UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-KSB/A


Amendment
no. 1





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





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




For the
transition period from _____________ to ________________




Commission
file number 333-29903




SOVEREIGN
EXPLORATION ASSOCIATES INTERNATIONAL, INC.


(Name of
small business issuer in its charter)






Utah
            30-0123229(State or other
      jurisdiction of incorporation or organization)
            (I.R.S. Employer
      Identification No.)503 EastWashington Avenue, Suite 2D,
      Newtown, Pennsylvania
            18940(Address of
      principal executive offices)
            (Zip
      Code)Registrant's
      telephone number, including area code:
            (215)
    968-0200Securities
      registered pursuant to Section 12(b) of the Act:
            N/ASecurities
      registered pursuant to section 12(g) of the Act:
            N/A




Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. x





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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. x
Yes   o
No





Indicate
by check mark if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or
information  statements  incorporated  by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). o
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 Stock as of September 17,
2007 was 33,682,017 shares. The aggregate market value of the Common Stock
totaling 13,682,789 shares held by non-affiliates, based on the approximate
average of the bid and asked prices of $0.18 per share as of September 17, 2007,
was $2,495,302.





Transitional
Small Business Disclosure Format (Check One): o
Yes   x No







Table of
Contents








PAGEPART IItem 1
            Description of
      Business
            3Item 1A
            Risk
    Factors
            7Item 1B
            Unresolved Staff
      Comments
            9Item 2
            Description of
      Property
            9Item 3
            Legal
      Proceedings
            10Item 4
            Submission of
      Matters to a Vote of Security Holders
            10PART IIItem 5
            Market for Common
      Equity, Related Stockholder Matters and Small
      Business Issuer Purchases of Equity Securities
            10Item 6
            Management's
      Discussion and Analysis or Plan of Operation
            12Item 7
            Financial
      Statements
            22Item 8
            Changes in and
      Disagreements with Accountants on Accounting and
      Financial Disclosure
            22Item 8A
            Controls and
      Procedures
            22Item 8A(T)
            Controls and
      Procedures
            25Item 8B
            Other
      Information
            25PART IIIItem 9
            Directors, Executive
      Officers, Promoters, Control Persons and Corporate
      Governance; Compliance with Section 16(a) of theExchange
      Act
            26Item 10
            Executive
      Compensation
            28Item
    11
            Security Ownership
      of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            28Item 12
            Certain
      Relationships and Related Transactions
            30Item 13
            Exhibits
            32Item 14
            Principal Accountant
      Fees and Services
            33SIGNATURES




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 Investment Company Act of 1940 (the
"1940 Act"). A business development company is an investment company that
invests primarily in, and makes available significant managerial assistance to,
eligible portfolio companies that may not have ready access 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 into an Exchange Agreement (the
"Exchange Agreement") with Sovereign Exploration Associates International, Inc.,
a Pennsylvania Company now known as Historic Discoveries, Inc. ("Historic
Discoveries").  As  a  result  of  the  Exchange
Agreement,
Historic  Discoveries  became  a  wholly-owned  subsidiary  of  the
Company and the former shareholders of Historic Discoveries received 90% of the
capital stock of the Company.  All of the Directors and officers of
the Company resigned, and new Directors and officers took
office.  Immediately prior to and in connection with the entry into
the Exchange Agreement, the Company disposed of substantially all of its
assets.





The Business of Historical
Shipwreck Recovery





Searching
for and salvaging historical shipwrecks is a multistage process. The Company
generally seeks to identify and recover artifacts from historical shipwrecks
dating from 1500 to 1900. The wrecked ships themselves generally were made of
wood and have completely disintegrated.  The Company therefore seeks
to recover valuable and historically interesting artifacts from the shipwreck
sites.





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





For any
licenses that are owned by the Company, it must obtain an exploratory or
disturbance permit before commencing exploratory operations.  The
permit gives the holder the exclusive right to conduct exploratory operations in
the area covered by the
permit.  The  Company  holds or has rights to a
number of these  permits and considers  that they make up
a  significant  portion of its
net  worth;  in many cases, the permits are owned by a third
party who contracts with a subsidiary of the Company.  During the
exploratory operations, the Company seeks to locate shipwrecks and to confirm
their identification through examination of a limited number of salvaged items.
Both exploratory and salvage operations are dependent upon favorable weather
conditions.   For operations off the coast of Nova Scotia, where
several of the Company’s sites are located, these are restricted to the warmer
months of the year.





A
separate recovery permit is required before the Company can make any substantial
recoveries from a site.  Recoveries under a recovery permit require
the involvement of a science team, which examines recovered items and turns its
findings over to the applicable governmental authority. The artifacts must be
thoroughly documented in accordance with commonly accepted historical and
archaeological standards.  These records will be retained by the
Company and made available to researchers by request.  After items
have been recovered and examined, it generally is necessary to negotiate an
in-kind sharing of recovered items with the governmental
authority.  In the Company’s experience, this negotiation can take a
year or more.  The Company then can began realizing on the recovered
items through a deaccession process. An effort will be made to keep a
deaccessioned artifact in the public domain by offering museums and similar
institutions the opportunity to purchase the artifact at fair market value as
determined by the average of no less then two independent appraisers adhering to
the standards of the Appraisers Association of America standards. Consideration
will 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 from the Company’s location of a
shipwreck to when it begins to realize on its recoveries.  The Company
may also realize returns from its intellectual property rights with respect to
historically significant or interesting shipwrecks, such as the development and
sale of documentaries and television specials, but these are 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 the
Company's intellectual property, the Company has entered into a media
partnership with Principle Pictures, Inc., planning the creation of at least
five television documentaries and a series of companion books, educational
tools, and interactive websites.





The Company's
Subsidiaries





The
Company conducts its operations through its subsidiaries and controlled
companies.  These entities generally lease all major equipment,
including dive ships, for only the period of time it is actually used in
operation.  However, equipment may be owned if it appears to be
advantageous to do so, particularly with less costly technological materials,
such as compressors, small zodiac boats, and dive equipment for recovery teams,
that require minimal maintenance and have relatively long
life-cycles.  Operations are conducted primarily by part-time and
contracted explorers, divers, historians, marine archaeologists, and other
personnel.





As of
June 30, 2007, the Company, including its subsidiaries, has five (5) full-time
employees.





The
Company generally intends to finance specific recovery efforts through a system
of project finance. The Company will form a special-purpose entity, typically a
limited liability company, to conduct a specific recovery effort. The
special-purpose entity will be managed by a subsidiary of the Company and will
seek investment from affluent individuals to fund its operations. Such
investors  may be collectors who seek an  in-kind share of
recovered items, individuals who are  attracted by the opportunity to
participate in a historically significant recovery effort, or investors
attracted by the entity's potentially large gains. The Company’s share of
proceeds 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 and is wholly-owned by the
Company.  The Company acquired Historic Discoveries in connection with
the change in control on October 17, 2005, and it has since made additional
investments in Historic Discoveries. Historic Discoveries has two wholly-owned
subsidiaries, Artifact Recovery & Conservation Inc. ("ARC") and Sea
Research, Inc. ("SRI").





The
Company and Historic Discoveries had agreed to distribute 20% of the net profits
arising out of the exploitation of permits, licenses, finder fees rights,
contracts and other rights (collectively, "permits") held by ARC to its former
corporate parent, Sovereign Marine Explorations, Inc. ("SME"), and to distribute
20% of the net profits arising out of the exploitation of permits 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 Preferred Stock in
exchange for this 20% net profits participation agreement.  The stock
carries a 4 to 1 conversion feature into 40,000,000 common shares of the
Company.





4





Artifact Recovery &
Conservation, Inc.





ARC holds
licenses for some of the Company’s most promising sites. ARC has already
recovered substantial artifacts from Le Chameau, a French ship lost off Cape
Lorembec, Cape Breton Island, Nova Scotia, on August 27, 1725. The Chameau
carried  extensive  ladings
of  specie,  military  supplies,  trade  goods,  and
commercially-consigned  freight,  as well as
the  personal  effects  of  wealthy
passengers. ARC submitted artifacts from the Chameau and other ships to the Nova
Scotia government for artifact selection in 2005, and the selection process was
completed in March 2006.





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





ARC was
notified on August 31, 2006, its application for a Class B recovery permit for
the Fantome Cove treasure trove site has not been approved.  A Class B
permit is required before ARC can make any substantial recoveries from the site.
The Nova Scotia Department of Tourism, Culture & Heritage has recommended
that ARC and Le Chameau Explorations Limited (a wholly-owned subsidiary of the
Company), secure permission from the United Kingdom. The Company’s management
and counsel believe that the admiralty and treaty laws governing the site will
substantiate ARC's and Le Chameau Explorations Limited's Interest as license
holder. As of June 30, 2007, the Company is arranging meetings with
representatives from the United Kingdom and is waiting for Class B permit
approval.





Sea Research,
Inc.





SRI holds
the rights to seven sites, several of which have multiple ships.  The
wrecked ships are believed to have contained diverse cargoes, including money,
bullion, religious artifacts, jewelry, and other personal items.  SRI
also owns an exploratory vessel, the Sea Quest, through its wholly-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 in November 2005 from
unrelated parties in exchange for $800,000 of convertible
debentures.  The debentures were due on November 15, 2006, with
accrued interest at 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 the Company at the average closing price of the Company's common stock
for the ten business days prior to the conversion date. The debenture holders
may, at any time after November 15, 2006, convert the principal amount of the
debenture into common stock of the Company at the average closing price of the
Company's common stock for the ten business days prior to the conversion
date.  SEAI - Spain has secured the finder's rights to four shipwrecks
in Spain with potential historic and intrinsic value.  Effective
November 15, 2006, the Company converted the debentures into 848,000 (including
accrued interest of $48,000) common shares of the Company at a price of $1.00
per share.





Lavelle Holdings,
Inc.





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




5




In
consideration for certain rights to purchase common stock of Lavelle Holdings,
Inc. the Company paid $225,000, in cash, to the rights holders, at
closing.  The total 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.





Pursuant
to SFAS no. 141; the Company accounted for Lavelle Holdings, Inc. operations and
cash flows for the year ended June 30, 2007 in its consolidated financial
statements contained within this 10-KSB/A.  In addition, the Company
considered the recognition of an increase or decrease in the provisional amount
recognized for any identifiable asset or liability by means of a decrease or
increase in goodwill.  As of the date of this transaction, there were
no identifiable assets or liabilities that required recognition through a
corresponding change in goodwill.





LeChameau Explorations
Limited





On June
13, 2007, the Company acquired 100% of the issued and outstanding capital stock
of LeChameau Explorations Limited, a company based in Nova Scotia, for total
consideration of USD $274,009.  The payment for the stock is in the
form of a note agreement, which is collateralized by the common stock of the
Company.  The note is due June 13, 2008.  If the Company
defaults, the note is convertible to the Company’s common stock at a rate of
1.25 times the outstanding liability as of its due date valued at the ten day
average of the stock price prior to the conversion date. Under this acquisition,
the Company now owns twenty-five licenses under the Nova Scotia Treasure Trove
Act. LeChameau Explorations Limited is a wholly-owned subsidiary of the
Company.





The sole
asset of this company were licenses held under the Nova Scotia Treasure Trove
Act and did not maintain any operations, therefore, there were no operations and
cash flows for the year ended June 30, 2007.  In addition, the Company
considered the recognition of an increase or decrease in the provisional amount
recognized for any identifiable asset or liability by means of a decrease or
increase in goodwill.  As of the date of this transaction, there were
no identifiable assets or liabilities that required recognition through a
corresponding change in goodwill.





Cautionary Statement
Regarding Forward-Looking Statements





This
Annual Report on Form 10-KSB may contain forward-looking statements which
include assumptions about future market conditions, operations and financial
results. These statements are based on current expectations and are subject to
risks and uncertainties. They are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.  The Company's
actual results, performance or achievements in the future could differ
significantly from the results, performance or achievements discussed or implied
in such forward-looking statements herein and in prior Securities and Exchange
Commission ("SEC") filings by the Company.  The Company assumes no
obligation to update these forward-looking statements or to advise of changes in
the assumptions on which they were based. Factors that could cause or contribute
to such differences include, but are not limited to, changes in the competitive
environment of the  Company, general  economic and business
conditions, industry  trends,  and changes in government
rules and regulations and environmental rules and regulations.





SEC
Filings





The
Company's Quarterly Reports on Form 10-QSB for the periods ended March 31, 2007,
December 31, 2006 and September 30, 2006 were based on
preliminary  information that has in some cases been corrected in this
Annual Report on Form 10-KSB/A.





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




6




Further
information about the Company is available at its website, www.sea-int.com.  Although
the Company does not currently post its SEC filings on its website because of
its limited number of full-time personnel, those filings are available 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 FACTORS AND THE OTHER INFORMATION
INCLUDED IN THIS REPORT.





The Company's Business Is
Inherently Risky and Speculative





The
Company’s business of historic shipwreck exploration and recovery is inherently
risky, and the risks predominate at each step of the Company’s business
model.





The value
of the Company is largely dependent on permits giving the Company (through its
subsidiaries and controlled companies) the exclusive right to exploration and
recovery for historical shipwrecks in specified areas. The value of these
permits is dependent, to a substantial degree, upon the research and data
assembled by the Company indicating that a historical shipwreck is likely to be
in the area.  Although the Company has access to a substantial amount
of research and data, which has been compiled during various projects, all such
research and data regarding shipwrecks is imprecise, incomplete and unreliable,
as it is often composed of, or affected by, numerous assumptions, rumors,
"legends," historical and scientific inaccuracies, and inaccurate
interpretations that have become a part of such research and data over time. The
shipwrecks sought by the Company generally have long disintegrated, and
confirming their locations is difficult.  Even if the shipwrecks 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 on board at the
time of the sinking.





Underwater
recovery operations are inherently difficult and dangerous and may be delayed or
suspended by weather, sea conditions or other natural hazards. Further, such
operations may be undertaken more safely during certain months of the year than
during others.  These risks are particularly great in the waters off
Nova Scotia, where many of the shipwrecks sought by the Company are believed to
be located.  There can be no assurances that the Company will be able
to conduct search and/or recovery operations only during such favorable periods.
In addition, even though sea conditions in a particular search location may be
somewhat predictable, the possibility exists that unexpected conditions in a
search area may occur and that such unexpected conditions might adversely affect
operations.  Further, it is possible that natural hazards may prevent
or significantly delay search and recovery operations.





From time
to time,  it will
be  necessary  to  contract  with
third  parties for additional  equipment  and/or
labor  necessary  for the location and recovery of
wreck  sites.  There can be no assurance that third party
contracts will be available to the Company. The availability of specialized
recovery equipment may present a problem,  and the cost of
obtaining  the use of such  equipment to
conduct  recovery  operations  is  uncertain  and
will  depend on, in part,  the location and condition of the
wreckage to be recovered. Persons and entities other than the Company and its
affiliates may claim title to the shipwrecks. Even if the Company is successful
in locating and recovering shipwrecks, there is no assurance of establishing the
rights to property recovered as against governmental entities, prior owners, or
other attempted salvers claiming an interest therein. There is also a risk of
theft of valuable items at sea, both before and after their recovery, by pirates
or poachers and while in transit to a safe destination.





Even
after the location of a historical shipwreck has been confirmed, it may require
a period of years before the Company can realize revenue from salvage
operations.  The Company generally must obtain a recovery permit
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. The Company then
must negotiate with applicable government authorities, which generally are
entitled to retain a portion of the recovered items. The issuance of recovery
permits and negotiations with governmental authorities may result in delays
particularly if there is public sentiment against salvage, there are multiple
governmental claims to the shipwreck, or the recovered items are especially
valuable or historically significant.




7




Even if
valuable items can be located and recovered, it is difficult to predict the
price that may be realized for these items.  The items may have been
damaged by salt water or by natural sea conditions. The value of the recovered
items will fluctuate with a precious metals market that has been highly volatile
in recent years. Moreover, the entrance into the market of a large supply of
similar items from shipwrecks, including those located and recovered by the
Company, could itself depress the market for these items. The methods and
channels that may be used in the disposition of the recovered items are
uncertain at present and may include one or a combination of several
alternatives. Ready access to buyers for disposition of any artifacts or other
valuable items recovered cannot be assured and delays in the disposition of such
items are very possible.





Need for Additional
Capital





Although
the Company has recovered a number of valuable items in its salvage operations
to date, it has not yet realized any revenues from these salvage operations, and
any revenues it realizes in the near future are unlikely to be sufficient to
fund the Company's operations.  In addition, the Company has minimal
financial resources.  Accordingly, the Company can continue its
operations only if it or its subsidiaries or controlled companies can raise
additional working capital.




8




Legal and Political
Risks





Historical
shipwreck recovery is highly regulated and can be a high-profile political
issue, due to jurisdictional disputes, public concern over historically
significant shipwrecks, and archaeological and environmental concerns. A
localized group in Nova Scotia has forwarded the idea to repeal the Nova Scotia
Treasure Trove Act.  This action remains on the
horizon.  However, the Company's legal representation in Nova Scotia
indicates the likelihood that it will not move forward and if it does that the
Company may be grandfathered for a period of time.





Legal
Exposure





In the
period leading up to the change in control of the Company on October 17, 2005,
the Company, under its prior management, disposed of a number of its assets for
aggregate consideration of $20 and issued 800,000,000 shares (800,000 shares on
a  split-adjusted  basis) for consideration the receipt of
which the Company's present  management has been unable to
confirm.





In the
period from October 17, 2005 to September 22, 2006, although the Company had
elected treatment as a business development company under the 1940 Act, the
Company may not have met all of the requirements for treatment as a business
development company, and some of the activities of it or its affiliates raised
questions under the 1940 Act. The Company accordingly could face legal exposure
in the event of either private litigation or a SEC enforcement action with
respect to events either before or after the change in
control.  Neither the SEC nor any private litigant has expressed a
present intention of bringing such an action against the Company.





Dependence on Key
Personnel





The
Company's success will depend largely on the skills of its key management
personnel, who currently function without employment contacts.  The
loss of one or more of the Company's key management personnel may materially and
adversely affect its business and results of operations.  The Company
cannot guarantee that it will be able to replace any key management personnel 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 the Company's securities and no
assurances can be given that a liquid market, or active market, will develop or,
if developed, that it will continue to be maintained.





