See accompanying
notes to consolidated financial statements, which are an integral part of the
financial statements
See accompanying
notes to consolidated financial statements, which are an integral part of the
financial statements
SOVEREIGN EXPLORATION
ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
__________________________________________________________________________________________________
NOTE 1 - BASIS OF
PRESENTATION
The
accompanying unaudited consolidated financial statements of Sovereign
Exploration Associates International, Inc. (the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-QSB. In the
opinion of management, all material adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended September 30, 2007 are not
necessarily indicative of the results that are expected for the year ending June
30, 2008. The information contained in this Form 10-QSB should be read in
conjunction with the audited financial statements filed as part of the Company's
Form 10-KSB for the year ended June 30, 2007.
NOTE 2 - GOING
CONCERN
The
accompanying 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 has incurred an accumulated deficit of $19,967,055 as of
September 30, 2007. The Companys subsidiaries have capitalized all of their
ocean exploration 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
accompanying consolidated 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 this
uncertainty.
NOTE 3 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF
CONSOLIDATION
The
accompanying 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.
As of
September 30, 2007, the Company's subsidiaries and the related equity ownership
are as follows:
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 to1 conversion feature into 40,000,000 common shares of the
Company.
F-5
SOVEREIGN EXPLORATION
ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
__________________________________________________________________________________________________
Artifact
Recovery & Conservation, Inc.
ARC
holds licenses for some of the Companys 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 Companys
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 Companys 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 September 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.
F-6
SOVEREIGN EXPLORATION
ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
__________________________________________________________________________________________________
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 the amount of this contingent liability as of the balance
sheet date of September 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.
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 Companys 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.
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 Companys 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 managements
assessment to write this investment down to zero based on the information
received from the management of Gulf Coast Records, LLC. For the three
months ended September 30, 2007 and 2006, 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 September 30, 2007, the Company is recording this investment at its
cost of $51,962. The Company owns a 30% equity interest in Reds Caribbean
and the net asset value of the 30% equity interest is $0.
F-7
SOVEREIGN EXPLORATION
ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
__________________________________________________________________________________________________
Revenue
Recognition
The
Company recognizes revenue using the accrual method of accounting wherein
revenue is recognized when earned and expenses and costs are recognized when
incurred.
Allowance for Bad Debts
As of
September 30, 2007, the allowance for bad debts was $0. Management of the
Company reviews the billing and collection activity on a yearly basis and
provides for an allowance for bad debts based on its expectations for cash
collections. The $278,011 in accounts receivable and the allowance for bad
debts of $0 were all for Lavelle Holdings, Inc., a wholly-owned subsidiary of
the Company.
Economic
Dependence
The
Companys 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 Consolidated Statement 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
three month periods ended September 30, 2007 and 2006, the Company did not incur
any advertising costs.
Segments
The
Company operates as one segment as defined by the Statement of Financial
Accounting Standards No. 131 Disclosures about Segments of an Enterprise and
Related Information.
F-8
SOVEREIGN EXPLORATION
ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
__________________________________________________________________________________________________
Foreign Currency
Translation
The
accompanying consolidated financial statements are stated in United States
Dollars (USD). For the three months ended September 30, 2007 and 2006, the
Company incurred a currency translation adjustment of $11,799 and $0,
respectively,
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. 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 not expect the adoption of FAS 157 to have an effect on
its financial statements.
NOTE 4 - FIXED
ASSETS
Fixed
assets are stated at cost. The cost of equipment is charged against income over
their estimated useful lives, using the straight-line method of depreciation.
Repairs and maintenance which are considered betterments and do not extend the
useful life of equipment are charged to expense as incurred. When property and
equipment are retired or otherwise disposed of, the asset and accumulated
depreciation is removed from the accounts and the resulting profit and loss are
reflected in income.
NOTE 5
CAPITALIZED COSTS
As of
September 30, 2007 and 2006, the Company accounted for its ocean exploration and
archaeologically sensitive recoveries of artifacts, treasure trove and/or cargo
from shipwrecks costs incurred to-date as capitalized costs.
F-9
SOVEREIGN EXPLORATION
ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
__________________________________________________________________________________________________
NOTE 6 - STOCK
ISSUED FOR SERVICES
During
the three months ended September 30, 2007, the Company issued 100,000 shares of
common stock for services rendered on behalf of the Company with a value of
$30,000, which was charged to legal and professional fees. The Company did
not issue any stock for services for the three months ended September 30,
2006.
NOTE
7 - INCOME TAXES
The
Company has approximately $890,458 in gross deferred tax assets at September 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 September 30,
2007, the Company has federal net operating loss carry forwards of approximately
$890,458 available to offset future taxable income through 2027.
For the
three months ended September 30, 2007 and 2006, 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 $113,142
NOTE 8 - LEASE
ARRANGEMENTS
The
Company maintains shared office space in Pennsylvania and Florida with unrelated
companies controlled by certain officers of the Company. As of September
30, 2007, the Company shares office space with these companies at no cost. Rent
expense for the three months ended September 30, 2007 and 2006 was $0 and
$4,010, respectively.
