes In and Disagreements with Accountants onAccounting and Financial Disclosure**
None
**Item 8A Controls and Procedures***CEO and CFO Certifications*
As of the end of the year covered by this annual report, theCompany carried out under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer("the Certifying Officers"), an evaluation of the effectiveness of our"disclosure controls and procedures." The certifications of the CEO and the CFOrequired by Rules 13a-14(a) and 15d-14(c) of the Securities Exchange Act of1934, as amended (the "Certifications") are filed as exhibits to this report.

This section of this report contains information concerningthe evaluation of our "disclosure controls and procedures" (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) ("Disclosure Controls") and changesto internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) ("Internal Controls") referred to in the Certificationsand should be read in conjunction with the Certifications for a more completeunderstanding of the topics presented.
*Evaluation of Disclosure Controls*
The Company maintains controls and procedures designed toensure that they are able to collect the information that is required to bedisclosed in the reports they file with the Securities and Exchange Commission(the "SEC") and to process, summarize and disclose this information within thetime period specified in the rules of the SEC. The Company's Chief ExecutiveOfficer and Chief Financial Officer are responsible for establishing,maintaining and enhancing these procedures. The officers are also responsible,as required by the rules established by the SEC, for the evaluation of theeffectiveness of these procedures.

Based on management's evaluation (with participation of ourprincipal executive officer and principal financial officer), as of the end ofthe period covered by this report, the principal executive officer and principalfinancial officer concluded that no deficiencies were identified in theCompany's internal controls over financial reporting which constituted a"material weakness." Accordingly, management concluded that the Company'sdisclosure controls and procedures were effective.
*Limitations on the Effectiveness of Controls*
The Company's management does not expect that theirdisclosure controls or their internal controls over financial reporting willprevent all error and fraud. A control system, no matter how well conceived andoperated, can provide only reasonable, but not absolute, assurance that theobjectives of a control system are met. Further, any control system reflectslimitations on resources, and the benefits of a control system must beconsidered relative to its costs. These limitations also include the realitiesthat judgments in decision-making can be faulty and that breakdowns can occurbecause of simple error or mistake. Additionally, controls can be circumventedby the individual acts of some persons, by collusion of two or more people or bymanagement override of a control. A design of a control system is also basedupon certain assumptions about potential future conditions; over time, controlsmay become inadequate because of changes in conditions, or the degree ofcompliance with the policies or procedures may deteriorate. Because of theinherent limitations in a cost-effective control system, misstatements due toerror or fraud may occur and may not be detected.
*Changes in Internal Controls*
The Company maintains a system of internal controls designedto provide reasonable assurance that transactions are executed in accordancewith management's general or specific authorization; transactions are recordedas necessary to permit preparation of financial statements in conformity withGenerally Accepted Accounting Principles ("GAAP"). It is the responsibility ofCompany's management to establish and maintain adequate internal control overfinancial reporting. 

32
**Item 8A (T). Controls and Procedures**
Not applicable
**Item 8B. Other Information.

Not applicable.
**PART III

Item 9. Directors and Executive Officers, Promoters, Control Persons andCorporate Governance; Compliance with Section 16 (A) of the Exchange Act***Officers and Directors*
Name, Age and Address         

Position and Length

Principal Occupation and

Other

 

Business Experience
    Directorships
 

Robert D. Baca

President, CEO and

President and CEO of

(51)

Director since October

Sovereign Exploration

503 Washington Avenue,

2005

Associates International,

Suite 2D

 

Inc. (2005-present);

Newtown, PA 18940

 

Chief Financial Officer of

 

 

Sovereign Marine Exploration, Inc.

 

 

(2004-present); President

 

 

of Monarch Group (consulting)

 

 

(2001-present); President

 

 

of Premier Neurodiagnostics,

 

 

LLC (mobile EMG (neurology services)

 

 

(2004 - Present) Chief Financial Officer of

 

 

Artifact Recovery and Conservation, Inc. (marine

 

 

exploration) (2005-present);

 

 

President of Clinical Strategy

 

 

Partners, LLC (subject recruiting)

 

 

(2005-2006); President of Monarch

 

 

Clinical Strategies (subject recruiting)

 

 
    (2004-2005)    
John J. Barr

Director since October

Attorney, Palmer & Barr, PC.