Limitation on the Use of Net
Operating Loss Carryforwards





Effective
October 17, 2005, there was a change in control as defined under Section 382 of
the Internal Revenue Code.  As of June 30, 2007, the Company had
federal net operating loss carryforwards of approximately $853,311; portions of
which expire yearly through 2027 (subject to certain limitations). This balance
gives effect to annual limitations on the utilization of the loss carryforwards
caused by "ownership changes" as defined in Section 382 of the Internal Revenue
Code. If there is any additional ownership change, there can be no assurance as
to the specific amount of net operating loss carryforwards available in any
post-change year since the calculation is based upon a fact-dependent
formula.





Item
1B.Unresolved
Staff Comments.





N/A





Item 2.Description of
Property.





The
Company's principal offices are located at 503 Washington Avenue, Suite 2D,
Newtown, Pennsylvania and 120 Alpine Road, West Palm Beach,
Florida.  The offices in Pennsylvania and Florida are leased by
affiliates of the Company and the Company utilizes some of the space. The
offices are sufficiently equipped for the business of the Company as now
conducted.


9


Item 3.Legal
Proceedings.





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





In a
matter related to KMA Capital Partners Ltd, James Jenkins and Charles Giannetto,
filed as KMA Capital Partners
Ltd., v. Sovereign Exploration Association, Inc., et al, in the Circuit
Court of the Ninth Judicial Circuit, in and for Orange County, Florida, the
Company claims that KMA Capital Partners Ltd, James Jenkins and Charles
Giannetto are in breach of a “Leak Out Agreement”, which restricts the number of
shares of the Company’s common stock, traded as SVXA.OB, they are allowed to
sell or transfer.  As of June 30, 2006, the court entered an Order
which limits Mr. Jenkins and Mr. Giannetto to selling no more than 2,000 shares
of the Company’s common stock per trading day.  As of June 30, 2007
and 2006, there is no liability under this matter that requires the
establishment of a liability within the accompanying consolidated financial
statements.





The
Company is one of several defendants in a law suit, Patricia A. Mullican v. Sovereign
Exploration Associates International, Inc., et alin the Circuit Court of
the Ninth Judicial Circuit, in and for Orange County, Florida.  The
plaintiff in this case is seeking damages for the alleged failure to pay two (2)
debentures issued by TS&B Holdings to Mr. Mullican (one for $150,000 and the
other for $250,000) as well as an unpaid promissory note for $50,000 plus
accrued interest on the debentures and the promissory note along 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’s position that these debts are not its responsibility, to the extent
that neither the debentures nor promissory notes were disclosed at the time Cali
Holdings, Inc. was acquired by the Company.  There are numerous
defenses which the Company will be relying upon to support its legal position
that these obligations are not its responsibility. As of June 30, 2007 and 2006,
the accompanying consolidated financial statements do not provide for any
liability in the event that the Company 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 Company voted, affirmative, to file
the Company’s election to withdrawal its Business Development Company status
under the Investment Company Act of 1940.





PART
II





Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.





Sovereign
Exploration Associates International, Inc. Common Stock, par value $.001 per
share ("Common Stock"), is traded over the counter on the OTC Bulletin Board
("OTCBB") under the symbol "SVXA." The following table sets forth, for the
period indicated, the range of high and low closing prices reported by the
OTCBB.  Such quotations represent prices between dealers and may not
include markups, markdowns, or commissions and may not necessarily represent
actual transactions.




10




Quarter
      Ended
            High
            Low06/30/2006
            $              0.88
            $              0.4509/30/2006
            $              0.63
            $              0.3512/31/2006
            $              0.62
            $              0.2603/31/2007
            $              0.78
            $              0.2506/30/2007
            $              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 Stock during the years ended
June 30, 2007 and 2006, respectively, and, by reason of its present financial
status and its contemplated financial requirements, does not anticipate paying
any cash dividends in the foreseeable future. It is anticipated that earnings,
if any, which may be generated from operations will be used to finance the
operations of the Company.





Unregistered/Registered
Sales/Issuances of Equity Securities and Use of Proceeds





For the
year ended June 30, 2006:





On
October 5, 2005,  the  Company,  under
prior  management,  issued 800,000
(split-adjusted)  shares  of  Common  Stock
to KMA  Capital  Partners  Ltd.  The
Company does not possess any documentation or knowledge regarding the
consideration for which these shares were issued to KMA Capital Partners Ltd.,
nor has it been able to confirm that any consideration was
received.  The shares were issued in a transaction exempt from
registration under Section 4(2) of the 1933 Act, and the shares originally bore
a restrictive legend. Subsequently, prior management caused the legend to be
removed, and 400,000 shares were sold on the open market in December
2005.  These shares were the subject of arbitration between current
and prior management. see Item13 - Certain
Relationships and Related Transactions. The remaining 400,000 shares
have again been legended.





On
November 15, 2005, the Company issued $800,000 of convertible debentures in
exchange for finders’ rights and other assets were being held by SEAI - Spain.
The debentures were due on November 15, 2006 with accrued interest at 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 the
Company at the average closing price of the Company's common stock for the ten
business days prior to the conversion date. The debenture holders may, at any
time after November 15, 2006, have converted the principal amount of the
debentures into Common Stock of the Company at the average closing price of the
Company's common stock for the ten business days prior to the conversion date.
The Company relied upon the exemption from registration contained in Section
4(2) of the 1933 Act. As of November 15, 2006, these debentures along with
accrued interest were converted into 848,000 common shares of the
Company.





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




11


Total
common shares issued were 3,638,851; the par value of the 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 capital contributions, and conversion of
convertible debt.





In each
case when securities were issued in reliance upon an exemption from registration
pursuant to Section 4(2) of the 1933 Act, the recipients took the securities for
investment purposes without a view to distribution and had access to information
concerning the Company and its business prospects, as required by the Securities
Act. In addition, there was no general solicitation or advertising for the
purchase of the Company's securities.  The securities were issued only
to persons with whom the Company had a direct personal preexisting relationship,
and after a thorough discussion. Finally, the Company's stock transfer agent has
been instructed not to transfer any of such shares, unless such shares are
registered for resale or there is an exemption with respect to their
transfer.  All certificates representing the remaining shares bear
restrictive legends as required by the 1933 Act.





On March
7, 2007, the Board of Directors approved the Form S-8 registration for the 2006
Stock Incentive Plan for Employees and Consultants. 3,000,000 shares of the
Company’s common stock were registered with the SEC in order to provide
employees and consultants of the Company and its subsidiaries with an increased
incentive to make significant and extraordinary contributions to the long-term
performance and growth of the Company and its subsidiaries, to join the interest
of employees and consultants with the interest of the shareholders of the
Company, and to facilitate attracting and retaining employees and consultants of
exceptional ability.





Item 6. Restated
Management’s Discussion and Analysis or Plan of Operation





THIS
REPORT, INCLUDING THE DISCLOSURES BELOW, CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED HEREIN,
THE TERMS "ANTICIPATES," "EXPECTS," "ESTIMATES," "BELIEVES" AND SIMILAR
EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH MATERIAL DIFFERENCES INCLUDE THE FACTORS DISCLOSED IN THE
"RISK FACTORS" SECTION OF THIS ANNUAL REPORT ON FORM 10-KSB, WHICH READERS OF
THIS REPORT SHOULD CONSIDER CAREFULLY.





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





CORRECTION OF ERRORS IN
PREVIOUSLY ISSUED STATEMENTS





The
Company determined that as an operating company and reporting pursuant to the
1934 Act, certain errors were discovered and corrected retrospectively pursuant
to SFAS no. 154.  The following are the errors that were discovered
and corrected:





a)
            the
      classification and amortization of the licenses and
    permits,





b)
            the
      depreciation of the research vessel
and,





c)
            the
      accounting for the write-off of the accrued and unpaid salaries and
      expenses to certain officers and
directors.




12


The
following table reflects the impact of the corrections on
the
 restated consolidated
balance sheet as of June 30, 2007:
 2007
                
                
                2007As
      Corrected
                
                
                
                
                
                ChangeCurrent
      assetsCash
      and cash equivalents
                
                $
                542,336
                
                
                $
                542,336
                
                
                $
                -Accounts
      receivable
                
                
                323,493
                
                
                
                323,493
                
                
                
                -Inventory
                
                
                2,132,820
                
                
                
                2,132,820
                
                
                
                -Total
      current assets
                
                
                2,998,649
                
                
                
                2,998,649
                
                
                
                -Equipment,
      net of depreciation
                
                
                100,000
                
                
                
                -
                
                
                
                100,000Total
      property and equipment
                
                
                100,000
                
                
                
                -
                
                
                
                100,000Other
      assetsCapitalized
      costs and permits
                
                
                -
                
                
                
                -
                
                
                
                -Research
      vessel
                
                
                -
                
                
                
                125,000
                
                
                
                (125,000
                )Licenses
      and permits, net of amortization
                
                
                1,480,946
                
                
                
                1,682,916
                
                
                
                (201,970
                )Investments,
      net of allowance of $173,868
                
                
                51,962
                
                
                
                51,962
                
                
                
                -Notes
      receivable, net of allowance of $832,849
                
                
                -
                
                
                
                -
                
                
                
                -Total
      other assets
                
                
                1,532,908
                
                
                
                1,859,878
                
                
                
                (326,970
                )Total
      assets
                
                $
                4,631,557
                
                
                $
                4,858,527
                
                
                $
                (226,970
                )Liabilities and
      Deficiency in AssetsCurrent
      liabilitiesAccounts
      payable and accrued expenses
                
                $
                752,657
                
                
                $
                752,657
                
                
                $
                -Related
      party notes payable
                
                
                3,459,359
                
                
                
                3,459,359
                
                
                
                -Due
      to related parties
                
                
                1,237,726
                
                
                
                1,237,726
                
                
                
                -Convertible
      notes payable
                
                
                1,000,000
                
                
                
                1,000,000
                
                
                
                -Debentures
      payable
                
                
                99,174
                
                
                
                99,174
                
                
                
                -Total
      current liabilities
                
                
                6,548,916
                
                
                
                6,548,916
                
                
                
                -Total
      liabilities
                
                
                6,548,916
                
                
                
                6,548,916
                
                
                
                -Commitments
      and contingencies
                
                
                -
                
                
                
                -
                
                
                
                -Deficiency in
      assetsClass
      A - Preferred stock, no par value, 10,000 shares authorized,
                  none
      issued and outstanding
                
                
                -
                
                
                
                -
                
                
                
                -Class
      B - Preferred stock, no par value, 10,000 shares authorized,
                  none
      issued and outstanding
                
                
                -
                
                
                
                -
                
                
                
                -Class
      C - Convertible Preferred stock, $.001 par value, 10,000 shares
      authorized,
                  none
      issued and outstanding
                
                
                -
                
                
                
                -
                
                
                
                -Class
      D - Preferred stock, no par value, 10,000 shares authorized,
                  none
      issued and outstanding
                
                
                -
                
                
                
                -
                
                
                
                -Preferred
      stock - Series A, $0 par value, 100,000,000 shares
    authorized;
                
                
                
                
                
                
                
                
                
                
                -none
      issued and outstanding as of June 30, 2007
                
                
                -
                
                
                
                -
                
                
                
                -Common
      stock - $.001 par value, 250,000,000,000 shares authorized;
                  29,842,017
      issued and outstanding
                
                
                29,842
                
                
                
                29,842
                
                
                
                -Additional
      paid-in capital
                
                
                20,119,147
                
                
                
                20,565,550
                
                
                
                446,403Minority
      interest
                
                
                (803,530
                )
                
                
                (803,530
                )
                
                
                -Accumulated
      deficit
                
                
                (21,262,818
                )
                
                
                (20,589,445
                )
                
                
                (673,373
                )Total
      deficiency in assets
                
                
                (1,917,359
                )
                
                
                (797,583
                )
                
                
                (1,119,776
                )-Total
      liabilities and deficiency in assets
                
                $
                4,631,557
                
                
                $
                5,751,333
                
                
                $
                (1,119,776
                )
  A
      - Entry to reclassify the research vessel from other assets to property
      and equipmentB
      - To record $25,000 in depreciation expense for the research vessel that
      was available for use during the fiscal year ended June 30,
      2007C
      - To record the $201,970 for the amortization of the licenses and permits
      owned by the Company for the fiscal year ended June 30,
    2007D
      - To record the $25,000 in depreciation expenses for the research vessel
      and the $201,970 for the amortization of the licenses and permits
          for the fiscal year ended June 30,
    2007
 
 13


The
following table reflects the impact of the corrections on the restated
consolidated
 statement of operations for
the fiscal year ended June 30, 2007:
 
 2007
                                                    
                                                    
                                                    2007As
      Corrected
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    ChangeRevenue
                                                    
                                                    $
                                                    1,860,442
                                                    
                                                    
                                                    $
                                                    1,860,442
                                                    
                                                    
                                                    $
                                                    -Cost
      of sales
                                                    
                                                    
                                                    1,474,632
                                                    
                                                    
                                                    
                                                    1,474,632
                                                    
                                                    
                                                    
                                                    -Gross
      profit
                                                    
                                                    
                                                    385,810
                                                    
                                                    
                                                    
                                                    385,810
                                                    
                                                    
                                                    
                                                    -Operating
      expenses
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    -Salaries
      and wages
                                                    
                                                    
                                                    562,547
                                                    
                                                    
                                                    
                                                    116,144
                                                    
                                                    A
                                                    
                                                    446,403General
      and administrative
                                                    
                                                    
                                                    585,304
                                                    
                                                    
                                                    
                                                    585,304
                                                    
                                                    
                                                    
                                                    -Legal
      and professional fees
                                                    
                                                    
                                                    318,497
                                                    
                                                    
                                                    
                                                    318,497
                                                    
                                                    
                                                    
                                                    -Total
      operating expenses
                                                    
                                                    
                                                    1,466,348
                                                    
                                                    
                                                    
                                                    1,019,945
                                                    
                                                    
                                                    
                                                    446,403Loss
      from operations
                                                    
                                                    
                                                    (1,080,538
                                                    )
                                                    
                                                    
                                                    (634,135
                                                    )
                                                    
                                                    
                                                    (446,403
                                                    )Other income
      (expenses)Depreciation
      and amortization
                                                    
                                                    
                                                    (226,970
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    B
                                                    
                                                    (226,970
                                                    )Interest
      income
                                                    
                                                    
                                                    1,351
                                                    
                                                    
                                                    
                                                    1,351
                                                    
                                                    
                                                    
                                                    -Interest
      expense
                                                    
                                                    
                                                    (144,532
                                                    )
                                                    
                                                    
                                                    (144,532
                                                    )
                                                    
                                                    
                                                    -Total
      other (income) expenses
                                                    
                                                    
                                                    (370,151
                                                    )
                                                    
                                                    
                                                    (143,181
                                                    )
                                                    
                                                    
                                                    (226,970
                                                    )Operating
      loss before income taxes
                                                    
                                                    
                                                    (1,450,689
                                                    )
                                                    
                                                    
                                                    (777,316
                                                    )
                                                    
                                                    
                                                    (673,373
                                                    )Provision
      for income taxes
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Net
      loss
                                                    
                                                    $
                                                    (1,450,689
                                                    )
                                                    
                                                    $
                                                    (777,316
                                                    )
                                                    C
                                                    
                                                    (673,373
                                                    )Net loss per common
      shareBasic
                                                    
                                                    $
                                                    (0.05
                                                    )
                                                    
                                                    $
                                                    (0.03
                                                    )
                                                    D
                                                    
                                                    (0.02
                                                    )Diluted
                                                    
                                                    $
                                                    (0.05
                                                    )
                                                    
                                                    $
                                                    (0.03
                                                    )
                                                    
                                                    $
                                                    (0.02
                                                    )Weighted average of
      common shares outstandingBasic
                                                    
                                                    
                                                    27,580,209
                                                    
                                                    
                                                    
                                                    27,580,209
                                                    
                                                    
                                                    
                                                    -Diluted
                                                    
                                                    
                                                    30,132,628
                                                    
                                                    
                                                    
                                                    30,132,628
                                                    
                                                    
                                                    
                                                    -
 See
accompanying notes to consolidated financial statements, which are an integral
part of the financial statements.
  A- The accrued and unpaid
salaries and expenses of certain officers and directors increase the operating
expenses by $446,403.
 This
amount was adjusted through additional paid in capital to reflect the write-off
of the accrued and unpaid salaries and expenses of certain officers and
directors on June 30, 2007.
  B - For the fiscal year ended
June 30, 2007, the $226,970 in depreciation and amortization is as follows:
$25,000 in depreciation for the research vessel and the $201,970 is for the
amortization of the licenses and permits owned by the Company.  See
Note 4 for a description of the fixed assets and Note 5 for a description of the
licenses and permits
  C- For the fiscal year ended
June 30, 2007, the net loss increased by $673,373  for these
corrections.
  D - For the fiscal year ended
June 30, 2007, the net effect of the corrections was $(0.02) on the basic and
diluted net loss per common share of the Company.