NOTE
9 - DEBENTURES PAYABLE
|
|
5.25% convertible debenture dated June 29, 2005 with a
principal balance
|
|
of $40,000 due June 29, 2008 including principal and
interest
|
$
100,929
|
For the
three months ended September 30, 2007 and 2006, the Company incurred interest
expense on this convertible debenture of $2,342 and 1,755, respectively.
This convertible debenture was incurred prior to October 2005 by prior
management of the Company and continues to be in dispute because of issues
related to the conversion rates.
F-10
SOVEREIGN EXPLORATION
ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
__________________________________________________________________________________________________
NOTE 10 -
AGREEMENTS
Prior
to the Exchange Agreement of October 17, 2005, there is was 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. was only required to pay the 20% revenue
participation when sites produce net revenue. The 20% revenue
participation also provides Historic Discoveries, Inc. the right of first
refusal on future sites, creating a mechanism for Historic Discoveries, Inc. and
its operating companies to build site inventory while deferring the associated
cost and reducing financial risk. The Revenue Agreement with the original owners
was executed prior to October 17, 2005. The original owners of these permits are
the beneficial owners of the controlling interest in the stock received in the
Exchange Agreement. Additionally, officers and directors of the Company hold
certain executive positions in Historic Discoveries, Inc. and its subsidiaries.
The 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 to1 conversion feature which allows the holders to
convert into 40,000,000 common shares of the Company.
NOTE 11 -
SETTLEMENT 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 12 -
SHAREHOLDERS EQUITY AND ISSUANCE OF STOCK
As of
September 30, 2007, the authorized capital of the Company was 250,000,000 shares
of common stock (with voting rights), par value $.001. For the three
months ended September 30, 2007 and 2006, the Company issued 100,000 and zero
shares of common stock, respectively.
NOTE 13 -
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist principally of cash. As of September 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. Historically, the Company
has not experienced any losses on its deposits in excess of federally insured
guarantees.
F-11
SOVEREIGN EXPLORATION
ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
__________________________________________________________________________________________________
NOTE
14 - NOTES PAYABLE
On June
4, 2007, the Company received $1,000,000 cash under a promissory note.
Under the terms of the note, the 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 note 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 the note holders to
Company in writing, in the note holders sole discretion. The Companys
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 the note holders at
their respective address or at such other place as the note 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. The
Company may make a prepayment, in whole or in part, of this note without the
prior consent of the note holders with no prepayment penalty. At the maturity
date of the note, the note holders shall be entitled to purchase 250,000 shares
of common stock of the Company at a price of $.20 per share. The note 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.
NOTE
15 - RELATED PARTY TRANSACTIONS
ACCRUED PAYROLL AND EXPENSES; DUE TO RELATED PARTIES
For the
three months ended September 30, 2007, there are no accruals for salaries and
unreimbursed expenses,
NOTE 16 - LEGAL
PROCEEDINGS
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 Companys 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 Companys 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 al
in 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 Companys 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.
F-12
SOVEREIGN EXPLORATION
ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
__________________________________________________________________________________________________
NOTE
17
RELATED
PARTY NOTES PAYABLE
As of September 30,
2007, the related party notes payable were as follows:
|
|
Demand note
payable of $350,000 plus accrued interest
|
|
at 6% per annum
for the purchase of the original permits
|
$
416,405
|
|
|
Term Note
payable of $274,009 due June 13, 2008 plus
|
|
at 6% per annum
for the acquisition of LeChameau
|
|
LeChameau
Explorations Limited June 13, 2007
|
281,353
|
|
|
Demand Note
payable of $250,000 plus accrued interest
|
|
at 6% per annum
for the balance of the Fantome Cove Project
|
264,516
|
|
|
Demand Note
payable of $500,000 plus accrued interest
|
|
of $3,444 per
month as a direct pass through from
|
|
Nova Savings
Bank - July 10, 2006
|
551,660
|
|
|
Term Note
payable of $160,000 due on November 15, 2007
|
|
plus accrued
interest of the lesser of 0.9% or the legal
|
|
rate under
Texas law - November 15, 2006
|
161,803
|
|
|
Term Note
payable of $600,000 due on November 15, 2007
|
|
plus accrued
interest of the lesser of 0.9% or the legal
|
|
rate under
Texas law - November 15, 2006
|
672,621
|
|
|
Demand note
payable - advances to Sea Research, Inc.
|
574,355
|
|
|
Demand note
payable - advances to Sovereign Exploration
|
|
Associates
International, Inc.
|
46,719
|
|
|
Demand note
payable - advances to Interspace
|
|
Explorations
Limited plus accrued interest at 6% per annum
|
495,720
|
|
|
Total related
party notes payable - all current
|
$ 3,465,151
|
F-13