(50)

2005

(1989 - Present)

503 Washington Avenue,

 

Suite 2D

 

Newtown, PA 18940
  
 
       James J. Cavan    Vice President since    Director ofResearch of(41)    October 2005    Drexel University College503 Washington Avenue,     Associates International,Suite 2D of Medicine     (2003-2005);Newtown, PA 18940     Associate Director and      Director of Research      Office, University of      Medicine and Dentistry of      New Jersey (2003)        Kevin J. Conner    Director    Managing Director,(45)    since October 2005    Conner &Associates, PC503 Washington Avenue,     (CPA firm) 1992 - PresentSuite 2D     General Partner,    Newtown, PA 18940     Westrock Partners      (Private Investment Firm)      (1994 - Present)         Donald G. Conrad    Director    Retired.(77)    since October 2005    Chevy Chase Bank, F.S.B.503 Washington Avenue,  Suite2D Newtown, PA 18940          Barry Gross Senior    Vice President Senior    Vice President-Project(56)    and Secretary    since President-Project Operations503 Washington Avenue    October 2005    of SovereignSuite 2D     Exploration (2005-present);Newtown, PA 18940     Northeast Regional Manager      of Taut, Inc. (laparoscopic      medical device manufacturer)      (2001- present)       Peter Knollenberg    Chairman and Director(57)    since October 2005503 Washington Avenue, Suite 2D Newtown, PA 18940      
Curtis R. Sprouse

Chief Operating Officer

President and CEO ofBoston

(42)

since October 2005

Market Strategies, Inc.

503 Washington Avenue
 
(consulting)

Suite 2D
 
(1993-present); President

Newtown, PA 18940
 
and CEO of iBall, Inc.

 

 

(software consulting)

 

 

(2003-present); Chief

 

 

Operating Officer of

 

 

Sovereign Exploration

 

 

(2005-present); Chief

 

 

Operating Officer of

 

 

Sovereign Marine

 

 

Exploration, Inc. (2005-present);

 

 

Chief Operating Officer of

 

 

Artifact Recovery and Conservation (marine

 

 

exploration) (2005-present); Vice

 

 

President of Clinical Strategy Partners

 

 

(2005-2006); Vice President

 

 

of Research Clinical

 

 

Strategies (subject

 

 
    recruiting) (2004-2005)
 

33
*Compliance with Section 16(a) of the Exchange Act*
Section 16(a) of the Exchange Act requires the Company'sofficers and directors, and persons who own more than ten percent of aregistered class of the Company's equity securities pursuant to section 12, tofile reports of ownership and changes in ownership with the Securities andExchange Commission. Officers, directors and greater than ten-percentshareholders are required by SEC regulation to furnish the Company with copiesof all Section 16(a) forms they file.

The Company's securities are not registered under Section 12of the Securities Exchange Act of 1934 and, therefore, the Company's directors,officers and beneficial owners of more than ten percent of the Company'soutstanding Common Stock are not required to file Forms 3, 4 and 5 with the SEC.
*Code of Ethics*
The Company has not adopted a code of ethics that applies toits principal executive officer, principal financial officer, principalaccounting officer or controller, or persons performing similar functions. TheCompany has not adopted a code of ethics because the Company's Board ofDirectors feels the Company's small size makes written standards of conductunnecessary. However, the Company will consider whether to add a written code ofethics in the future.
*Audit, Nominating and Compensation Committees*
The Company does not have a separate Audit Committee becausethe Board of Directors determined that a separate Audit Committee was notnecessary due to the relatively small size of the Company. The Company's Boardof Directors serves as the Audit Committee, overseeing (i) the integrity of theCompany's financial statements; (ii) the independent registered publicaccounting firm's qualifications and independence; (iii) the performance of theCompany's internal audit function and independent registered public accountingfirm; and (iv) the Company's compliance with legal and regulatory requirements.The Board of Directors has determined that Kevin J. Conner is an "auditcommittee financial expert" as defined by the rules of the SEC and is"independent" as defined in Item 7(d)(3)(iv) of Schedule 14A under the ExchangeAct. 
**Item 10. Executive Compensation.