14


The
following table reflects the impact of the corrections on the
restated
 consolidated balance sheet
as of June 30, 2006:
 
 2006
                                            
                                            
                                            2006As
      Corrected
                                            
                                            
                                            
                                            
                                            
                                            ChangeCurrent
      assetsCash
      and cash equivalents
                                            
                                            $
                                            570
                                            
                                            
                                            $
                                            570
                                            
                                            
                                            $
                                            -Inventory
                                            
                                            
                                            1,614,004
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,614,004Total
      current assets
                                            
                                            
                                            1,614,574
                                            
                                            
                                            
                                            570
                                            
                                            
                                            
                                            1,614,004-Other
      assets
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -Capitalized
      costs and permits
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,463,890
                                            
                                            
                                            
                                            (3,463,890
                                            )Research
      vessel
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Licenses
      and permits, net of amortization
                                            
                                            
                                            1,682,916
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,682,916Investments,
      net of allowance of $173,868
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Notes
      receivable, net of allowance of $832,849
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Total
      other assets
                                            
                                            
                                            1,682,916
                                            
                                            
                                            
                                            3,463,890
                                            
                                            
                                            
                                            (1,780,974
                                            )Total
      assets
                                            
                                            $
                                            3,297,490
                                            
                                            
                                            $
                                            3,464,460
                                            
                                            
                                            $
                                            (166,970
                                            )Current
      liabilitiesAccounts
      payable and accrued expenses
                                            
                                            $
                                            347,528
                                            
                                            
                                            $
                                            347,528
                                            
                                            
                                            $
                                            -Related
      party notes payable
                                            
                                            
                                            2,583,955
                                            
                                            
                                            
                                            2,583,955
                                            
                                            
                                            
                                            -Due
      to related parties
                                            
                                            
                                            817,929
                                            
                                            
                                            
                                            817,929
                                            
                                            
                                            
                                            -Convertible
      notes payable
                                            
                                            
                                            800,000
                                            
                                            
                                            
                                            800,000
                                            
                                            
                                            
                                            -Debentures
      payable
                                            
                                            
                                            121,840
                                            
                                            
                                            
                                            121,840
                                            
                                            
                                            
                                            -Total
      current liabilities
                                            
                                            
                                            4,671,252
                                            
                                            
                                            
                                            4,671,252
                                            
                                            
                                            
                                            -Total
      liabilities
                                            
                                            
                                            4,671,252
                                            
                                            
                                            
                                            4,671,252
                                            
                                            
                                            
                                            --Commitments
      and contingencies
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Deficiency in
      assetsCommon
      stock - $.001 par value, 250,000,000,000 shares authorized;
                                              26,203,166
      issued and outstanding
                                            
                                            
                                            26,203
                                            
                                            
                                            
                                            26,203
                                            
                                            
                                            
                                            -Additional
      paid-in capital
                                            
                                            
                                            19,215,694
                                            
                                            
                                            
                                            19,215,694
                                            
                                            
                                            
                                            -Minority
      interest
                                            
                                            
                                            (803,530
                                            )
                                            
                                            
                                            (803,530
                                            )
                                            
                                            
                                            -Accumulated
      deficit
                                            
                                            
                                            (19,812,129
                                            )
                                            
                                            
                                            (19,645,159
                                            )
                                            
                                            
                                            (166,970
                                            )Total
      deficiency in assets
                                            
                                            
                                            (1,373,762
                                            )
                                            
                                            
                                            (1,206,792
                                            )
                                            
                                            
                                            (166,970
                                            )-Total
      liabilities and deficiency in assets
                                            
                                            $
                                            3,297,490
                                            
                                            
                                            $
                                            3,464,460
                                            
                                            
                                            $
                                            (166,970
                                            )
  A - The
capitalized costs and permits are being reclassified to inventory and permits at
the earliest date possible pursuant to SFAS no. 154.  These
reclassifications had no effect on the net loss for the fiscal year ended June
30, 2006
  B - The
amortization expense of $166,970 is being recorded for the amortization of the
licenses and permits for the fiscal year ended June 30, 2006.  The
$166,970 increased the net loss for the fiscal year ended June 30,
2006






15




The
following table reflects the impact of the corrections on the restated
consolidated
 statement of operations as
of June 30, 2006:
 
 2006
                                                
                                                
                                                2006As
      Corrected
                                                
                                                
                                                
                                                
                                                
                                                ChangeRevenue
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -Cost
      of sales
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Gross
      profit
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Operating
      expenses
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -Termination of
      employment and consulting agreements
                                                
                                                
                                                600,000
                                                
                                                
                                                
                                                600,000
                                                
                                                
                                                
                                                -Salaries
      and wages
                                                
                                                
                                                802,680
                                                
                                                
                                                
                                                802,680
                                                
                                                
                                                
                                                -General
      and administrative
                                                
                                                
                                                507,890
                                                
                                                
                                                
                                                507,890
                                                
                                                
                                                
                                                -Legal
      and professional fees
                                                
                                                
                                                304,978
                                                
                                                
                                                
                                                304,978
                                                
                                                
                                                
                                                -Total
      operating expenses
                                                
                                                
                                                2,215,548
                                                
                                                
                                                
                                                2,215,548
                                                
                                                
                                                
                                                -Loss
      from operations
                                                
                                                
                                                (2,215,548
                                                )
                                                
                                                
                                                (2,215,548
                                                )
                                                
                                                
                                                -Other income
      (expenses)Depreciation
      and amortization
                                                
                                                
                                                (166,970
                                                )
                                                
                                                
                                                -
                                                
                                                A
                                                
                                                (166,970
                                                )Interest
      expense
                                                
                                                
                                                (40,184
                                                )
                                                
                                                
                                                (40,184
                                                )
                                                
                                                
                                                -Total
      other (income) expenses
                                                
                                                
                                                (207,154
                                                )
                                                
                                                
                                                (40,184
                                                )
                                                
                                                
                                                (166,970
                                                )Operating
      loss before income taxes
                                                
                                                
                                                (2,422,702
                                                )
                                                
                                                
                                                (2,255,732
                                                )
                                                
                                                
                                                (166,970
                                                )Provision
      for income taxes
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Net
      loss
                                                
                                                $
                                                (2,422,702
                                                )
                                                
                                                $
                                                (2,255,732
                                                )
                                                
                                                
                                                (166,970
                                                )Net loss per common
      shareBasic
                                                
                                                
                                                (0.09
                                                )
                                                
                                                $
                                                (0.08
                                                )
                                                B
                                                
                                                (0.01
                                                )Diluted
                                                
                                                $
                                                (0.08
                                                )
                                                
                                                $
                                                (0.07
                                                )
                                                
                                                $
                                                (0.01
                                                )Weighted average of
      common shares outstandingBasic
                                                
                                                
                                                28,022,592
                                                
                                                
                                                
                                                28,022,592
                                                
                                                
                                                
                                                -Diluted
                                                
                                                
                                                28,022,592
                                                
                                                
                                                
                                                28,022,592
                                                
                                                
                                                
                                                -
 
 A -
Amortization expense of $166,970 is being recorded for the amortization of the
licenses and permits for the fiscal year ended June 30, 2006.  The
$166,970 increased the net loss for the fiscal year ended June 30,
2006
  B - For
the fiscal year ended June 30, 2006, the net effect of the correction was an
increase of $0.01  on the basic and diluted net loss per common share
of the Company.




16


BASIS OF PRESENTATION AND
CHANGE IN REPORTING STATUS





The
accompanying Restated Consolidated Financial Statements present the two (2) full
fiscal years ended June 30, 2007 and 2006, which are that of an operating
company pursuant to the 1934 Act. As an operating company, the required
financial statement presentation and accounting for securities held by the
Company utilize either fair value or historical cost methods of accounting,
depending on the classification of the investment and the Company’s intent with
respect to the period of time it intends to hold the investment.  The
Company and its subsidiaries are reflected for financial accounting purposes as
one consolidated entity.





The
accompanying Restated Consolidated Statements of Deficiency in Assets have been
revised pursuant to paragraph 23 of SFAS no. 154 to reflect the beginning June
30, 2005 equity accounts, as filed, followed by one line identified as “Change in Reporting Entity Status”giving effect to the change in reporting entity status to the earliest
period resulting in adjusted balances at June 30, 2005.





The
following table reflects the changes in the beginning June 30, 2005 equity
accounts for the change in reporting status of the Company from a BDC to an
operating company:





Class
      C ConvertiblePreferred
      Stock
            
            
            Common
      Stock
            
            
            Additionalpaid-in
            
            
            StockSubscription
            
            
            Minority
            
            
            Accumulated
            
            
            UnrealizedDepreciation ofShares
            
            
            Par
      Value
            
            
            Shares
            
            
            Par
      Value
            
            
            capital
            
            
            Receivable
            
            
            Interest
            
            
            Deficit
            
            
            Investments
            
            
            TotalBalance,
      June 30, 2005
            
            
            10,000
            
            
            $
            10,000
            
            
            
            55,837
            
            
            $
            56
            
            
            $
            17,316,337
            
            
            $
            (4,760
            )
            
            $
            -
            
            
            $
            (17,207,468
            )
            
            $
            (657,328
            )
            
            $
            (543,163
            )Change
      in reporting entity status
            
            
            (10,000
            )
            
            
            (10,000
            )
            
            
            -
            
            
            
            -
            
            
            
            1,925,504
            
            
            
            4,760
            
            
            
            (803,530
            )
            
            
            (181,959
            )
            
            
            657,328
            
            
            
            1,592,103Balance,
      June 30, 2005
            
            
            -
            
            
            
            -
            
            
            
            55,837
            
            
            $
            56
            
            
            $
            19,241,841
            
            
            $
            -
            
            
            $
            (803,530
            )
            
            $
            (17,389,427
            )
            
            $
            -
            
            
            $
            1,048,940


The net
effect on the total stockholders’ equity as of June 30, 2005 was $1,592,103,
which consists of the following adjustments:





1.
            $657,328
      in the unrealized depreciation of investments for the elimination of this
      account.


2.
            $(181,959)
      in the accumulated deficit to account for the change in loss as an
      operating company versus a BDC.


3.
            $(803,530)
      in minority interests for the capital investments in the Company’s
      subsidiaries from unrelated
parties.


4.
            $4,760
      in stock subscription receivable to eliminate this
  account.


5.
            $1,925,504
      in the additional paid in capital for the net effect of the change in the
      reporting entity pursuant to SFAS no. 154; $2,240,163 for the effect of
      the issuance of common stock for the escrow/exchange agreements, $(23,583)
      for the effect of the common shares issued with the exchange agreement and
      $(291,076) for the net effect of the disposal of the assets of the Company
      prior to the exchange agreement in October
2005.


6.
            $(10,000)
      for the elimination of the Class C Convertible Preferred
      Stock.




The
$(1,612,517) after the June 30, 2006 balances in the accompanying restated
statement was to account for the adjustment necessary at the earliest possible
date under SFAS no. 154 for this entry that relates to the exchange agreement in
October 2005.




17


Overview





The
Company was a financial service company providing financing and advisory
services to small and medium-sized companies throughout the United States.
Effective January 5, 2004, the Company's shareholders approved the proposal to
allow the Company to elect to be treated as a business development company
("BDC") under the 1940 Act. The Company on September 22, 2006, withdrew its
election to be treated as a BDC. Following the withdrawal of its election, the
Company carries on a marine recovery and explorations business, which it
conducts through subsidiaries and controlled companies, and will be managed so
that it will not be subject to the provisions of the 1940 Act. On June 11, 2007,
the Company acquired 100% of the outstanding common stock of Lavelle Holding,
Inc. On June 13, 2007 the Company acquired 100% of the outstanding common stock
of LeChameau Explorations Limited.





For the
years ended June 30, 2007 and 2006, the Company has presented the accompanying
restated consolidated financial statements to comply with Regulation S-X as an
operating company under the 1934 Act.





For the
year ended June 30, 2005 and prior years, the Company prepared its financial
statements in accordance with accounting principles generally accepted in the
United States of America for investment companies under the 1940
Act.





The
Restated Consolidated Statement of Deficiency in Assets as of June 30, 2005 has
been restated to reflect the change in the reporting entity status at the
earliest possible date as presented pursuant to SFAS no. 154 for the change from
a business development company reporting pursuant to the 1940 Act to an operatng
company reporting pursuant the 1934 Act.





Because
the Company has withdrawn its BDC election and has presented the accompanying
restated consolidated financial statements as of and for the years ended June
30, 2007 and 2006 and will not in future periods prepare its financial
statements as an investment company, the financial statements discussed herein
for the year ended June 30, 2007 and 2006, are not comparable to any prior
years.





On
November 6, 2008, the Company filed Form 8-K stating that the Company’s
previously issued financial statements for the fiscal year ended June 30, 2007
should not be relied upon.





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





Valuation of
Investments





The
Company is no longer subject to valuing its private investments at fair value as
defined in Section 2(a)(41) of the 1940 Act,  (i)
the  market  price for those securities for which a market
quotation is readily available and (ii) for all other securities and assets,
fair value is determined in good faith by the board of directors.





As of
June 30, 2007, the following is a list of the private companies in which the
Company had an investment in and notes receivable, stated at the lower of cost
or market value;





Name
      of Company
              
              Cost
              
              
              FMVGulf
      Coast Records, LLC –Investment
      and Note Receivable
              
              $
              1,006,717
              
              
              $
              -Reds
      Caribbean – Investment
              
              $
              51,962
              
              
              $
              51,962Totals
              
              $
              1,058,679
              
              
              $
              51,962




18




As of
June 30, 2007 and 2006, the Company’s investments in entities that accounted for
under the equity method, wherein the Company owns less than 50% (more than 20%)
of the membership interests or capital stock are reflected at the lower of cost
or market.  Since there is typically no readily ascertainable market
value for the investments in its portfolio, the Company valued substantially all
of its investments at the lower of cost or market as determined in good faith by
the board of directors pursuant to a valuation policy and consistent valuation
process.  Because of the inherent uncertainty in determining the fair
value of investments that do not have a readily ascertainable market value, the
fair value of its investments determined in good faith by the board of directors
may differ significantly from the values that would have been used had a ready
market existed for the investments, and the differences could be
material.





Initially,
the fair value of each such portfolio investment was based upon original
cost.  There is no single standard for determining fair value in good
faith. As a result, determining fair value requires the judgment be applied to
the specific facts and circumstances of each portfolio
investment.  The Board of Directors considers fair value to be the
amount which the Company may reasonably expect to receive for portfolio
securities when sold on the valuation date.





Gulf Coast Records,
LLC





The
investment (a 49% minority interest) and note receivable in Gulf Coast Records,
LLC was acquired as part of the Exchange Agreement dated October 17,
2005.  In the year ended June 30, 2006, while reporting under the 40
Act as a business development company, the Board of Directors agreed with
management’s assessment to write this investment down to zero based on the
information received from the management of Gulf Coast Records,
LLC.  For the years ended June 30, 2007 and 2006, the investment in
and note receivable to Gulf Coast is being carried as zero, which is the lower
of cost or market.





Reds
Caribbean





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





For the
year ended June 30, 2007 and for future years, the Company expects to not record
any changes in estimated fair value or have any "net increase (decrease) in
unrealized (depreciation) appreciation” in its statement of
operations.





Valuation of Loans and Debt
Securities





The
Company did not value its loans or debt securities above cost, but loans and
debt securities were subject to fair value write-down when the asset is
considered impaired with respect to the Company’s investments. As of June 30,
2007 and 2006, the note receivable to Gulf Coast Records, LLC of $832,849 was
considered impaired and continues to be carried as zero.  The
investment is Reds Caribbean was acquired in June 2007 in conjunction with the
acquisition of Lavelle Holdings, which is not considered as impaired and it is
being carried at its cost.





Financial
Condition





As of June 30, 2007 as
compared with June 30, 2006:





Total
assets increased by $1,334,067 or 40% to $4,631,557. Cash increased by $541,766
primarily because of the $1,000,000 cash the Company received under the note
payable in June 2007.  Accounts receivable of $323,493 is that of
Lavelle Holdings, Inc., a wholly-owned subsidiary of the Company.





Investments
of $51,962 represent Lavelle Holdings, Inc’s minority ownership in Reds
Caribbean.





The cash
and cash equivalents of $542,336 and $570 were approximately 11% and 0.2% of
total assets as of June 30, 2007 and 2006.




19




Inventory
increased by $518,816 or 27%, which was primarily funded by the issuance of
common stock, proceeds from notes payable and proceeds from related party notes
payable.





Results of
Operations





For the year ended June 30,
2007 as compared with the year ended June 30, 2006::





For
the year ended June 30, 2007:





The
revenue for the year ended June 30, 2007 was derived all from the Company’s
subsidiary, Lavelle Holdings, Inc.Lavelle Holdings specializes in
offshore project management and subsea marine services. The company has unique
expertise in underwater cable installation, laying of offshore pipelines, subsea
risers, ROV (remote operated vehicles) and saturation diving services. Lavelle's
technical team is one of the best companies in the industry at implementing
complex subsea installations and salvage operations.





The loss
from operations was $1,080,538 primarily due to the lack of significant revenues
and the related cost of being a public company.  The Company has yet
to realize any revenue from the artifacts it has recovered
to-date.  There was a write-off of accrued/unpaid salaries, and
expenses owed to related parties of $446,403.  This amount is being
recorded as an operating expense and the write-off is being adjusted through
additional paid in capital.





Net loss
was $1,450,689.  Depreciation and amortization of $226,970 was for the
licenses, permits and equipment, which are being amortized or depreciated over
their respective lives of five years. The interest expense of $144,532 was
incurred due to the accrued interest on the notes payable, the debenture payable
and the related party notes payable.





Net cash
used in operating activities was $1,226,473 primarily from the net loss, change
in accounts receivable and accounts payable, and the increase in
inventory





For
the year ended June 30, 2006:





The
Company realized zero revenue in the year ended June 30, 2006.





The loss
from operations of $2,215,548 of primarily due to the lack of significant
revenues and the related cost of being a public company along with significant
costs related the exchange agreement in October 2005 wherein the Company
incurred cost of $600,000 for the termination of employment and consulting
agreements.





Net loss
was $2,422,702, which consists of the loss from operations along with
depreciation and amortization of $166,970 and the interest expense of
$40,184.





Net cash
used in operating activities was $3,596,505 primarily from the net loss, change
in accounts receivable and accounts payable and the increase in
inventory.





Operating
Expenses





Total
operating expenses for the year ended June 30, 2007 were $1,466,348 as compared
to $2,215,548 for the year ended June 30, 2006. The operating expenses consisted
of $562,547 in salaries and wages of which $446,403 was a write-off of
accrued/unpaid salaries, and expenses owed to related parties. This amount is
being recorded as an operating expense and the write-off is being adjusted
through additional paid in capital. There were $585,304 in general
administrative expenses and $318,497 in legal and professional
fees.  A significant amount of the legal and accounting fees of
approximately $150,000 incurred during the year ended June 30, 2007 were due to
the Company’s withdrawal of its election to be a Business Development Company
(BDC) under the 1940 Act, which was effective in September 2006.





20




Liquidity and Capital
Resources





At June
30, 2007, the Company had $542,336 in cash and cash equivalents. The Company
does not expect its cash on hand and cash generated from operations to be
adequate to meet its cash needs at its current level of operations, including
the next twelve months. The Company intends to seek to raise additional funds
from investors, either directly or through its subsidiary or controlled
companies, including special-purpose entities formed to conduct specific marine
salvage operations.  There can be no assurance that the Company’s
fund-raising efforts will be successful.  The Company also expects to
realize some revenues from the sale of previously salvaged artifacts by a
subsidiary, although these revenues by themselves are not expected to be
sufficient to fund the Company's operating costs. The Company expects that its
wholly-owned subsidiary, Lavelle Holdings, Inc., will generate cash from it own
operations to be sufficient for its operations during the next twelve (12)
months.