The following table discloses compensation received for each of the threefiscal years ended June 30, 2007 and June 30, 2006 by (i) the Company's ChiefExecutive Officer and (ii) the other highly compensated executive officers.

Name and principal position

Fiscal year

Salary ($)

Bonus ($)

Other Annual

 

 

 

 

Compensation

Robert D. Baca, President and CEO

2007

$ 0

$ 0

$ 0

 

2006

$185,000

$ 0

$ 0
    Curtis R. Sprouse,    2007    $ 0    $ 0    $ 0    Chief Operating Officer    2006    $185,000    $ 0    $ 0    James Cavan, Vice President    2007    .$ 0    $ 0    $ 0     2006    $150,000    $ 0    $ 0
34

 
*Employment Agreements*
None
**Item 11. Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters.**
The following table sets forth, as of September 17, 2007 thebeneficial ownership of the Company's Common Stock (i) by any person or groupknown by the Company to beneficially own more than 5% of the outstanding CommonStock, (ii) each Director and executive officer, and (iii) by all Directors andofficers as a group.

Name and Address    (1)
Number 

Percent

of Shares

of Outstanding
Robert D. Baca

President, Chief Executive

Office and Director
11,909,790 
(2) 
35.2%

Barry Gross 

Vice President and Secretary.
11,822,582 
(3) 
34.9%

Peter Knollenberg

Chairman of the Board
11,860,238 
(4) 
35.0%

Curtis R. Sprouse

Chief Operating Officer
11,824,725 
(5) 
34.9%

Robert McKinnon

Vice - President
11,791,368 
(6) 
34.9%

Martin Thorp

Chief Financial Officer and    Director
100,000

*

Donald G. Conrad

Director
240,000 
 
*

Kevin J. Conner

Director
174,800 
 
*

John J. Barr

Director
20,000 
 
*

James Caven 

Vice President
7,242 
 
*

Robert Holloway

Vice - President

*

**All Executive Officers

**and Directors as a Group**24,357,067**(7) **71.9%

Sea Hunt, Inc.

120 Alpine Road

West Palm Beach, FL 33405
11,791,368 
 
34.8%

35

Sovereign Marine Explorations,    Inc.

503 Washington Avenue, Suite 2D

Newtown, PA 18940
11,791,368 
 
34.8%

* - Denotes less than 1% of the    outstanding common shares on September 17, 2007-  The address for  each Director and executive officer is c/o Sovereign Exploration Associates  International Inc., 503 Washington Avenue, Suite 2D, Newtown, PA 18940.Includes 73,422  shares owned directly and 11,791,368 shares as to which Mr. Baca may be deemed  to have beneficial ownership by reason of his status as a director and officer  of Sovereign Marine Explorations, Inc. ("SME"). Mr. Baca disclaims beneficial  ownership of shares held by SME.Includes 31,214  shares owned directly and 11,791,368 shares as to which Mr. Gross may be  deemed to have beneficial ownership by reason of his status as a director and  officer of SME. Mr. Gross disclaims beneficial ownership of shares held by SME.Includes 24,000  shares owned directly and 11,791,368 shares as to which Mr. Knollenberg may be  deemed to have beneficial ownership by reason of his status as president,  director, and sole shareholder of Sea Hunt, Inc.Includes 13,653  shares owned directly, 19,704 shares held through the Boston Market  Strategies, Inc. Employee Profit Sharing Plan ("BMSI"), and 11,791,368 shares  as to which Mr. Sprouse may be deemed to have beneficial ownership by reason  of his status as a director and officer of SME. Mr. Sprouse disclaims  beneficial ownership of shares held by SME and through BMSI.Includes  11,791,368 shares that may be beneficially owned by directors and officers of  SME, each of whom disclaims beneficial ownership of such shares.Includes  11,791,368 shares that may be beneficially owned by directors and officers of  SME, each of whom disclaims beneficial ownership of such shares; 11,791,368  shares beneficially owned by Mr. Knollenberg as president, director, and sole  shareholder of Sea Hunt, Inc.; and 19,704 shares that may be beneficially  owned by Mr. Sprouse through the BMSI, who disclaims beneficial ownership of  such shares.**Item 12. Certain Relationships and Related Transactions**
Certain officers and directors of the Company hold certainexecutive positions in Historic Discoveries, Inc., Sea Research, Inc. and theirrespective subsidiaries. The Company maintains shared office space inPennsylvania and Florida with unrelated companies controlled by certain officersof the Company. The Company shares office space with these companies at no cost.

The Company on October 5, 2005, while under prior management,issued 800,000 (split-adjusted) shares of Common Stock to KMA Capital PartnersLtd. ("KMA"), which at that time was a portfolio company of the Company andcontractually provided consulting services to the Company. Current managementhas been unable to confirm that the Company received any consideration for theseshares.

Immediately prior to and in connection with the entry intothe Exchange Agreement, the Company disposed of substantially all of its assets.The Company sold nine Limited Partnership Units in KMA to Kairos Holdings, Inc.for a total consideration of $10, and it sold its interests in six portfoliocompanies, its brokerage account at NevWest, three notebook computers, furnitureand fixtures, and office and computer equipment to KMA Capital Partners Ltd.Inc. of Texas for a total consideration of $10. The Company realized losses of$2,525,274 on these divestitures. The Company does not have sufficientinformation to determine the value of the assets sold or the validity of thetransactions, nor does it have any information on the relationship, if any, thatKMA or prior management may have had with the purchasers. 

36

The Company has sought further information on thesetransactions from the purchasers and prior management, but its efforts to datehave been unsuccessful. The Company retained its interest in one portfoliocompany, Gold Coast Records, LLC, which the Company currently carries at a fairvalue of zero, as well as prepaid legal fees and security deposits of $7,375,also subsequently written down to zero.

The Company on October 17, 2005, entered into an ExchangeAgreement with Sovereign Exploration Associates International, Inc., aPennsylvania Company now known as Historic Discoveries, Inc. ("HistoricDiscoveries"). The Exchange Agreement provided that Historic Discoveries wouldcontribute 100% of its capital stock to the Company in exchange for 90% of thecapital stock of the Company. As a result, the former shareholders of HistoricDiscoveries gained a controlling interest in the Company. In addition, all ofthe Directors of The Company resigned and new Directors took office. HistoricDiscoveries intended, by entering into the transaction, to improve its abilityto raise funds for its marine recovery and explorations business in the capitalmarkets. For accounting purposes, the Board of Directors of the Companydetermined that, in the absence of more reliable evidence as to its value,Historic Discoveries should be valued at its historical cost, which wassubsequently determined to be $1,161,410 on that date.

In connection with the contribution of ARC and SRI to theCompany's wholly-owned subsidiary Historic Discoveries, the Company and HistoricDiscoveries agreed to distribute 20% of the net profits arising out of theexploitation of permits, licenses, finder fees rights, contracts and otherrights (collectively, "permits") held by ARC to its former corporate parent,Sovereign Marine Explorations, Inc. ("SME"), and to distribute 20% of the netprofits arising out of the exploitation of permits held by SRI to its formerCorporate parent, Sea Hunt, Inc. ("Sea Hunt"). The agreement continued apre-existing arrangement among Historic Discoveries, SME, and Sea Hunt. On May19, 2007, the Company issued 10,000,000 shares of Convertible Preferred Stock inexchange for this 20% net profits participation agreement. The stock carries a 4to1 conversion feature into 40,000,000 common shares of the Company.