Debt
Financing





On June
4, 2007, the Company received $1,000,000 cash under a promissory
note.  Under the terms of the note, Company is obligated to pay the
note in one payment of all outstanding principal plus all accrued unpaid
interest on or before the six month anniversary of the closing date unless the
holders agree to extend the note, in which case the note shall become a demand
note, payable upon demand or at such later date as specified by holders to
Company in writing, in holders sole discretion. The Company’s stock is the
collateral that supports this note. Unless otherwise agreed or required by
applicable law, payments will be applied first to any accrued unpaid interest;
then to principal; then to any late charges; and then to any unpaid collection
costs.  The annual interest rate for this Note is computed on a 365
days per year basis.  The Company will pay the holders at holders’
address or at such other place as the holders 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 the prior consent of the holders with no
prepayment penalty.  At the maturity date of the note, the holders
shall be entitled to purchase 250,000 shares of common stock of the Company at a
price of $.20 per share. The holders will also be entitled to purchase an
additional 250,000 shares of common stock of the Company at the closing 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 year from the
closing date.





All
proceeds of the equity and debt financing for the year ended June 30, 2007 were
used for the stated operations of the Company. As of June 30, 2007, the Company
maintained a cash balance in checking and money market accounts of $542,336 at
five banking institutions located in Pennsylvania, Florida, Texas and Nova
Scotia.




Quantitative and Qualitative
Disclosures about Market Risk





The
Company’s investment activities contained elements of risk. The portion of the
Company’s investment portfolio consisting of equity or equity-linked debt
securities in private companies was subject to valuation
risk.  Because there was typically no public market for the equity and
equity-linked debt securities in which it invested, the valuation of the equity
interest in the portfolio is stated at "fair value" and determined in good faith
by the Board of Directors on a quarterly basis in accordance with the Company's
investment valuation policy. In the absence of a readily ascertainable market
value, the estimated value of the Company’s portfolio may have differed
significantly from the value that would be placed on the portfolio if a ready
market for the investments existed.  At times a portion of the
Company’s portfolio may have included marketable securities traded in the
over-the-counter market. In addition, there may have been a portion 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 in an
orderly fashion or a willing purchaser must be available when a sale is to be
made.  Should an economic or other event occur that would not allow
the markets to trade in an orderly fashion the Company may not have been able to
realize the fair value of its marketable investments or other investments in a
timely manner.





As of
June 30, 2007 and 2006, the Company did not have any off-balance sheet
investments or hedging investments.





21





Impact of
Inflation





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





Item 7.  Financial
Statements





The
Company's consolidated financial statements together with the related notes and
the report of  independent registered public accounting firm, are set
forth beginning on page F-1 of this Form 10-KSB/A.




Item 8.Changes In and Disagreements
with Accountants on Accounting and Financial Disclosure


None
 
 Item 8A.Controls and
Procedures
 
 CEO and CFO
Certifications
 
 As of the
end of the year covered by this Form 10-KSB/A, the Company carried out under the
supervision and with the participation of our management, 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 CFO required by Rules 13a-14(a) and 15d-14(c)
of the Securities Exchange Act of 1934, as amended (the "Certifications") are
filed as exhibits to this report.
  22
 This
section of this report contains information concerning the evaluation of our
"disclosure controls and procedures" (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) ("Disclosure Controls") and changes to internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
("Internal Controls") referred to in the Certifications and should be read in
conjunction with the Certifications for a more complete understanding of the
topics presented.
 
 Evaluation of Disclosure
Controls
 
 The
Company maintains controls and procedures designed to ensure that they are able
to collect the information that is required to be disclosed in the reports they
file with the Securities and Exchange Commission (the "SEC") and to process,
summarize and disclose this information within the time period specified in the
rules of the SEC. The Company’s Chief Executive Officer 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 the effectiveness of these
procedures.
 
 Based on
management's evaluation (with participation of our principal executive officer
and principal financial officer), as of the end of the period covered by this
report, the principal executive officer and principal financial officer
concluded that there were deficiencies identified in the Company's internal
controls over financial reporting which constituted a "material weakness."
Accordingly, management concluded that the Company's disclosure controls and
procedures were not effective.
 
 The
material weakness was the result of an insufficient number of personnel to
provide effective, and timely, oversight and review over the Company's financial
close and reporting process due to limited financial resources.
 
 Limitations on the
Effectiveness of Controls
 
 The
Company's management does not expect that their disclosure controls or their
internal controls over financial reporting will prevent all error and fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, but not absolute, assurance that the objectives of a control system
are met. Further, any control system reflects limitations on resources, and the
benefits of a control system must be considered relative to its costs. These
limitations also include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people or by management override of a
control. A design of a control system is also based upon certain assumptions
about potential future conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
may not be detected.
 
 Changes in Internal
Controls
 
 The
Company maintains a system of internal controls designed to provide reasonable
assurance that transactions are executed in accordance with management's general
or specific authorization; transactions are recorded as necessary to permit
preparation of financial statements in conformity with Generally Accepted
Accounting Principles ("GAAP").  It is the responsibility of Company’s
management to establish and maintain adequate internal control over financial
reporting.
 
 It is the
responsibility of Company's management to establish and maintain adequate
internal control over financial reporting. The material weakness identified
relates to an insufficient number of personnel to provide effective oversight
and review over our financial close and reporting process. This is the result of
limited financial resources. These control deficiencies in the aggregate
resulted in misstatements in the fiscal year end consolidated financial
statements for June 30, 2007 and 2006 for the Company to report as an operating
company pursuant to the 1934 Act.
 
 23
  Internal Control Over
Financial Reporting
 
 The
Company's management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) that is designed to ensure that information required to
be disclosed by the Company in the reports that the Company files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuer's management, including its principal executive
officer or officers and principal financial officer or officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
 
 In
accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was
completed under the supervision and with the participation of the Company's
management, including the Company's principal executive officer and principal
financial officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this Form 10-KSB/A.
 
 Based on
that evaluation, the Company's Principal Executive Officer and Principal
Financial Officer concluded that the Company's disclosure controls and
procedures were not effective, to provide reasonable assurance that information
required to be disclosed in the Company's reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the Commission's rules and forms.
 
 1.
              The
      Company determined that as an operating company and reporting pursuant to
      the 1934 Act, certain errors were discovered and corrected retrospectively
      pursuant to SFAS no. 154.  The following are the errors that
      were discovered and corrected; the classification and amortization of the
      licenses and permits, the depreciation of the research vessel, and the
      accounting for the write-off of the accrued and unpaid salaries and
      expenses.
 
 There
have been no changes to the Company's internal controls over financial reporting
that occurred during our last fiscal quarter of the year ended June 30, 2007,
that materially affected, or were reasonably likely to materially affect, our
internal controls over financial reporting.
 
 REPORT
OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Internal control over
financial reporting is a process to provide reasonable assurance regarding the
reliability of our financial reporting for external purposes in accordance with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary for preparation
of our financial statements; providing reasonable assurance that receipts and
expenditures of company assets are made in accordance with management
authorization; and providing reasonable assurance that unauthorized acquisition,
use or disposition of company assets that could have a material effect on our
financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of our financial
statements would be prevented or detected.
 
 For the
fiscal year ended June 30, 2007, management did conduct an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission, it has concluded that
notwithstanding the foregoing, the Company's internal controls over financial
reporting were not effective as of June 30, 2007, and there were material
weaknesses in financial reporting that have been discovered upon our
management’s evaluation. The errors as stated elsewhere in this 10-KSB/A were
corrected as of June 30, 2007 and 2006, respectively. Their related impact on
the accompanying restated consolidated financial statements have been fully
disclosed.
 
 24
  As noted
in this 10-KSB/A, the Company has limited resources available. We have addressed
these issues and upon obtaining additional funding and employ additional
personnel, we will implement programs to ensure the proper segregation of duties
and reporting channels.
 
 This Form
10-KSB/A does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the SEC that permit the
Company to provide only management's report in this annual report.
 
 Item 8A (T).Controls and
Procedures
 
 Not
applicable
 
 Item 8B.
Other Information.
 
 Not
applicable.
  25
 
 PART III
 
 Item 9. Directors and
Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16 (A) of the Exchange Act
 
 Officers and
Directors
 Name, Age and
      Address
              Position and Length
      of time with the CompanyPrincipal
      Occupation, Business Experience and DirectorshipsRobert D.
      Baca
              President, CEO
      and(51)
              Director since
      October 2005503 Washington
      Avenue,Suite
    2DNewtown, PA
      18940President and CEO of
      Sovereign Exploration Associates International, (2005-present); 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 recovery) (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 2005(50)503 Washington
      Avenue,Suite
    2DNewtown, PA
      18940Attorney, Palmer
      & Barr, PC.  (1989 – Present)James J.
      Cavan
              Vice President since
      October 2005(41)503 Washington
      Avenue,Suite  2DNewtown, PA
      18940Director of Research
      of Drexel University College Associates International of Medicine
      (2003-2005); Associate Director and Director of Research Office,
      University of Medicine and Dentistry of Medicine and Dentistry of New
      Jersey (2003)Kevin J.
      Conner
              Director since
      October 2005(45)503 Washington
      Avenue,Suite
    2DNewtown, PA
      18940Managing Director,
      Conner & Associates, PC (CPA firm) (1992 – Present)General Partner,
      Westrock Partners (Private Investment Firm) (1994 –
    Present)Donald G.
      Conrad
              Director since
      October 2005(77)503 Washington
      Avenue,Suite2DNewtown, PA
      18940Retired, Chevy Chase
      Bank, F.S.B.Barry
      Gross
              Senior Vice
      President and Secretary since October 2005(56)503 Washington
      AvenueSuite
    2DNewtown, PA
      18940Senior Vice
      President-Project Operations of Sovereign Exploration (2005-present);
      Northeast Regional Manager of Taut, Inc. (laparoscopic medical device
      manufacturer) (2001- present)
  26
  Peter
      Knollenberg
              Chairman and
      Director since October 2005(57)503 Washington
      Avenue,Suite
    2DNewtown, PA
      18940Curtis R.
      Sprouse
              Chief Operating
      Officer since October 2005(42)503 Washington
      AvenueSuite  2DNewtown, PA
      18940President and CEO of
      Boston Market Strategies, Inc. (consulting) (1993-present); President and
      CEO of iBall, Inc. (software consulting) (2003-present); 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)
  Compliance with Section
16(a) of the Exchange Act
 
 Section
16(a) of the Exchange Act requires the Company's officers and directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities pursuant to section 12, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
 
 The
Company's securities are not registered under Section 12 of the Securities
Exchange Act of 1934 and, therefore, the Company's directors, officers and
beneficial owners of more than ten percent of the Company's outstanding 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 to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Company has not adopted
a code of ethics because the Company’s Board of Directors feels the Company's
small size makes written standards of conduct unnecessary.  However,
the Company will consider whether to add a written code of ethics in the
future.
 
 Audit, Nominating and
Compensation Committees
 
 As of
June 30, 2007, the Company does not have a separate Audit Committee because the
Board of Directors determined that a separate Audit Committee was not necessary
due to the relatively small size of the Company.  The Company's Board
of Directors serves as the Audit Committee, overseeing (i) the integrity of the
Company's financial statements; (ii) the independent registered public
accounting firm's qualifications and independence; (iii) the performance of the
Company's internal audit function and independent registered public accounting
firm; and (iv) the Company's compliance with legal and regulatory
requirements.
  27
 Item 10.
Executive Compensation.
 
 The
following table discloses compensation received for each of the two fiscal years
ended June 30, 2007 and June 30, 2006 by (i) the Company's Chief Executive
Officer and (ii) the other highly compensated executive officers.
 Name and principal
      position
              Fiscal
      year
              
              Salary
      ($)
              
              
              Bonus
      ($)
              
              
              Other Annual
                CompensationRobert D. Baca,
      President and CEO
              2007
              
              $
              0
              
              
              $
              0
              
              
              $
              02006
              
              $
              185,000
              
              
              $
              0
              
              
              $
              0Curtis R.
      Sprouse,
              2007
              
              $
              0
              
              
              $
              0
              
              
              $
              0Chief Operating
      Officer
              2006
              
              $
              185,000
              
              
              $
              0
              
              
              $
              0James Cavan, Vice
      President
              2007
              
              $
              0
              
              
              $
              0
              
              
              $
              02006
              
              $
              150,000
              
              
              $
              0
              
              
              $
              0
  Employment
Agreements
 
 As of
June 30, 2007 and 2006, respectively, the Company had no employment
contracts.
 
 Item 11.  Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
 
 The
following table sets forth, as of September 17, 2007 the beneficial ownership of
the Company's Common Stock (i) by any person or group known by the Company to
beneficially  own more than 5% of the outstanding Common Stock, (ii)
each Director and executive officer,  and (iii) by
all  Directors and officers as a group.
   28
  Name and Address
      (1)
              
              Number
              
              
              Percentof
      Shares
              
              
              of
      OutstandingRobert
      D. BacaPresident,
      Chief ExecutiveOffice
      and Director
              
              
              11,909,790
              (2)
              
              
              35.2
              %Barry
      GrossVice
      President and Secretary.
              
              
              11,822,582
              (3)
              
              
              34.9
              %Peter
      KnollenbergChairman
      of the Board
              
              
              11,860,238
              (4)
              
              
              35.0
              %Curtis
      R. SprouseChief
      Operating Officer
              
              
              11,824,725
              (5)
              
              
              34.9
              %Robert
      McKinnonVice
      – President
              
              
              11,791,368
              (6)
              
              
              34.9
              %Martin
      ThorpChief
      Financial Officer and Director
              
              
              100,000
              
              
              
              *Donald
      G. ConradDirector
              
              
              240,000
              
              
              
              *Kevin
      J. ConnerDirector
              
              
              174,800
              
              
              
              *John
      J. BarrDirector
              
              
              20,000
              
              
              
              *James
      CavenVice
      President
              
              
              7,242
              
              
              
              *Robert
      HollowayVice
      – President
              
              
              -
              
              
              
              *All
      Executive Officersand
      Directors as a Group
              
              
              24,357,067
              (7)
              
              
              71.9
              %Sea
      Hunt, Inc.120
      Alpine RoadWest
      Palm Beach, FL 33405
              
              
              11,791,368
              
              
              
              34.8
              %Sovereign
      Marine Explorations, Inc.503
      Washington Avenue, Suite 2DNewtown,
      PA 18940
              
              
              11,791,368
              
              
              
              34.8
              %* -
      Denotes less than 1% of the outstanding common shares on September 17,
      2007
 
 29
  1.
              The  address
      for each Director and executive officer is c/o Sovereign Exploration
      Associates International Inc., 503 Washington Avenue, Suite 2D, Newtown,
      PA 18940.
 
 2.
              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.
 
 3.
              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.
 
 4.
              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.
 
 5.
              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.
 
 6.
              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.
 
 7.
              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 certain executive positions in
Historic Discoveries, Inc., Sea Research, Inc. and their respective
subsidiaries. The Company maintains shared office space in Pennsylvania and
Florida with unrelated companies controlled by certain officers of 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 Partners Ltd. ("KMA"),
which at that time was a portfolio company of the Company and contractually
provided consulting services to the Company. Current management has been unable
to confirm that the Company received any consideration for these
shares.
 
 Immediately
prior to and in connection with the entry into the 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 portfolio
companies, its brokerage account at NevWest, three notebook computers, furniture
and 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 sufficient
information to determine the value of the assets sold or the validity of the
transactions, nor does it have any information on the relationship, if any, that
KMA or prior management may have had with the purchasers.
  30
  The
Company has sought further information on these transactions from the purchasers
and prior management, but its efforts to date have been unsuccessful. The
Company retained its interest in one portfolio company, Gold Coast Records, LLC,
which the Company currently carries at a fair value 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 Exchange Agreement with Sovereign
Exploration Associates International, Inc., a Pennsylvania Company now known as
Historic Discoveries, Inc. ("Historic Discoveries").  The Exchange
Agreement  provided  that  Historic  Discoveries  would  contribute  100%
of its capital stock to the Company in exchange for 90% of the capital stock of
the Company. As a result, the former shareholders of Historic Discoveries gained
a controlling interest in the Company. In addition, all of the Directors of the
Company resigned and new directors took office. Historic Discoveries intended,
by entering into the transaction, to improve its ability to raise funds for its
marine recovery and explorations business in the capital markets. For accounting
purposes, the Board of Directors of the Company determined that, in the absence
of more reliable evidence as to its value, Historic Discoveries should be valued
at its historical cost, which was subsequently determined to be $1,161,410 on
that date.
 
 In
connection with the contribution of ARC and SRI to the Company's wholly-owned
subsidiary Historic Discoveries, the Company and Historic Discoveries agreed to
distribute 20% of the net profits arising out of the exploitation of permits,
licenses, finder fees rights, contracts  and other rights
(collectively, "permits") held by ARC to its former  corporate parent,
Sovereign Marine  Explorations,  Inc.
("SME"),  and to distribute 20% of the net profits arising out of the
exploitation of permits held by SRI to its former corporate parent, Sea Hunt,
Inc. ("Sea Hunt").  The agreement continued a pre-existing arrangement
among Historic Discoveries, SME, and Sea Hunt.
 
 On May
19, 2007, the Company issued 10,000,000 shares of Convertible Preferred Stock in
exchange for this 20% net profits participation agreement.  The stock
carries a 4 to 1 conversion feature into 40,000,000 common shares of the
Company.
 
 The
Exchange Agreement provided that at a future point, but in no event later than
April 1, 2006, the Company would conduct a reverse stock split, following which
Historic Discoveries would have 90% ownership of the Company.  The
reverse stock split and issuance of shares to the former shareholders of
Historic Discoveries were affected on January 17, 2006. The Company issued
11,791,368 shares to Sea Hunt and 11,791,368 shares to SME. Peter Knollenberg,
the Chairman of the Company, is the president and sole Shareholder of Sea Hunt,
and Robert D. Baca, the President and Chief Executive Officer of the Company, is
the chief financial officer and a director of SME. The Company on January 17,
2006, also canceled all outstanding shares of preferred stock.  All
holders of outstanding preferred stock were parties to the Settlement Agreement
discussed below and have no further claims with respect to their holdings of
preferred stock.
 