The Exchange Agreement provided that at a future point, butin no event later than April 1, 2006, the Company would conduct a reverse stocksplit, following which Historic Discoveries would have 90% ownership of theCompany. The reverse stock split and issuance of shares to the formershareholders of Historic Discoveries were affected on January 17, 2006. TheCompany issued 11,791,368 shares to Sea Hunt and 11,791,368 shares to SME. PeterKnollenberg, the Chairman of the Company, is the president and sole Shareholderof Sea Hunt, and Robert D. Baca, the President and Chief Executive Officer ofthe Company, is the chief financial officer and a director of SME. The Companyon January 17, 2006, also canceled all outstanding shares of preferred stock.All holders of outstanding preferred stock were parties to the SettlementAgreement discussed below and have no further claims with respect to theirholdings of preferred stock.

Prior to the Change in Control, the Company was a party toexecutive management contracts with James E. Jenkins, its President and ChiefExecutive Officer, and Charles Giannetto, its Secretary and General Counsel. Inaddition, the Company was a party to a consulting contract with KMA, pursuant towhich KMA provided it with consulting services. In consideration of thetermination of the executive management contracts and the consulting contract,Historic Discoveries agreed to pay to Mr. Jenkins, Mr. Giannetto, and KMA anaggregate of $600,000 and to provide them with 5% of the Company's Common Stock.Sea Hunt paid Mr. Jenkins, Mr. Giannetto, and KMA $300,000 at the closing of theExchange Agreement. As noted above, Sea Hunt holds 45% of the outstanding CommonStock, and its president and sole shareholder, Mr. Knollenberg, is the Chairmanof the Company. In addition, Venture Planning Inc., another Company controlledby Mr. Knollenberg provided Mr. Jenkins, Mr. Giannetto, and KMA with, andsubsequently paid a note for the remaining $300,000. Because the underlyingobligations to Mr. Jenkins, Mr. Giannetto, and KMA were obligations of theCompany, the Company has booked a note payable of $600,000, which remainsoutstanding, to Sea Hunt and Venture Planning Inc. in consideration of theirpayment of these amounts. 

Following the Change in Control, certain disputes arosebetween the Company and Mr. Jenkins, Mr. Giannetto and KMA. As a result of thesedisputes, the Company did not issue any Common Stock to Mr. Jenkins, Mr.Giannetto, or KMA, and they commenced an arbitration proceeding against theCompany. The Company and Mr. Jenkins, Mr. Giannetto, KMA, KMA Capital Partners,Inc., and CF Holdings, LLC (collectively, the "Former Management Parties") onJune 30, 2006, entered into a Settlement Agreement and General Release (the"Settlement Agreement") in order to reach a comprehensive resolution of theirdisputes. 

37

The Settlement Agreement provides that the Former ManagementParties release all claims that they may have against the Company, its parents,subsidiaries, affiliates, predecessors, successors, assigns, partners, agents,representatives, and attorneys (collectively, "affiliated parties") and that theCompany releases all claims it may have against the Former Management Partiesand their respective affiliated parties. The Settlement Agreement also providesthat the Company will issue 303,333 shares of Common Stock to KMA CapitalPartners, Inc. (the successor by merger to KMA), 303,333 shares of Common Stockto Mr. Jenkins, and 303,334 shares of Common Stock to Mr. Giannetto. 

In a matter related to KMA Capital Partners Ltd, JamesJenkins and Charles Gianetto, filed as *KMA Capital Partners Ltd., v.Sovereign Exploration Association, Inc., et al*, in the Circuit Court of theNinth Judicial Circuit, in and for Orange County, Florida, the Company claimsthat KMA Capital Partners Ltd, James Jenkins and Charles Gianetto are in breachof a "Leak Out Agreement", which restricts the number of shares of the Company'scommon stock, traded as SVXA.OB, they are allowed to sell or transfer. As ofJune 30, 2006, the court entered an Order which limits Mr. Jenkins and Mr.Gianetto to selling no more than 2,000 shares of the Company's common stock pertrading day. As of June 30, 2007, there is no liability under this matter thatrequires the establishment of a liability within the accompanying consolidatedfinancial statements.