 Prior to
the change in control on October 17, 2005, the Company was a party to executive
management contracts with James E. Jenkins, its President and Chief Executive
Officer, and Charles Giannetto, its Secretary and General Counsel. In addition,
the Company was a party to a consulting contract with KMA, pursuant to which KMA
provided it with consulting services. In consideration of the termination of the
executive management contracts and the consulting contract, Historic Discoveries
agreed to pay to Mr. Jenkins, Mr. Giannetto, and KMA an aggregate 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 the Exchange
Agreement.  As noted above, Sea Hunt holds 45% of the outstanding
Common Stock, and its president and sole shareholder, Mr. Knollenberg, is the
Chairman of the Company. In addition, Venture Planning Inc., another Company
controlled by Mr. Knollenberg provided Mr. Jenkins, Mr. Giannetto, and KMA with,
and subsequently paid a note for the remaining $300,000. Because the underlying
obligations to Mr. Jenkins, Mr. Giannetto, and KMA were obligations of the
Company, the Company has booked a note payable of $600,000, which remains
outstanding, to Sea Hunt and Venture Planning Inc. in consideration of their
payment of these amounts.
  31
  Following
the change in control on October 17, 2005, certain disputes arose between the
Company and Mr. Jenkins, Mr. Giannetto and KMA. As a result of these disputes,
the Company did not issue any common stock of the Company to Mr. Jenkins, Mr.
Giannetto, or KMA, and they commenced an arbitration proceeding against the
Company. The Company and Mr. Jenkins, Mr. Giannetto, KMA, KMA Capital Partners,
Inc., and CF Holdings, LLC (collectively, the "Former Management Parties") on
June 30, 2006, entered into a Settlement Agreement and General Release (the
"Settlement Agreement") in order to reach a comprehensive resolution of their
disputes.
 
 The
Settlement Agreement provides that the Former Management Parties release all
claims that they may have against the Company, its parents, subsidiaries,
affiliates, predecessors, successors, assigns, partners, agents,
representatives, and attorneys (collectively, "affiliated parties") and that the
Company releases all claims it may have against the Former Management Parties
and their respective affiliated parties. The Settlement Agreement also provides
that the Company will issue 303,333 shares of common stock of the Company to KMA
Capital Partners, Inc. (the successor by merger to KMA), 303,333 shares of
common stock of the Company to Mr. Jenkins, and 303,334 shares of Common Stock
to Mr. Giannetto.
 
 In a
matter related to KMA Capital Partners Ltd, James Jenkins and Charles Giannetto,
filed as KMA Capital Partners
Ltd., v. Sovereign Exploration Association, Inc., et al, in the Circuit
Court of the Ninth Judicial Circuit, in and for Orange County, Florida, the
Company claims that KMA Capital Partners Ltd, James Jenkins and Charles
Giannetto are in breach of a “Leak Out Agreement”, which restricts the number of
shares of the Company’s common stock, traded as SVXA.OB, they are allowed to
sell or transfer.  As of June 30, 2006, the court entered an Order
which limits Mr. Jenkins and Mr. Giannetto to selling no more than 2,000 shares
of the Company’s common stock per trading day.  As of June 30, 2007,
there is no liability under this matter that requires the establishment of a
liability within the accompanying consolidated financial
statements.
 
 On
December 26, 2005, the Company issued 100,000 shares of Common Stock for 100%
ownership of the stock of Sea Quest, Inc., which became a wholly-owned
subsidiary of Sea Research. Sea Quest, Inc. was owned 50% by a private unrelated
individual and 50% owned by Sea Hunt Holding, LLC, which is owned by Mr.
Knollenberg.By
acquiring Sea Quest, Inc., Sea Research acquired a vessel known as the Sea
Quest.
 
 Item 13.Exhibits
  (a)
              The
      following exhibits are incorporated as part of this Amended 10KSB annual
      report:
 3(i)
                  Articles of
      Incorporation, as Amended3(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 Explorations
  Limited
 21
              Subsidiaries
      of Registrant
 31.1
              Section
      302 CEO Certification
 31.2
              Section
      302 CFO Certification
 32.1
                Section
      906 CEO and CFO Certification
 32.2
                Section
      906 CEO and CFO Certification
 
 32
 
 Item 14. Principal
Accounting Fees and Services.
 
 FEES PAID TO THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 During
the fiscal year ended June 30, 2007, professional audit services were performed
for the Company by Baumann, Raymondo & Company, P.A., the Company’s
independent registered public accounting firm. During the fiscal years ended
June 30, 2007 and 2006 professional tax services were performed by Conner &
Associates, PC, certified public accountants.  Set forth below is
information relating to the aggregate fees billed by Baumann Raymondo and Conner
& Associates for professional services rendered. All fees and services were
approved by the Board before the respective firms were engaged.
 
 Audit
Fees.  The aggregate fees billed, or to be billed, for the
audit of the Company annual financial statements, review of the financial
statements included in the Company's Form 10-QSB filings, and services that are
normally provided by the independent registered public accounting firm in
connection with statutory and regulatory filings or engagements were $59,312 and
$37,205 for fiscal years ended June 30, 2007 and 2006,
respectively.
 
 Audit-Related
Fees.  Baumann Raymondo did not perform any services for
assurance or related services on behalf of the Company that were reasonably
related to the performance of the audit or review of the Company's financial
statements and are not reported under "Audit Fees" during the fiscal years ended
June 30, 2007 and 2006.
 
 Tax
Fees. The aggregate fees billed, or to be billed, by Conner &
Associates, PC for professional services related to the preparation of the
consolidated tax returns and other tax compliance services were $18,200 and
$12,250 during the fiscal years ended June 30, 2007 and 2006,
respectively.
 
 All Other
Fees.
 
 Not
applicable.
 
 PRE-APPROVAL POLICY FOR
SERVICES BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors has implemented procedures for the pre-approval of all engagements
of the Company’s independent registered public accounting firm for both audit
and permissible non-audit services, including the fees and terms of each
engagement. The Board annually meets with the independent registered public
accounting firm and reviews and pre-approves all audit-related services prior to
the commencement of the audit engagement.
  33
   Index
to Restated Consolidated Financial Statements
   Report
      of Independent Registered Public Accounting Firm
                F-2Restated
      Consolidated Balance Sheets
                F-3Restated
      Consolidated Statements of Operations
                F-4Restated
      Consolidated Statements of Deficiency in Assets
                F-5Restated
      Consolidated Statements of Cash Flows
                F-6Notes
      to Restated Consolidated Financial Statements
                F-7
             F-1
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors
 Sovereign
Exploration Associates International, Inc.
 Newtown,
Pennsylvania
 
 
 We have
audited the consolidated balance sheets of Sovereign Exploration Associates
International, Inc. and subsidiaries as of June 30, 2007 and 2006, and the
related consolidated statements of operations, deficiency in assets, and cash
flows, for the years then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provided a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sovereign
Exploration Associates International, Inc. and subsidiaries as of June 30, 2007
and 2006, and the results of their operations and cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
 
 As
discussed in notes 2 and 3 to the consolidated financial statements, the
consolidated financial statements have been restated.
 
 As
discussed in note 2 to the consolidated financial statements Sovereign
Exploration Associates International, Inc. changed its reporting status for the
year ending June 30, 2006 from a business development company to an operating
company.
 
 As
discussed in note 3 to the consolidated financial statements Sovereign
Exploration Associates International, Inc. corrected errors in recording
depreciation, amortization and write-off of unpaid salaries and expenses due to
officers and directors.
 
 The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  As discussed in Note 2 to
the restated consolidated financial statements, the Company suffered recurring
losses from operations and has not yet realized any revenues. This raises
substantial doubt about the Company’s ability to continue as a going
concern.  The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 
 /s/Baumann, Raymondo & Company,
P.A.
 
 Baumann,
Raymondo & Company P.A.
 Tampa,
Florida
 October
11, 2007, except as to the restatement discussed in notes 2 and 3
 to the
consolidated financial statements which is as of November 7, 2008
  F-2
  SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND
SUBSIDIARIES
 RESTATED
CONSOLIDATED BALANCE SHEETS
 June 30,
2007 and 2006
 Assets2007
                                                
                                                
                                                2006Restated
                                                
                                                
                                                RestatedCurrent
      assetsCash
      and cash equivalents
                                                
                                                $
                                                542,336
                                                
                                                
                                                $
                                                570Accounts
      receivable
                                                
                                                
                                                323,493
                                                
                                                
                                                
                                                -Inventory
                                                
                                                
                                                2,132,820
                                                
                                                
                                                
                                                1,614,004Total
      current assets
                                                
                                                
                                                2,998,649
                                                
                                                
                                                
                                                1,614,574Equipment,
      net of depreciation
                                                
                                                
                                                100,000
                                                
                                                
                                                
                                                -Other
      assetsLicenses
      and permits, net of amortization
                                                
                                                
                                                1,480,946
                                                
                                                
                                                
                                                1,682,916Investments,
      net of allowance of $173,868
                                                
                                                
                                                51,962
                                                
                                                
                                                
                                                -Notes
      receivable, net of allowance of $832,849
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Total
      other assets
                                                
                                                
                                                1,532,908
                                                
                                                
                                                
                                                1,682,916Total
      assets
                                                
                                                $
                                                4,631,557
                                                
                                                
                                                $
                                                3,297,490Liabilities and
      Deficiency in AssetsCurrent
      liabilitiesAccounts
      payable and accrued expenses
                                                
                                                $
                                                752,657
                                                
                                                
                                                $
                                                347,528Related
      party notes payable
                                                
                                                
                                                3,459,359
                                                
                                                
                                                
                                                2,583,955Due
      to related parties
                                                
                                                
                                                1,237,726
                                                
                                                
                                                
                                                817,929Convertible
      notes payable
                                                
                                                
                                                1,000,000
                                                
                                                
                                                
                                                800,000Debentures
      payable
                                                
                                                
                                                99,174
                                                
                                                
                                                
                                                121,840Total
      current liabilities
                                                
                                                
                                                6,548,916
                                                
                                                
                                                
                                                4,671,252Total
      liabilities
                                                
                                                
                                                6,548,916
                                                
                                                
                                                
                                                4,671,252Commitments
      and contingencies
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Deficiency in
      assetsClass
      A - Preferred stock, no par value, 10,000 shares authorized,
                                                  none
      issued and outstanding
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Class
      B - Preferred stock, no par value, 10,000 shares authorized,
                                                  none
      issued and outstanding
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Class
      C - Convertible Preferred stock, $.001 par value, 10,000 shares
      authorized,
                                                  none
      issued and outstanding
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Class
      D - Preferred stock, no par value, 10,000 shares authorized,
                                                  none
      issued and outstanding
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Preferred
      stock - Series A, $0 par value, 100,000,000 shares
authorized;
                                                  None
      issued and outstanding as of June 30, 2007, and
                                                  10,000,000
      issued and outstanding as of June 30, 2006
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Common
      stock - $.001 par value, 250,000,000,000 shares authorized;
                                                  29,842,017
      issued and outstanding as of June 30, 2007,
                                                  and
      26,203,166 issued and outstanding as of June 30, 2006
                                                
                                                
                                                29,842
                                                
                                                
                                                
                                                26,603Additional
      paid-in capital
                                                
                                                
                                                20,119,147
                                                
                                                
                                                
                                                19,215,694Minority
      interest
                                                
                                                
                                                (803,530
                                                )
                                                
                                                
                                                (803,530
                                                )Accumulated
      deficit
                                                
                                                
                                                (21,262,818
                                                )
                                                
                                                
                                                (19,812,129
                                                )Total
      deficiency in assets
                                                
                                                
                                                (1,917,359
                                                )
                                                
                                                
                                                (1,373,762
                                                )Total
      liabilities and deficiency in assets
                                                
                                                $
                                                4,631,557
                                                
                                                
                                                $
                                                3,297,490
 See
accompanying notes to consolidated financial statements, which are
an integral part of the financial statements.
 F-3
  SOVEREIGN
EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
 RESTATED
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the
years ended June 30, 2007 and 2006
 
  2007
                                                    
                                                    
                                                    2006Restated
                                                    
                                                    
                                                    RestatedRevenue
                                                    
                                                    $
                                                    1,860,442
                                                    
                                                    
                                                    $
                                                    -Cost
      of sales
                                                    
                                                    
                                                    1,474,632
                                                    
                                                    
                                                    
                                                    -Gross
      profit
                                                    
                                                    
                                                    385,810
                                                    
                                                    
                                                    
                                                    -Operating
      expensesTermination
      of employment and consulting agreements
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    600,000Salaries
      and wages
                                                    
                                                    
                                                    562,547
                                                    
                                                    
                                                    
                                                    802,680General
      and administrative
                                                    
                                                    
                                                    585,304
                                                    
                                                    
                                                    
                                                    507,890Legal
      and professional fees
                                                    
                                                    
                                                    318,497
                                                    
                                                    
                                                    
                                                    304,978Total
      operating expenses
                                                    
                                                    
                                                    1,466,348
                                                    
                                                    
                                                    
                                                    2,215,548Loss
      from operations
                                                    
                                                    
                                                    (1,080,538
                                                    )
                                                    
                                                    
                                                    (2,215,548
                                                    )Other income
      (expenses)Depreciation
      and amortization
                                                    
                                                    
                                                    (226,970
                                                    )
                                                    
                                                    
                                                    (166,970
                                                    )Interest
      income
                                                    
                                                    
                                                    1,351
                                                    
                                                    
                                                    
                                                    -Interest
      expense
                                                    
                                                    
                                                    (144,532
                                                    )
                                                    
                                                    
                                                    (40,184
                                                    )Total
      other expenses
                                                    
                                                    
                                                    (370,151
                                                    )
                                                    
                                                    
                                                    (207,154
                                                    )Operating
      loss before income taxes
                                                    
                                                    
                                                    (1,450,689
                                                    )
                                                    
                                                    
                                                    (2,422,702
                                                    )Provision
      for income taxes
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Net
      loss
                                                    
                                                    $
                                                    (1,450,689
                                                    )
                                                    
                                                    $
                                                    (2,422,702
                                                    )Net loss per common
      shareBasic
                                                    
                                                    $
                                                    (0.05
                                                    )
                                                    
                                                    $
                                                    (0.09
                                                    )Diluted
                                                    
                                                    $
                                                    (0.05
                                                    )
                                                    
                                                    $
                                                    (0.09
                                                    )Weighted average of
      common shares outstandingBasic
                                                    
                                                    
                                                    27,580,209
                                                    
                                                    
                                                    
                                                    28,022,592Diluted
                                                    
                                                    
                                                    30,132,628
                                                    
                                                    
                                                    
                                                    28,022,592Dividends
      declared per common share
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
 See
accompanying notes to consolidated financial statements, which are
an integral part of the financial statements.
  F-4
  SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND
SUBSIDIARIES
 RESTATED
CONSOLIDATED STATEMENTS OF DEFICIENCY IN ASSETS
 For the
years ended June 30, 2007 and 2006
 Class
      C Convertible
                                        
                                        
                                        Series
      A
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        Additional
                                        
                                        
                                        Stock
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        Net
                                          UnrealizedPreferred
      Stock
                                        
                                        
                                        Preferred
      Stock
                                        
                                        
                                        Common
      Stock
                                        
                                        
                                        paid-in
                                        
                                        
                                        Subscription
                                        
                                        
                                        Minority
                                        
                                        
                                        Accumulated
                                        
                                        
                                        DepreciationShares
                                        
                                        
                                        Par
      Value
                                        
                                        
                                        Shares
                                        
                                        
                                        Par
      Value
                                        
                                        
                                        Shares
                                        
                                        
                                        Par
      Value
                                        
                                        
                                        capital
                                        
                                        
                                        Receivable
                                        
                                        
                                        Interest
                                        
                                        
                                        Deficit
                                        
                                        
                                        of
                                          investments
                                        
                                        
                                        TotalBalance,
      June 30, 2005
                                        
                                        
                                        10,000
                                        
                                        
                                        $
                                        10,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        55,837
                                        
                                        
                                        $
                                        56
                                        
                                        
                                        $
                                        17,316,337
                                        
                                        
                                        $
                                        (4,760
                                        )
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (17,207,468
                                        )
                                        
                                        $
                                        (657,328
                                        )
                                        
                                        $
                                        (543,163
                                        )Change
      in reporting entity status
                                        
                                        
                                        (10,000
                                        )
                                        
                                        
                                        (10,000
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,925,504
                                        
                                        
                                        
                                        4,760
                                        
                                        
                                        
                                        (803,530
                                        )
                                        
                                        
                                        (181,959
                                        )
                                        
                                        
                                        657,328
                                        
                                        
                                        
                                        1,592,103Balance,
      June 30, 2005
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        55,837
                                        
                                        
                                        
                                        56
                                        
                                        
                                        
                                        19,241,841
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (803,530
                                        )
                                        
                                        
                                        (17,389,427
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,048,940Post
      - split common shares issued per Exchange Agreement
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        26,147,203
                                        
                                        
                                        
                                        26,147
                                        
                                        
                                        
                                        (26,147
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        0Rounding
      stock split
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        126
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -Net
      loss
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (2,422,702
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (2,422,702
                                        )Balance,
      June 30, 2006
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        26,203,166
                                        
                                        
                                        
                                        26,203
                                        
                                        
                                        
                                        19,215,694
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (803,530
                                        )
                                        
                                        
                                        (19,812,129
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,373,762
                                        )Adjustment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,612,517
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,612,517
                                        )Capital
      contribution - Sea Quest
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        125,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        125,000Conversion
      of convertible debt to common shares
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        943,851
                                        
                                        
                                        
                                        944
                                        
                                        
                                        
                                        881,562
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        882,506Issuance
      of common shares
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        2,695,000
                                        
                                        
                                        
                                        2,695
                                        
                                        
                                        
                                        1,063,005
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,065,700Issuance
      of Series A Preferred Stock in exchange for revenue participation
      agreement
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        10,000,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Write-off
      of accrued and unpaid salaries and expenses
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        446,403
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        446,403Net
      loss
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,450,689
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,450,689
                                        )Balance,
      June 30, 2007
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        
                                        10,000,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        29,842,017
                                        
                                        
                                        $
                                        29,842
                                        
                                        
                                        $
                                        20,119,147
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (803,530
                                        )
                                        
                                        $
                                        (21,262,818
                                        )
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (1,917,359
                                        )
 See
accompanying notes to consolidated financial statements, which are
an integral part of the financial statements.
  F-5
  SOVEREIGN EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND
SUBSIDIARIES
 RESTATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the
years ended June 30, 2007 and 2006
 
  2007
                                        
                                        
                                        2006Restated
                                        
                                        
                                        RestatedCash flows from
      operating activities:Net
      loss
                                        
                                        $
                                        (1,450,689
                                        )
                                        
                                        $
                                        (2,422,702
                                        )Adjustments
      to reconcile net loss from operations tonet cash used in operating activities:Stock
      issued for services
                                        
                                        
                                        376,200
                                        
                                        
                                        
                                        -Depreciation
      and Amortization
                                        
                                        
                                        226,970
                                        
                                        
                                        
                                        166,970(Increase)
      decrease in:Accounts
      receivable
                                        
                                        
                                        (323,493
                                        )
                                        
                                        
                                        3,692Inventory
                                        
                                        
                                        (518,816
                                        )
                                        
                                        
                                        (1,614,004
                                        )Increase
      in accounts payable and accrued expenses
                                        
                                        
                                        463,355
                                        
                                        
                                        
                                        269,539Net
      cash (used in) operating activities
                                        
                                        
                                        (1,226,473
                                        )
                                        
                                        
                                        (3,596,505
                                        )Cash flows from
      investing activitiesPurchases
      of licenses and permits
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,849,886
                                        )Purchase
      of business
                                        
                                        
                                        (525,000
                                        )Purchase
      of equipment
                                        
                                        
                                        (125,000
                                        )
                                        
                                        
                                        -Purchase
      of investment
                                        
                                        
                                        (51,962
                                        )
                                        
                                        
                                        -Net
      cash (used in) investing activities
                                        
                                        
                                        (701,962
                                        )
                                        
                                        
                                        (1,849,886
                                        )Cash flows from
      financing activitiesProceeds
      from the issuance of common stock, net
                                        
                                        
                                        175,000
                                        
                                        
                                        
                                        2,014,043Proceeds
      from notes payable
                                        
                                        
                                        1,000,000
                                        
                                        
                                        
                                        -Proceeds
      from due to related parties
                                        
                                        
                                        419,797
                                        
                                        
                                        
                                        817,929Proceeds
      from related party notes payable
                                        
                                        
                                        875,404
                                        
                                        
                                        
                                        2,583,955Net
      cash provided by financing activities
                                        
                                        
                                        2,470,201
                                        
                                        
                                        
                                        5,415,927Net
      increase(decrease) in cash and cash equivalents
                                        
                                        
                                        541,766
                                        
                                        
                                        
                                        (30,464
                                        )Cash
      and cash equivalents , beginning of year
                                        
                                        
                                        570
                                        
                                        
                                        
                                        31,034Cash
      and cash equivalents, end of year
                                        
                                        $
                                        542,336
                                        
                                        
                                        $
                                        570Supplemental
      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.
  F-6
 SOVEREIGN
EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
 RESTATED
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
 For the
years ended June 30, 2007 and 2006
 
 Non-cash investing and
      financing activities
                
                2007
                
                
                2006Restated
                
                
                RestatedCommon
      stock issued for:Settlement
      - prior management
                
                $
                364,000
                
                
                $
                -Conversion
      of convertible debt – acquisition of SEAI - Spain
                
                
                848,000
                
                
                
                -Conversion
      of convertible debt – private individual
                
                
                34,506
                
                
                
                -Rule
      144 – Regulation D
                
                
                150,500
                
                
                
                -Services
                
                
                176,200
                
                
                
                -Note
      payable issued for:Acquisition
      of LeChameau Limited
                
                $
                274,009
                
                
                $
                -
 
 See
accompanying notes to consolidated financial statements, which are an integral
part of the financial statements.
  F-7
  SOVEREIGN
EXPLORATION ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO
RESTATED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2007 and 2006
 
 
 NOTE 1NATURE 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 the United States Securities
and Exchange Commission (“SEC”) to become a Business Development Company ("BDC")
pursuant to Section 54 of the Investment Company Act of 1940 (the "1940 Act").
As a result, the Company operated as an investment holding company and acquired
investments designed to build an investment portfolio to enhance the Company's
shareholder value. As a BDC, the Company was, in effect, a publicly traded
private equity fund, where stockholders provided public capital in a regulated
environment for private investment in smaller companies. Congressional intent
behind the creation of BDCs was to encourage the flow of public capital to
private and smaller public companies.
 
 On
September 22, 2006 at a duly called special meeting, the Company’s shareholders
approved a proposal to withdraw the Company’s election to be a business
development company under the Investment Company Act of 1940 by filing Form
N-54C with the SEC.
 
 On
September 22, 2006, the Company filed a notification of withdrawal of business
development company election on Form N-54C notifying the SEC that, pursuant to
the provisions of Section 54(c) of the Investment Company Act of 1940
("Investment Company Act" or "1940 Act"), the Company withdrew its election to
be subject to Sections 55 through 65 of the 1940 Act. Accordingly, the Company
is no longer subject to the Investment Company Act but will continue as an
operating reporting public company subject to the Securities Exchange Act of
1934.
 
 NOTE 2SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
 
 As of
June 30, 2007, the Company’s subsidiaries were development stage enterprises,
except for Gulf Coast Records, LLC, which is accounted for on the equity method
of accounting. In addition, Lavelle Holdings, Inc, a wholly-owned subsidiary of
the Company, is a subsea consulting service company wherein it provides project
management, personnel, equipment and specialized services to the petroleum,
marine, and aviation industries and is not in its development
stage.
 
 As of
June 30, 2006, the Company’s subsidiaries were development stage enterprises,
except for Gulf Coast Records, LLC, which is accounted for on the equity method
of accounting.
 
 SFAS no.
7, Accounting and Reporting by Development Stage Enterprises, defines a
development stage enterprise as one that is devoting substantially all of its
efforts to establishing a new business and either planned principal operations
have not commenced or planned principal operations have commenced but there has
been no significant revenue.  Several artifacts have been recovered,
but for the years ended June 30, 2007 and 2006, there was no revenue from the
Company’s historical shipwreck recovery business.
 
 The
accompanying restated consolidated financial statements have been prepared on a
going-concern basis, which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company’s subsidiaries have capitalized all of their ocean
explorations and archaeologically sensitive recoveries of artifacts, treasure
trove and/or cargo from shipwrecks costs to-date.  The Company plans
to obtain additional financing through the sale of publicly traded stock,
limited liability company member units of its subsidiaries and/or debt
financing. There is no assurance these efforts will be successful. The financial
statements do not include any adjustments relating to the recoverability and
classifications of reported asset amounts or the amounts of liabilities that
might result from the outcome of that uncertainty.
  F-8
 BASIS OF PRESENTATION AND
CHANGE IN REPORTING STATUS
 
 The
accompanying Restated Consolidated Financial Statements present the two (2) full
fiscal years ended June 30, 2007 and 2006, which are that of an operating
company pursuant to the 1934 Act. As an operating company, the required
financial statement presentation and accounting for securities held by the
Company utilize either fair value or historical cost methods of accounting,
depending on the classification of the investment and the Company’s intent with
respect to the period of time it intends to hold the investment.  The
Company and its subsidiaries are reflected for financial accounting purposes as
one consolidated entity.
 
 The
accompanying Restated Consolidated Statements of Deficiency in Assets have been
revised pursuant to paragraph 23 of SFAS no. 154 to reflect the beginning June
30, 2005 equity accounts, as filed, followed by one line identified as “Change in Reporting Entity Status”giving effect to the change in reporting entity status to the earliest
period resulting in adjusted balances at June 30, 2005.
 
 The
following table reflects the changes in the beginning June 30, 2005 equity
accounts for the change in reporting status of the Company from a BDC to an
operating company:
 
 Class
      C ConvertiblePreferred
      Stock
                
                
                Common
      Stock
                
                
                Additional
                
                
                Stock
                
                
                
                
                
                
                
                
                UnrealizedDepreciationShares
                
                
                Par
      Value
                
                
                Shares
                
                
                Par
      Value
                
                
                paid-incapital
                
                
                SubscriptionReceivable
                
                
                MinorityInterest
                
                
                AccumulatedDeficit
                
                
                of
      Investments
                
                
                TotalBalance,
      June 30, 2005
                
                
                10,000
                
                
                $
                10,000
                
                
                
                55,837
                
                
                $
                56
                
                
                $
                17,316,337
                
                
                $
                (4,760
                )
                
                $
                -
                
                
                $
                (17,207,468
                )
                
                $
                (657,328
                )
                
                $
                (543,163
                )Change
      in reporting entity status
                
                
                (10,000
                )
                
                
                (10,000
                )
                
                
                -
                
                
                
                -
                
                
                
                1,925,504
                
                
                
                4,760
                
                
                
                (803,530
                )
                
                
                (181,959
                )
                
                
                657,328
                
                
                
                1,592,103Balance,
      June 30, 2005
                
                
                -
                
                
                
                -
                
                
                
                55,837
                
                
                $
                56
                
                
                $
                19,241,841
                
                
                $
                -
                
                
                $
                (803,530
                )
                
                $
                (17,389,427
                )
                
                $
                -
                
                
                $
                1,048,940
  The net
effect on the total stockholders’ equity as of June 30, 2005 was $1,592,103,
which consists of the following adjustments:
 
 1.
                $657,328
      in the unrealized depreciation of investments for the elimination of this
      account.
 
 2.
                $(181,959)
      in the accumulated deficit to account for the change in loss as an
      operating company versus a BDC.
 
 3.
                $(803,530)
      in minority interests for the capital investments in the Company’s
      subsidiaries from unrelated
parties.
 
 4.
                $4,760
      in stock subscription receivable to eliminate this
  account.
 
 5.
                $1,925,504
      in the additional paid in capital for the net effect of the change in the
      reporting entity pursuant to SFAS no. 154; $2,240,163 for the effect of
      the issuance of common stock for the escrow/exchange agreements, $(23,583)
      for the effect of the common shares issued with the exchange agreement and
      $(291,076) for the net effect of the disposal of the assets of the Company
      prior to the exchange agreement in October
2005.
 
 6.
                $(10,000)
      for the elimination of the Class C Convertible Preferred
      Stock.
 
 The
$(1,612,517) after the June 30, 2006 balances in the accompanying restated
statement was to account for the adjustment necessary at the earliest possible
date under SFAS no. 154 for this entry that relates to the exchange agreement in
October 2005.
 
 Principles of
Consolidation
 
 The
accompanying restated consolidated financial statements, as presented herein,
are prepared on the accrual basis of accounting under the principles of
consolidation consisting of the accounts of the Company and its
subsidiaries.
  F-9
 As of
June 30, 2007, the Company's subsidiaries and the related equity ownership are
as follows:
 
 Historic Discoveries,
Inc.
 
 Historic
Discoveries is a wholly-owned subsidiary of the Company.  Historic
Discoveries has two wholly-owned subsidiaries, Artifact Recovery &
Conservation, Inc. ("ARC") and Sea Research, Inc. ("SRI").
 
 Artifact Recovery &
Conservation, Inc.
 
 ARC is
the managing member of Fantome Cove Treasure Trove 150, LLC, of which it owns a
97.05% equity interest.  ARC is also the managing member of Interspace
Exploration, LLC, of which it owns a 74% equity interest.
 
 As of
June 30, 2007, the minority interest in Fantome Cove Treasure Trove 150, LLC and
Interspace Exploration, LLC is $803,530.
 
 Sovereign Exploration
Associates International of Spain, Inc.
 
 Sovereign
Exploration Associates International of Spain, Inc. ("SEAI - Spain"), a
wholly-owned subsidiary of the Company, was acquired in November 2005 from
unrelated parties in exchange for $800,000 of convertible
debentures.  The debentures were due on November 15, 2006, with
accrued interest at 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 the Company at the average closing price of the Company's common stock
for the ten business days prior to the conversion date. The debenture holders
may, at any time after November 15, 2006, convert the principal amount of the
debenture into common stock of the Company at the average closing price of the
Company's common stock for the ten business days prior to the conversion
date.  SEAI - Spain has secured the finder's rights to four shipwrecks
in Spain with potential historic and intrinsic value.  Effective
November 15, 2006, the Company converted the debentures into 848,000 (including
accrued interest of $48,000) common shares of the Company at a price of $1.00
per share.
 
 Lavelle Holdings,
Inc.
 
 On June
11, 2007, the Company acquired 100% of the common stock of the Lavelle Holdings,
Inc., a company based in Texas, for consideration of $300,000 cash at closing
plus a cash amount equal to five (5) times the net profit of Lavelle Holdings,
Inc. for a one (1) year period beginning on or the date that is six (6) months
after the closing date.  This amount will be paid in cash and/or stock
on or before nineteen (19) months following the closing
date.  Management is unable to determine this amount of this
contingent liability as of the balance sheet date of June 30,
2007.  If the Company becomes insolvent during the nineteen (19)
months following the closing date, the selling shareholders have the right of
refusal to repurchase the purchased stock from the Company. In consideration for
certain rights to purchase common stock of Lavelle Holdings, Inc. the Company
paid $225,000, in cash, to the rights holders at closing.  The total
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.  Pursuant
to SFAS no. 141, the Company accounted for Lavelle Holdings, Inc. operations and
cash flows for the year ended June 30, 2007 in its consolidated financial
statements contained within this 10-KSB/A.  In addition, the Company
considered the recognition of an increase or decrease in the provisional amount
recognized for any identifiable asset or liability by means of a decrease or
increase in goodwill.  As of the date of this transaction, there were
no identifiable assets or liabilities that required recognition through a
corresponding change in goodwill.
 
 F-10
  LeChameau Explorations
Limited
 
 On June
13, 2007, the Company acquired 100% of the issued and outstanding capital stock
of LeChameau Explorations Limited, a company based in Nova Scotia, for total
consideration of USD $274,009.  The payment for the stock is in the
form of a note agreement, which is collateralized by the common stock of the
Company.  The note is due June 13, 2008.  If the Company
defaults, the note is convertible to the Company’s common stock at a rate of
1.25 times the outstanding liability as of its due date valued at the ten day
average of the stock price prior to the conversion date. Under this acquisition,
the Company now owns twenty-five licenses under the Nova Scotia Treasure Trove
Act. LeChameau Explorations Limited is a wholly-owned subsidiary of the
Company.
 
 The sole
asset of this company were licenses held under the Nova Scotia Treasure Trove
Act and did not maintain any operations, therefore, there were no operations and
cash flows for the year ended June 30, 2007.  In addition, the Company
considered the recognition of an increase or decrease in the provisional amount
recognized for any identifiable asset or liability by means of a decrease or
increase in goodwill.  As of the date of this transaction, there were
no identifiable assets or liabilities that required recognition through a
corresponding change in goodwill.
 
 Investments
  The
Company accounts for investments, where the Company holds from 20% up to 50%, in
the common stock, or membership interest, of an entity, using the equity method.
The investment is initially recorded at cost and the carrying amount is adjusted
to recognize the Company’s proportionate share of the earnings or losses of the
investee after the date of acquisition. The amount of the adjustment is included
in the determination of net income or loss of the Company in the period of the
adjustment. Any dividends received from the investee reduce the carrying value
of the investment.
 
 Gulf Coast Records,
LLC
 
 The
investment (a 49% minority interest) and note receivable in Gulf Coast Records,
LLC was acquired as part of the Exchange Agreement dated October 17,
2005.  In the year ended June 30, 2006, while reporting under the 1940
Act as a business development company, the Board of Directors agreed with
management’s assessment to write this investment down to zero based on the
information received from the management of Gulf Coast Records,
LLC.  For the year ended June 30, 2007, the investment in and note
receivable to Gulf Coast are being carried at a zero value, which is the lower
of cost or market.
 
 Reds
Caribbean
 
 The
investment (a 30% minority interest) in Reds Caribbean was acquired in the stock
purchase agreement with the shareholders of Lavelle Holdings, Inc. on June 11,
2007. As of June 30, 2007, the Company is recording this newly acquired
investment at its cost of $51,962.  As of June 30, 2007, the Company
has determined that the fair value in accordance with SFAS no.141 of the
investment in Reds Caribbean is reflected at its original cost, which is the
lower of its cost or fair value.  The Company receives periodic
management reports from Reds Caribbean wherein management of the Company reviews
the financial statements, as presented to determine the fair value of this
investment.
 
 Revenue
Recognition
 
 The
Company recognizes revenue using the accrual method of accounting wherein
revenue is recognized when earned.
 
 Allowance for Bad
Debts
 
 As of
June 30, 2006, there were zero accounts receivable. As of June 30, 2007, the
$323,493 in accounts receivable and the allowance for bad debts of $0 were all
for Lavelle Holdings, Inc., a wholly-owned subsidiary of the
Company.  Allowance for bad debts is a management estimate based
management’s review of historical billing and collection activity along with
management’s expectations under the balance sheet method contained in the
allowance method, which is in conformity with generally accepted accounting
principles.  The balance in the allowance account is taken into
consideration and the adjusting entry brings the allowance account up to the
desired amount.  If the allowance account has a debit balance, it is
“overdrawn”.  In other words, there have been more write-offs than
planned.
  F-11
  If the
allowance account has a credit balance, it has a positive balance and has not
been utilized as fully as was expected.   Accounting for bad
debts expense is done only at the end of the accounting period and is done as an
adjusting entry.  The bad debt expense account is not used at the time
individual accounts are written off.  The adjusting entry looks
identical under either the income statement method or the balance sheet method
(since direct write-off is not GAAP, the Company does not do journal entries
related to the method).  The adjusting journal entry replenishes the
allowance account, which is a contra-asset account and is in effect a reserve
for uncollectible accounts.
 
 Economic
Dependence
 
 The
Company’s wholly-owned subsidiary, Lavelle Holdings, Inc, which was acquired by
the Company in June 2007, has economic dependence for its revenue on less than
ten (10) customers and they have less than ten (10) vendors with whom they
conduct their business.
 
 Fair Value of Financial
Instruments
 
 The
Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable, accounts
payable and accrued payroll and other expenses, the carrying amounts approximate
fair value due to their short maturities. The amount shown for notes payable
also approximates fair value because the current interest rates offered to the
Company for debt of similar maturities are substantially the same.
 
 Use of
Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect certain reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Accordingly, actual results could differ
from those estimates.
 
 Cash and Cash
Equivalents
 
 For the
purpose of the Restated Consolidated Statements of Cash Flows, the Company
considers cash equivalents to be all highly liquid securities with an original
maturity date of three months or less.
 
 Advertising
costs
 
 For the
years ended June 30, 2007 and 2006, the Company did not incur any advertising
costs.
 
 Segments
 
 As of
June 30, 2007 and 2006, the Company operated as one segment as defined by the
Statement of Financial Accounting Standards No. 131 Disclosures about Segments
of an Enterprise and Related Information.
 