On December 26, 2005, the Company issued 100,000 shares ofCommon Stock for 100% ownership of the stock of Sea Quest, Inc., which became awholly-owned subsidiary of Sea Research. Sea Quest, Inc. was owned 50% by aprivate unrelated individual and 50% owned by Sea Hunt Holding, LLC, which isowned by Mr. Knollenberg. Byacquiring Sea Quest, Inc., Sea Research acquired a vessel known as the SeaQuest.**Item 13 Exhibits**
(a) The following exhibits are incorporated as part of this 10KSB annualreport:

3(i) Articles of Incorporation, as Amended

3(ii) By-Laws

10.1 Exchange Agreement

10.2 Settlement Agreement

10.3 Stock Purchase Agreements - Lavelle Holdings, Inc.

10.4 Stock Purchase Agreement - LeChameau ExplorationsLimited

21 Subsidiaries of Registrant

31.1 Section 302 CEO and CFO Certification

32.1 Section 906 CEO and CFO Certification
**Item 14. Principal Accounting Fees and Services.**
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

During the fiscal year ended June 30, 2007, professionalaudit services were performed for the Company by Baumann, Raymondo & Company,P.A., the Company's independent registered public accounting firm. During thefiscal year ended June 30, 2007 professional tax services were performed byConner & Associates, PC, certified public accountants. Set forth below isinformation relating to the aggregate fees billed by Baumann Raymondo and Conner& Associates for professional services rendered. All fees and services wereapproved by the Board before the respective firms were engaged.

38
*Audit Fees. The aggregate fees billed, or to bebilled, for the audit of the Company annual financial statements, review of thefinancial statements included in the Company's Form 10-QSB filings, and servicesthat are normally provided by the independent registered public accounting firmin connection with statutory and regulatory filings or engagements were $59,312for fiscal year ended June 30, 2007, respectively.
*Audit-Related Fees. During fiscal year 2007, BaumannRaymondo did not perform any services for assurance or related services onbehalf of the Company that were reasonably related to the performance of theaudit or review of the Company's financial statements and are not reported under"Audit Fees" during the fiscal year ended June 30, 2007.
*Tax Fees. The aggregate fees billed, or to be billed,by Conner & Associates, PC for professional services related to the preparationof the consolidated tax returns and other tax compliance services were $18,200during the fiscal year ended June 30, 2007.
*All Other Fees.*
Not applicable.

PRE-APPROVAL POLICY FOR SERVICES BY INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM

The Board of Directors has implemented procedures for thepre-approval of all engagements of the Company's independent registered publicaccounting firm for both audit and permissible non-audit services, including thefees and terms of each engagement. The Board annually meets with the independentregistered public accounting firm and reviews and pre-approves all audit-relatedservices prior to the commencement of the audit engagement. For permissiblenon-audit services, the Board has delegated pre-approval authority to Kevin J.Conner, the audit committee financial expert wherein Mr. Conner reviews thenature and terms of any proposed engagement of the independent registered publicaccounting firm. Mr. Conner will discuss the matter with management and, asnecessary, with the independent registered public accounting firm, prior tomaking any determination to approve or reject any such engagement. Any approvalsof non-audit services are then reported by Mr. Conner at the next Board meetingfor approval by the Board.

39

SIGNATURES

 

Pursuant to the requirements of Section 3 or 15(d) of theSecurities Exchange Act of 1934, the Registrant has duly caused this AnnualReport on Form 10-KSB to be signed on its behalf by the undersigned, thereuntoduly authorized.

SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC

 

October 11, 2007                                            By: /s/ Robert D. BacaDate                                                                Robert D. Baca                                                                       President and Chief Executive Officer

October 11, 2007                                            By: /s/ Martin ThorpDate                                                                Martin Thorp                                                                       Chief Financial Officer

 

Supplemental Information to be Furnished With Reports FiledPursuant to Section 15(d) of the Act by Registrants Which Have Not RegisteredSecurities Pursuant to Section 12 of the Act:

The Company has not sent any annual report to securityholders covering the Company's last fiscal year. The Company mailed proxysolicitation materials to its shareholders on or about September 8, 2006, inconnection with a special meeting of shareholders held September 20, 2006. TheCompany voluntarily filed its definitive proxy statement on Schedule 14A onSeptember 8, 2006.

40************************* |