 Foreign Currency
Translation
 
 The
accompanying consolidated financial statements are stated in United States
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 the
accounting for uncertainty in income taxes by prescribing the recognition
threshold a tax position is required to meet before being recognized in the
financial 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 after
December 15, 2006. The cumulative effects, if any, of applying FIN 48 will
be recorded as an adjustment to retained earnings as of the beginning of the
period of adoption.
  F-12
  Additionally,
in May 2007, the FASB published FASB Staff Position No. FIN 48-1,
"Definition of Settlement in FASB Interpretation No. 48" ("FSP FIN 48-1").
FSP FIN 48-1 is an amendment to FIN 48. It clarifies how an enterprise should
determine whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective upon
the initial adoption of FIN 48. The Company does not expect the adoption of FIN
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 for measuring
fair value in generally accepted accounting principles ("GAAP"), and expands
disclosures about fair value measurements. FAS 157 applies under other
accounting pronouncements that require or permit fair value measurements. Prior
to FAS 157, there were different definitions of fair value and limited guidance
for applying those definitions in GAAP. Moreover, that guidance was dispersed
among the many accounting pronouncements that require fair Value measurements.
Differences in that guidance created inconsistencies that added to the
complexity in applying GAAP. The changes to current practice resulting from the
application of FAS 157 relate to the definition of fair value, the methods used
to measure fair value, and the expanded disclosures about fair value
measurements. FAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. The Company does expect the adoption of FAS 157 to have an effect on its
financial statements.
 
 NOTE 3CORRECTION OF ERRORS IN
PREVIOUSLY ISSUED STATEMENTS
 
 The
Company determined that as an operating company and reporting pursuant to the
1934 Act, certain errors were discovered and corrected retrospectively pursuant
to SFAS no. 154.  The following are the errors that were discovered
and corrected:
 
 d)
                the
      classification and amortization of the licenses and
    permits,
 
 e)
                the
      depreciation of the research vessel
and,
 
 f)
                the
      accounting for the write-off of the accrued and unpaid salaries and
      expenses to certain officers and
directors.
  F-13
 The
following table reflects the impact of the corrections on
the
 restated consolidated
balance sheet as of June 30, 2007:
 2007
                    
                    
                    2007As
      Corrected
                    
                    
                    
                    
                    
                    ChangeCurrent
      assetsCash
      and cash equivalents
                    
                    $
                    542,336
                    
                    
                    $
                    542,336
                    
                    
                    $
                    -Accounts
      receivable
                    
                    
                    323,493
                    
                    
                    
                    323,493
                    
                    
                    
                    -Inventory
                    
                    
                    2,132,820
                    
                    
                    
                    2,132,820
                    
                    
                    
                    -Total
      current assets
                    
                    
                    2,998,649
                    
                    
                    
                    2,998,649
                    
                    
                    
                    -Equipment,
      net of depreciation
                    
                    
                    100,000
                    
                    
                    
                    -
                    
                    
                    
                    100,000Total
      property and equipment
                    
                    
                    100,000
                    
                    
                    
                    -
                    
                    
                    
                    100,000Other
      assetsCapitalized
      costs and permits
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Research
      vessel
                    
                    
                    -
                    
                    
                    
                    125,000
                    
                    
                    
                    (125,000
                    )Licenses
      and permits, net of amortization
                    
                    
                    1,480,946
                    
                    
                    
                    1,682,916
                    
                    
                    
                    (201,970
                    )Investments,
      net of allowance of $173,868
                    
                    
                    51,962
                    
                    
                    
                    51,962
                    
                    
                    
                    -Notes
      receivable, net of allowance of $832,849
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      other assets
                    
                    
                    1,532,908
                    
                    
                    
                    1,859,878
                    
                    
                    
                    (326,970
                    )Total
      assets
                    
                    $
                    4,631,557
                    
                    
                    $
                    4,858,527
                    
                    
                    $
                    (226,970
                    )Liabilities and
      Deficiency in AssetsCurrent
      liabilitiesAccounts
      payable and accrued expenses
                    
                    $
                    752,657
                    
                    
                    $
                    752,657
                    
                    
                    $
                    -Related
      party notes payable
                    
                    
                    3,459,359
                    
                    
                    
                    3,459,359
                    
                    
                    
                    -Due
      to related parties
                    
                    
                    1,237,726
                    
                    
                    
                    1,237,726
                    
                    
                    
                    -Convertible
      notes payable
                    
                    
                    1,000,000
                    
                    
                    
                    1,000,000
                    
                    
                    
                    -Debentures
      payable
                    
                    
                    99,174
                    
                    
                    
                    99,174
                    
                    
                    
                    -Total
      current liabilities
                    
                    
                    6,548,916
                    
                    
                    
                    6,548,916
                    
                    
                    
                    -Total
      liabilities
                    
                    
                    6,548,916
                    
                    
                    
                    6,548,916
                    
                    
                    
                    -Commitments
      and contingencies
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Deficiency in
      assetsClass
      A - Preferred stock, no par value, 10,000 shares authorized,
                      none
      issued and outstanding
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Class
      B - Preferred stock, no par value, 10,000 shares authorized,
                      none
      issued and outstanding
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Class
      C - Convertible Preferred stock, $.001 par value, 10,000 shares
      authorized,
                      none
      issued and outstanding
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Class
      D - Preferred stock, no par value, 10,000 shares authorized,
                      none
      issued and outstanding
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Preferred
      stock - Series A, $0 par value, 100,000,000 shares
    authorized;
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -none
      issued and outstanding as of June 30, 2007
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Common
      stock - $.001 par value, 250,000,000,000 shares authorized;
                      29,842,017
      issued and outstanding
                    
                    
                    29,842
                    
                    
                    
                    29,842
                    
                    
                    
                    -Additional
      paid-in capital
                    
                    
                    20,119,147
                    
                    
                    
                    20,565,550
                    
                    
                    
                    446,403Minority
      interest
                    
                    
                    (803,530
                    )
                    
                    
                    (803,530
                    )
                    
                    
                    -Accumulated
      deficit
                    
                    
                    (21,262,818
                    )
                    
                    
                    (20,589,445
                    )
                    
                    
                    (673,373
                    )Total
      deficiency in assets
                    
                    
                    (1,917,359
                    )
                    
                    
                    (797,583
                    )
                    
                    
                    (1,119,776
                    )-Total
      liabilities and deficiency in assets
                    
                    $
                    4,631,557
                    
                    
                    $
                    5,751,333
                    
                    
                    $
                    (1,119,776
                    )
  A
      - Entry to reclassify the research vessel from other assets to property
      and equipmentB
      - To record $25,000 in depreciation expense for the research vessel that
      was available for use during the fiscal year ended June 30,
      2007C
      - To record the $201,970 for the amortization of the licenses and permits
      owned by the Company for the fiscal year ended June 30,
    2007D
      - To record the $25,000 in depreciation expenses for the research vessel
      and the $201,970 for the amortization of the licenses and
      permits    for the fiscal year ended June 30,
      2007
 F-14
 The
following table reflects the impact of the corrections on the restated
consolidated
 statement of operations for
the fiscal year ended June 30, 2007:
 
 2007
                                                    
                                                    
                                                    2007As
      Corrected
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    ChangeRevenue
                                                    
                                                    $
                                                    1,860,442
                                                    
                                                    
                                                    $
                                                    1,860,442
                                                    
                                                    
                                                    $
                                                    -Cost
      of sales
                                                    
                                                    
                                                    1,474,632
                                                    
                                                    
                                                    
                                                    1,474,632
                                                    
                                                    
                                                    
                                                    -Gross
      profit
                                                    
                                                    
                                                    385,810
                                                    
                                                    
                                                    
                                                    385,810
                                                    
                                                    
                                                    
                                                    -Operating
      expenses
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    -Salaries
      and wages
                                                    
                                                    
                                                    562,547
                                                    
                                                    
                                                    
                                                    116,144
                                                    
                                                    A
                                                    
                                                    446,403General
      and administrative
                                                    
                                                    
                                                    585,304
                                                    
                                                    
                                                    
                                                    585,304
                                                    
                                                    
                                                    
                                                    -Legal
      and professional fees
                                                    
                                                    
                                                    318,497
                                                    
                                                    
                                                    
                                                    318,497
                                                    
                                                    
                                                    
                                                    -Total
      operating expenses
                                                    
                                                    
                                                    1,466,348
                                                    
                                                    
                                                    
                                                    1,019,945
                                                    
                                                    
                                                    
                                                    446,403Loss
      from operations
                                                    
                                                    
                                                    (1,080,538
                                                    )
                                                    
                                                    
                                                    (634,135
                                                    )
                                                    
                                                    
                                                    (446,403
                                                    )Other income
      (expenses)Depreciation
      and amortization
                                                    
                                                    
                                                    (226,970
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    B
                                                    
                                                    (226,970
                                                    )Interest
      income
                                                    
                                                    
                                                    1,351
                                                    
                                                    
                                                    
                                                    1,351
                                                    
                                                    
                                                    
                                                    -Interest
      expense
                                                    
                                                    
                                                    (144,532
                                                    )
                                                    
                                                    
                                                    (144,532
                                                    )
                                                    
                                                    
                                                    -Total
      other (income) expenses
                                                    
                                                    
                                                    (370,151
                                                    )
                                                    
                                                    
                                                    (143,181
                                                    )
                                                    
                                                    
                                                    (226,970
                                                    )Operating
      loss before income taxes
                                                    
                                                    
                                                    (1,450,689
                                                    )
                                                    
                                                    
                                                    (777,316
                                                    )
                                                    C
                                                    
                                                    (673,373
                                                    )Provision
      for income taxes
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Net
      loss
                                                    
                                                    $
                                                    (1,450,689
                                                    )
                                                    
                                                    $
                                                    (777,316
                                                    )
                                                    
                                                    
                                                    (673,373
                                                    )Net loss per common
      shareBasic
                                                    
                                                    $
                                                    (0.05
                                                    )
                                                    
                                                    $
                                                    (0.03
                                                    )
                                                    D
                                                    $
                                                    (0.02
                                                    )Diluted
                                                    
                                                    $
                                                    (0.05
                                                    )
                                                    
                                                    $
                                                    (0.03
                                                    )
                                                    
                                                    $
                                                    (0.02
                                                    )Weighted average of
      common shares outstandingBasic
                                                    
                                                    
                                                    27,580,209
                                                    
                                                    
                                                    
                                                    27,580,209
                                                    
                                                    
                                                    
                                                    -Diluted
                                                    
                                                    
                                                    30,132,628
                                                    
                                                    
                                                    
                                                    30,132,628
                                                    
                                                    
                                                    
                                                    -
 
  See
accompanying notes to consolidated financial statements, which are an integral
part of the financial statements.
  A- The accrued and unpaid
salaries and expenses of certain officers and directors increase the operating
expenses by $446,403.
 This
amount was adjusted through additional paid in capital to reflect the write-off
of the accrued and unpaid salaries and expenses of certain officers and directors on
June 30, 2007.
  B - For the fiscal year ended
June 30, 2007, the $226,970 in depreciation and amortization is as follows:
$25,000 in depreciation for the
research vessel and the $201,970 is for the amortization of the licenses and
permits owned by the Company.  See Note 4 for a description of the fixed assets and
Note 5 for a description of the licenses and
permits.
 
 C- For the fiscal year ended
June 30, 2007, the net loss increased by $673,373 for these
corrections.
  D - For the fiscal year ended
June 30, 2007, the net effect of the corrections was $(0.02) on the basic and
diluted net loss per common share of the
Company.
 
 F-15
  The
following table reflects the impact of the corrections on the
restated
 consolidated balance sheet
as of June 30, 2006:
 
 2006
                                              
                                              
                                              2006As
      Corrected
                                              
                                              
                                              
                                              
                                              
                                              ChangeCurrent
      assetsCash
      and cash equivalents
                                              
                                              $
                                              570
                                              
                                              
                                              $
                                              570
                                              
                                              
                                              $
                                              -Inventory
                                              
                                              
                                              1,614,004
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,614,004Total
      current assets
                                              
                                              
                                              1,614,574
                                              
                                              
                                              
                                              570
                                              
                                              
                                              
                                              1,614,004-Other
      assets
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -Capitalized
      costs and permits
                                              
                                              
                                              -
                                              
                                              
                                              
                                              3,463,890
                                              
                                              
                                              
                                              (3,463,890
                                              )Research
      vessel
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Licenses
      and permits, net of amortization
                                              
                                              
                                              1,682,916
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,682,916Investments,
      net of allowance of $173,868
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Notes
      receivable, net of allowance of $832,849
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Total
      other assets
                                              
                                              
                                              1,682,916
                                              
                                              
                                              
                                              3,463,890
                                              
                                              
                                              
                                              (1,780,974
                                              )Total
      assets
                                              
                                              $
                                              3,297,490
                                              
                                              
                                              $
                                              3,464,460
                                              
                                              
                                              $
                                              (166,970
                                              )Current
      liabilitiesAccounts
      payable and accrued expenses
                                              
                                              $
                                              347,528
                                              
                                              
                                              $
                                              347,528
                                              
                                              
                                              $
                                              -Related
      party notes payable
                                              
                                              
                                              2,583,955
                                              
                                              
                                              
                                              2,583,955
                                              
                                              
                                              
                                              -Due
      to related parties
                                              
                                              
                                              817,929
                                              
                                              
                                              
                                              817,929
                                              
                                              
                                              
                                              -Convertible
      notes payable
                                              
                                              
                                              800,000
                                              
                                              
                                              
                                              800,000
                                              
                                              
                                              
                                              -Debentures
      payable
                                              
                                              
                                              121,840
                                              
                                              
                                              
                                              121,840
                                              
                                              
                                              
                                              -Total
      current liabilities
                                              
                                              
                                              4,671,252
                                              
                                              
                                              
                                              4,671,252
                                              
                                              
                                              
                                              -Total
      liabilities
                                              
                                              
                                              4,671,252
                                              
                                              
                                              
                                              4,671,252
                                              
                                              
                                              
                                              --Commitments
      and contingencies
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Deficiency in
      assetsCommon
      stock - $.001 par value, 250,000,000,000 shares authorized;
                                                26,203,166
      issued and outstanding
                                              
                                              
                                              26,203
                                              
                                              
                                              
                                              26,203
                                              
                                              
                                              
                                              -Additional
      paid-in capital
                                              
                                              
                                              19,215,694
                                              
                                              
                                              
                                              19,215,694
                                              
                                              
                                              
                                              -Minority
      interest
                                              
                                              
                                              (803,530
                                              )
                                              
                                              
                                              (803,530
                                              )
                                              
                                              
                                              -Accumulated
      deficit
                                              
                                              
                                              (19,812,129
                                              )
                                              
                                              
                                              (19,645,159
                                              )
                                              
                                              
                                              (166,970
                                              )Total
      deficiency in assets
                                              
                                              
                                              (1,373,762
                                              )
                                              
                                              
                                              (1,206,792
                                              )
                                              
                                              
                                              (166,970
                                              )-Total
      liabilities and deficiency in assets
                                              
                                              $
                                              3,297,490
                                              
                                              
                                              $
                                              3,464,460
                                              
                                              
                                              $
                                              (166,970
                                              )
 A - The
capitalized costs and permits are being reclassified to inventory and permits at
the earliest date possible pursuant to SFAS no. 154.  These
reclassifications had no effect on the net loss for the fiscal year ended June
30, 2006
  B - The
amortization expense of $166,970 is being recorded for the amortization of the
licenses and permits for the fiscal year ended June 30, 2006.  The
$166,970 increased the net loss for the fiscal year ended June 30,
2006
  F-16
  The following table reflects
the impact of the corrections on the restated consolidated
 statement of operations as
of June 30, 2006:
 
 
 2006
                                                    
                                                    
                                                    2006As
      Corrected
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    ChangeRevenue
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -Cost
      of sales
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Gross
      profit
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Operating
      expenses
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    -Termination of
      employment and consulting agreements
                                                    
                                                    
                                                    600,000
                                                    
                                                    
                                                    
                                                    600,000
                                                    
                                                    
                                                    
                                                    -Salaries
      and wages
                                                    
                                                    
                                                    802,680
                                                    
                                                    
                                                    
                                                    802,680
                                                    
                                                    
                                                    
                                                    -General
      and administrative
                                                    
                                                    
                                                    507,890
                                                    
                                                    
                                                    
                                                    507,890
                                                    
                                                    
                                                    
                                                    -Legal
      and professional fees
                                                    
                                                    
                                                    304,978
                                                    
                                                    
                                                    
                                                    304,978
                                                    
                                                    
                                                    
                                                    -Total
      operating expenses
                                                    
                                                    
                                                    2,215,548
                                                    
                                                    
                                                    
                                                    2,215,548
                                                    
                                                    
                                                    
                                                    -Loss
      from operations
                                                    
                                                    
                                                    (2,215,548
                                                    )
                                                    
                                                    
                                                    (2,215,548
                                                    )
                                                    
                                                    
                                                    -Other income
      (expenses)Depreciation
      and amortization
                                                    
                                                    
                                                    (166,970
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    A
                                                    
                                                    (166,970
                                                    )Interest
      expense
                                                    
                                                    
                                                    (40,184
                                                    )
                                                    
                                                    
                                                    (40,184
                                                    )
                                                    
                                                    
                                                    -Total
      other (income) expenses
                                                    
                                                    
                                                    (207,154
                                                    )
                                                    
                                                    
                                                    (40,184
                                                    )
                                                    
                                                    
                                                    (166,970
                                                    )Operating
      loss before income taxes
                                                    
                                                    
                                                    (2,422,702
                                                    )
                                                    
                                                    
                                                    (2,255,732
                                                    )
                                                    
                                                    
                                                    (166,970
                                                    )Provision
      for income taxes
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Net
      loss
                                                    
                                                    $
                                                    (2,422,702
                                                    )
                                                    
                                                    $
                                                    (2,255,732
                                                    )
                                                    
                                                    $
                                                    (166,970
                                                    )Net loss per common
      shareBasic
                                                    
                                                    
                                                    (0.09
                                                    )
                                                    
                                                    $
                                                    (0.08
                                                    )
                                                    B
                                                    
                                                    (0.01
                                                    )Diluted
                                                    
                                                    $
                                                    (0.08
                                                    )
                                                    
                                                    $
                                                    (0.07
                                                    )
                                                    
                                                    $
                                                    (0.01
                                                    )Weighted average of
      common shares outstandingBasic
                                                    
                                                    
                                                    28,022,592
                                                    
                                                    
                                                    
                                                    28,022,592
                                                    
                                                    
                                                    
                                                    -Diluted
                                                    
                                                    
                                                    28,022,592
                                                    
                                                    
                                                    
                                                    28,022,592
                                                    
                                                    
                                                    
                                                    -
 
 
 A -
Amortization expense of $166,970 is being recorded for the amortization of the
licenses and permits for the
fiscal year ended June 30, 2006.  The $166,970 increased the net loss
for the fiscal year ended June 30, 2006
 
 B - For
the fiscal year ended June 30, 2006, the net effect of the correction was an
increase of $0.01 on the
basic and diluted net loss per common share of the Company.
 F-17
  NOTE 4FIXED
ASSETS
 
 Fixed
assets are stated at cost. The cost of equipment is charged against income over
their estimated useful lives, using the straight-line method of depreciation.
Repairs and maintenance which are considered betterments and do not extend the
useful life of equipment are charged to expense as incurred. When property and
equipment are retired or otherwise disposed of, the asset and accumulated
depreciation is removed from the accounts and the resulting profit and loss are
reflected in income.
 
 As June
30, 2006, there were zero fixed assets.  As of June 30, 2007, the
Company’s equipment consisted of a research vessel owned by one of the Company’s
wholly-owned subsidiaries.  The research vessel was available for use
and is being depreciated over its useful life of five years using a straight
line method of depreciation.
 
 For the
years ended June 30, 2007 and 2006, depreciation expense was $25,000 and $0,
respectively.
 
 NOTE 5Inventory and
Permits
 
 As of
June 30, 2007 and 2006, all costs related to the Nova Scotia diving operations
and permits are being capitalized as inventory and permits because all of the
costs relate to the recovery operations for artifacts on the ships for which the
Company has received permits from the Nova Scotia government. Periodically,
management reviews the cost of its recovery operations and assesses the
viability of its recovery operations on each of the sites to determine the
estimated fair value of the artifacts recovered to-date and prospects for future
operations.  As of June 30, 2007 and 2006, management of the Company
determined that all of the sites under recovery operations had viable operations
and the prospect for future operations were positive.
 
 At the
time the Company starts to realize revenue from the sale of artifacts that it
recovers on sites that the Company owns the permits, management will start to
expense a portion of inventory based on an estimated percentage of the total
recovery per the Company’s research and the ship’s manifest.  In the
event the Company decides to discontinue diving operations, all inventory and
permit costs will be expensed in the period that the Company discontinues
operations.
 
 As of
June 30, 2007 and 2006, management of the Company determined that all of the
sites under recovery operations had viable operations and the prospect for
future operations were positive.
 
 There are
licenses in Nova Scotia that provide the Company with the rights to apply for
permits related to ships , all located off the coast of Nova
Scotia.  These licenses carry the rights to apply for various permits
required for research, diving and recovery operations.  They all have
a useful life of five years, and such will be amortized over this period of time
starting with the date of acquisition.
 
 For the
finders rights’ agreements for Spain; there are no expiration or cut off dates
for these agreements related to the four wreck sites located in Spanish waters.
 In accordance with SFAS no. 142, these intangible assets do not have a
finite life, these amounts will not be amortized, however, management ill assess
their impairment on a periodic basis.
 
 As of
June 30, 2007, management tested all of the licenses, permits, and finders
rights for impairment to comply with paragraph 8.b of SFAS no. 144 and
determined no impairment had taken place at such date.
 
 For the
years ended June 30, 2007 and 2006, the amortization expense is $201,970 and
$166,970, respectively.
 
 NOTE 6STOCK ISSUED FOR
SERVICES
 
 During
the year ended June 30, 2007, the Company issued 735,000 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, which is being classified as general and administrative expenses or
legal and professional fees in the accompanying restated consolidated financial
statements.
  F-18
 During
the year ended June 30, 2006, the Company did not issue stock for
services.
 
 NOTE 7INCOME
TAXES
 
 Pursuant to the Exchange Agreement
dated October 17, 2005, substantial ownership of the Company was transferred and
according to provisions of the Internal Revenue Code under section 382, this
transaction limits the future deductibility of loss carryforwards for federal
income tax purposes starting with fiscal year that ended June 30,
2006.
 
 The
Company has approximately $310,926 in gross deferred tax assets at June 30,
2007, resulting from net operating loss carryforwards. A valuation allowance has
been recorded to fully offset these deferred tax assets because the future
realization of the related income tax benefits is uncertain. As of June 30,
2007, the Company has federal net operating loss carry forwards of approximately
$777,316 available to offset future taxable income through 2027.
 
 For the
year ended June 30, 2007, the difference between the tax provision at the
statutory federal income tax rate and the tax provision attributable 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 $310,926.
 
 NOTE 8LEASE
ARRANGEMENTS
 
 The
Company maintains shared office space in Pennsylvania and Florida with unrelated
companies controlled by certain officers of the Company.  The Company
shares office space with these companies at no cost. Rent expense for the year
ended June 30, 2007 was $0
 
 NOTE 9DEBENTURES  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.
                  
                  $
                  99,174Total
      notes payable, current
                  
                  $
                  99,174
 
 For the
year ended June 30, 2007, the Company incurred interest expense on this
convertible debenture of $7,263.  This convertible debenture was
incurred prior to October 2005 by prior management.  There is a
dispute because of the corresponding stock price as of August 11, 2005 vs. June
30, 2007.  Interest continues to be accrued until both parties agree
on an acceptable number of shares to be issued to settle this
debenture
 
 During
the year ended June 30, 2007, the Company issued 95,851 shares of common stock
at a per share price of $.36 in the settlement of a convertible note payable
with a balance including principal and accrued interest of $34,506.
 
 NOTE 10AGREEMENTS
 
 Prior to
the Exchange Agreement of October 17, 2005, there is a Revenue Agreement as
outlined in Exhibit B of the Exchange Agreement, that requires 20% revenue
participation payable to the original owners of the permits from the net
recovery of the shipwrecks for the permits that have been assigned to the
subsidiaries of one of the Company's subsidiaries, Historic Discoveries, Inc.
The 20% revenue participation allows Historic Discoveries, Inc. to defer permit
transfer fees and align site permit cost with revenue generation, eliminating
the exposure associated with sites that do not produce a material number of
artifacts. Historic Discoveries, Inc. is only required to pay the 20% revenue
participation when sites produce net revenue.
  F-19
 The 20%
revenue participation also provides Historic Discoveries, Inc. the right of
first refusal on future sites, creating a mechanism for Historic Discoveries,
Inc. and its operating companies to build site inventory while deferring the
associated cost and reducing financial risk. The Revenue Agreement with the
original owners was executed prior to October 17, 2005. The original owners of
these permits are the beneficial owners of the controlling interest in the stock
received in the Exchange Agreement. Additionally, officers and directors of the
Company hold certain executive positions in Historic Discoveries, Inc. and its
subsidiaries. The Company and Historic Discoveries had agreed to distribute 20%
of the net profits arising out of the exploitation of permits, licenses, finder
fees rights, contracts and other rights (collectively, "permits") held by ARC to
its former corporate parent, Sovereign Marine Explorations, Inc. ("SME"), and to
distribute 20% of the net profits arising out of the exploitation of permits
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 Preferred Stock in
exchange for this 20% net profits participation agreement.  The stock
carries a 4 to 1 conversion feature which allows the holders to 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 investment of $411,530, and the
LeChameau project (Interspace Explorations, LLC, a subsidiary of ARC) sold a
26.0% ownership interest and 40% profit participation interest for
$392,000.  As of June 30, 2007 and 2006, the total minority interest
in these two entities is $803,530.
 
 NOTE 11SETTLEMENT AGREEMENT AND
GENERAL RELEASE
 
 Effective
June 30, 2006, the Company entered into a Settlement Agreement and General
Release (the “Settlement Agreement") with Former Management, KMA Capital
Partners, Inc., and CF Holdings, LLC (collectively, the "Settlement Agreement
Parties") in order to reach a comprehensive resolution of their disputes. The
Settlement Agreement provides that the Settlement Agreement Parties release all
claims that they may have against the Company, its parents, subsidiaries,
affiliates, predecessors, successors, assigns, partners, agents,
representatives, and attorneys (collectively, "affiliated parties") and that the
Company releases all claims it may have against the Settlement Agreement Parties
and their respective affiliated parties. On December 26, 2006, 910,000 common
shares were issued pursuant to the Settlement Agreement effective June 30, 2006.
These 910,000 common shares are subject to a Leak-Out Agreement and are
restricted under Rule 144.
 
 NOTE 12SHAREHOLDERS’ EQUITY AND
ISSUANCE OF STOCK
 
 As of
June 30, 2007, the authorized capital of the Company was 250,000,000 shares of
common stock (with voting rights), par value $.001.
 
 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; (1) Subject to a leak-out agreement; (2)
$175,000 cash was received for the issuance of common stock
  F-20
 NOTE 13CONCENTRATION OF CREDIT
RISK
 
 Financial
instruments, which potentially expose the Company to concentrations of credit
risk, consist principally of cash. As of June 30, 2007, the Company maintains
its cash accounts with financial institutions located in Pennsylvania, Florida,
Texas and Nova Scotia.
 
 The
Federal Deposit Insurance Corporation (FDIC) guarantees the Company's deposits
in US-based financial institutions up to $100,000.
 
 The
Company's deposits with financial institutions that exceeded federally insured
guarantees amounted to $257,186 as of June 30, 2007. Historically, the Company
has not experienced any losses on its deposits in excess of federally insured
guarantees.
 
 As of
June 30, 2007, the Company accounts for its investment in Gulf Coast Records,
LLC on the equity method of accounting. The amount of $832,849 was offset by an
allowance to reduce the market value of this note and investment to zero from
Gulf Coast Records as of June 30, 2006. Current management is reviewing its
options regarding this company and whether it wants to maintain its position or
divest its holdings in the future, while actively negotiating with the
management of Gulf Coast Records, LLC regarding the recovery of the Company's
investment. Prior to June 30, 2006, the Company received information from the
management of Gulf Coast Records, LLC that has caused the Company to reduce the
fair market value to zero.
 
 NOTE 14NOTES
PAYABLE
 
 On June
4, 2007, the Company received $1,000,000 cash under a promissory
note.  Under the terms of the note, Company is obligated to pay the
note in one payment of all outstanding principal plus all accrued unpaid
interest on or before the six month anniversary of the closing date unless the
holders agree to extend the note, in which case the note shall become a demand
note, payable upon demand or at such later date as specified by holders to
Company in writing, in holders sole discretion.  The Company’s stock
is the collateral that supports this note.  Unless otherwise agreed or
required by applicable law, payments will be applied first to any accrued unpaid
interest; then to principal; then to any late charges; and then to any unpaid
collection costs.  The annual interest rate for this Note is computed
on a 365 days per year basis. Company will pay Holders at Holders address or at
such other place as Holders 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 the prior consent of Holders with no prepayment penalty. At
the maturity date of the note, the holders shall be entitled to purchase 250,000
shares of common stock of the Company at a price of $.20 per share. The holders
will also be entitled to purchase an additional 250,000 shares of common stock
of the Company at the closing price of the Company stock as reported on the
OTCBB on the closing date and, in addition, these shares must be exercised
within one year from the closing date. As of June 30, 2007, the value of this
option to purchase common stock of the Company was $12,500.  The
closing price of the common stock on June 30, 2007 was $.69 and on June 4, 2007
it was $.64.
 
 NOTE 15RELATED PARTY
TRANSACTIONS
 
 ACCRUED PAYROLL AND
EXPENSES; DUE TO RELATED PARTIES
 
 Certain
officers and directors of the Company agreed to write-down their accrued
and unpaid salaries and reimbursable expenses to zero for the year ended June
30, 2007 in the amount of $446,403.  As of June 30, 2007, the due to
related parties on the balance sheet includes the accrued and unpaid salaries
and reimbursable expenses incurred through June 30, 2006.
 
 OFFICERS AND DIRECTORS OF
THE COMPANY
 
 Certain
officers and directors of the Company hold certain executive positions in
Historic Discoveries, Inc., Sea Research, Inc. and their respective
subsidiaries.
  F-21
 NOTE 16RELATED PARTY NOTES
PAYABLE
 
 As of
June 30, 2007 and 2006, the related party notes payable were as
follows:
 
 June
      30, 2007
                  
                  
                  June
      30, 2006Term
      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, 2006
                  
                  $
                  161,440
                  
                  
                  $
                  -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, 2006
                  
                  
                  671,111
                  
                  
                  
                  635,111Term
      note payable of $274,009 plus interestat
      6% per annum for the acquisition of LeChameauLeChameau
      Explorations Limited – June 13, 2007
                  
                  
                  275,836
                  
                  
                  
                  -Demand
      note payable of $350,000 plus accrued interestat
      6% per annum for the purchase of the originalpermits
                  
                  
                  408,240
                  
                  
                  
                  385,132Demand
      note payable of $250,000 plus accrued interestat
      6% per annum for the balance of the FantomeCove
      Project
                  
                  
                  259,329
                  
                  
                  
                  254,650Demand
      note payable of $500,000 plus accrued interestof
      $3,444 per month as a direct pass through fromNova
      Savings Bank - July 10, 2006
                  
                  
                  541,328
                  
                  
                  
                  -Demand
      note payable - advances to Sovereign ExplorationAssociates
      International, Inc.  These advances have noformal
      repayment requirements
                  
                  
                  -
                  
                  
                  
                  47,200Demand
      note payable - advances to Sovereign ExplorationAssociates
      International, Inc.  These advances have noformal
      repayment requirements
                  
                  
                  -
                  
                  
                  
                  11,900Demand
      note payable - advances to Sea Research, Inc.prior
      to the exchange agreement on October 17, 2005
                  
                  
                  574,355
                  
                  
                  
                  574,355Demand
      note payable - advances to Sovereign ExplorationAssociates
      International, Inc.  These advances have noformal
      repayment requirements
                  
                  
                  -
                  
                  
                  
                  120,188Demand
      note payable - advances to Sovereign ExplorationAssociates
      International, Inc.  These advances have noformal
      repayment requirements
                  
                  
                  81,720
                  
                  
                  
                  69,419Demand
      note payable - advances to InterspaceExplorations
      Limited plus accrued interest at 6% perannum.
                  
                  
                  486,000
                  
                  
                  
                  486,000Total
      related party notes payable - all current
                  
                  $
                  3,459,359
                  
                  
                  $
                  2,583,955
  F-22
  NOTE 17LEGAL
PROCEEDINGS
  On June
30, 2006,  the Company  entered into
a  Settlement  Agreement  and General
Release  ("Settlement  Agreement") among members of the
Company's former management and their affiliates, James E. Jenkins, Charles
Gianetto, KMA Capital Partners Ltd., KMA Capital Partners, Inc. and CF Holdings,
LLC (collectively, the "Former Management Parties").  The purpose of
the Settlement Agreement was to reach a comprehensive resolution to the
disputes  between the Company and the Former Management Parties, in
particular an arbitration demand filed by KMA
Capital  Partners,  Ltd. on or about  December 29,
2005 (American  Arbitration Association Case No.: 33-180-00463-05)
relating to an Exchange Agreement dated October 17, 2005. The Settlement
Agreement provides that the Former Management Parties release all claims that
they may have against the Company, its parents, subsidiaries, affiliates,
predecessors, successors, assigns, partners, agents, representatives and
attorneys (collectively, "affiliated parties") and that the Company releases all
claims it may have against the Former Management Parties.
 
 In a
matter related to KMA Capital Partners Ltd, James Jenkins and Charles Gianetto,
filed as KMA Capital Partners
Ltd., v. Sovereign Exploration Association, Inc., et al, in the Circuit
Court of the Ninth Judicial Circuit, in and for Orange County, Florida, the
Company claims that KMA Capital Partners Ltd, James Jenkins and Charles Gianetto
are in breach of a “Leak Out Agreement”, which restricts the number of shares of
the Company’s common stock, traded as SVXA.OB, they are allowed to sell or
transfer. As of June 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 per trading day. As of June 30, 2007, there is no liability under
this matter that requires the establishment of a liability within the
accompanying consolidated financial statements.
 
 The
Company is one of several defendants in a law suit, Patricia A. Mullican v. Sovereign
Exploration Associates International, Inc., et alin the Circuit Court of
the Ninth Judicial Circuit, in and for Orange County, Florida.  The
plaintiff in this case is seeking damages for the alleged failure to pay two (2)
debentures issued by TS&B Holdings to Mr. Mullican (one for $150,000 and the
other for $250,000) as well as an unpaid promissory note for $50,000 plus
accrued interest on the debentures and the promissory note along 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’s position that these
debts are not its responsibility, to the extent that neither the debentures nor
promissory notes were disclosed at the time Cali Holdings, Inc. was acquired by
the Company. There are numerous defenses which the Company will be relying upon
to support its legal position that these obligations are not its responsibility.
As of June 30, 2007, the accompanying consolidated financial statements do not
provide for any liability in the event that the Company is deemed responsible in
this case.
 
 On
February 9, 2007 the Company filed suit in The Province of Nova Scotia seeking
an application for judicial review to in effect ask the province to order the
Nova Scotia Museum to issue the proper permits to the Company. The Company
believes the Nova Scotia Museum acted improperly in not issuing the necessary
permits in 2006 and should not have recognized the claims made by the United
Kingdom. The Company believes its rights are protected under the Special Places
Protection Act, The Treasure Act and many other acts and considerations of
established law governing these types of permits.
    F-23
 SIGNATURES
  Pursuant
to the requirements of Section 3 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Annual Report on Form 10-KSB/A to be
signed on its behalf by the undersigned, thereunto duly authorized.
  SOVEREIGN EXPLORATION ASSOCIATES
INTERNATIONAL, INC.
    November 14,
      2008
              By: /s/ Robert D.
      BacaDate
              Robert D.
      BacaPresident and Chief
      Executive OfficerNovember 14,
      2008
              By: /s/ Martin
      ThorpDate
              Martin
      ThorpChief Financial
      Officer
  Supplemental  Information
to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by
Registrants Which Have Not Registered Securities Pursuant to Section 12 of the
Act:
 
 The
Company has not sent any annual report to security holders covering the
Company’s last fiscal year.  The Company mailed proxy solicitation
materials to its shareholders on or about September 8, 2006, in connection with
a special meeting of shareholders held September 20, 2006.  The
Company voluntarily filed its definitive proxy statement on Schedule 14A on
September 8, 2006.