seafarer_10q-16883.htm

PART I: FINANCIAL INFORMATION	4

Item 1. Financial Statements (unaudited)	5

Condensed Balance Sheets: March 31, 2016 and December 31, 2015	5

Condensed Statements of Operations: Three months ended March 31, 2016 and 2015	6

Condensed Statements of Cash Flows: Three months ended March 31, 2016 and 2015	7

Notes to Condensed Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3. Quantitative and Qualitative Disclosures About Market Risk	28

Item 4T. Controls and Procedures	28

PART II: OTHER INFORMATION	30

Item 1. Legal Proceedings	30

Item 1A. Risk Factors	30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3. Defaults Upon Senior Securities	31

Item 4. Submission of Matters to a Vote of Security Holders	31

Item 5. Other Information	31

Item 6. Exhibits	32

SIGNATURES	33

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

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

	March 31,			December 31,
	2016			2015
Assets

Current assets:
Cash	$	12,999		$	5,097
Prepaid expenses		8,592			21,200
Deposits		316			316
Total current assets		21,907			26,613

Property and equipment, net		54,780			63,276

Total assets	$	76,687		$	89,889

Liabilities and Stockholders' Deficit

Current liabilities:
Accounts payable and accrued expense	$	298,495		$	244,678
Note payable		17,000			-
Convertible notes payable, net of discounts of $1,720 and $17,295		36,280			45,705
Convertible notes payable, related parties		5,000			9,000
Convertible notes payable, in default		411,300			391,300
Convertible notes payable, in default - related parties		176,500			167,500
Convertible notes payable, at fair value, net of discounts of $10,742 and $7,357		275,490			303,719
Shareholder loan		36,963			32,703
Notes payable, in default		30,000			30,000
Notes payable, in default - related parties		17,500			17,500
Total current liabilities		1,304,528			1,242,105

Commitments and contingencies

Stockholders' deficit:
Preferred stock, $0.0001 par value - 50,000,000 shares authorized; 67 shares issued
Series A - 7 shares issued and outstanding at March 31, 2016 and December 31, 2015		-			-
Series B - 60 shares issued and outstanding at March 31, 2016 and December 31, 2015		-			-
Common stock, $0.0001 par value - 1,750,000,000 shares authorized; 1,394,616,687 and
1,332,102,348 shares issued and outstanding at March 15, 2016 and December 31, 2015		139,462			133,210
Additional paid-in capital		10,160,629			10,040,526
Accumulated deficit		(11,527,932	)		(11,325,952	)
Total stockholders' deficit		(1,227,841	)		(1,152,216	)
Total liabilities and stockholders' deficit	$	76,687		$	89,889

	Three Months Ended March 31,
	2016			2015
Revenue	$	-		$	-

Expenses:
Consulting and contractor expenses		77,454			179,706
Professional fees		20,500			30,210
General and administrative expense		9,010			76,146
Depreciation expense		8,496			8,496
Rent expense		9,448			13,939
Travel and entertainment expense		16,001			13,252
Total operating expenses		140,909			321,749

Income (loss) from operations		(140,909	)		(321,749	)

Other income (expense):
Interest (expense) income, net		(61,071	)		259,519
Total other income (expense)		(61,071	)		259,519

Net loss	$	(201,980	)	$	(62,230	)

Net loss per share - basic and diluted	$	-		$	-
Weighted average common shares outstanding - basic and diluted		1,345,436,472			1,047,757,152

	Three Months Ended March 31,
	2016			2015
Operating activities
Net loss	$	(201,980	)	$	(62,230	)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities
Depreciation		8,496			8,496
Amortization of debt discount and interest expense on
beneficial conversion feature of convertible notes		15,575			21,545
Interest (income) expense on fair value adjustment		29,730			(296,285	)
Common stock issued for services		8,000			176,767
Common stock issued for closing cost		2,340			-
Decrease (increase) in:
Settlement receivable		-			15,000
Prepaid expenses		12,608			(46,740	)
Increase (decrease) in:
Accounts payable and accrued expenses		51,873			61,995
Net cash provided (used) by operating activities		(73,358	)		(121,452	)

Cash flows from financing activities:
Proceeds from the issuance of common stock		22,000			109,668
Proceeds from the issuance convertible notes payable		33,000			-
Proceeds form convertible note payable - related party		5,000			-
Proceeds from shareholder loan		4,260			2,900
Proceeds from note payable		17,000			-
Payments on loans from stockholders		-			(3,500	)
Net cash provided by financing activities		81,260			109,068

Net increase (decrease) in cash		7,902			(12,424	)

Cash - beginning of year		5,097			12,424
Cash - ending of year		12,999			-

Supplemental disclosure of cash flow information:
Cash paid for interest expense	$	-		$	-
Cash paid for income taxes	$	-		$	-
Noncash operating and financing activities:
Common stock issued to satisfy outstanding invoices	$	-		$	26,571
Convertible debt converted and accrued interest to common
stock	$	92,572		$	195,271

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

These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in the Company’s Report on Form 10-K for the twelve months ended December 31, 2015, filed with the Securities and Exchange Commission (the “Commission”). The results of operations for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2016 or for any future period.

The principal business of the Company is to engage in the archaeologically-sensitive exploration, documentation, and recovery of historic shipwrecks with the objective of exploring and discovering Colonial-era shipwrecks for future generations to be able to appreciate and understand. Seafarer currently has two different wreck sites under permit with the State of Florida, one wreck site in the permit renewal process and one wreck site under contract with a private party and is working closely with the Florida Department of Historical Resources and the Florida Bureau of Archeological Research to research and document these, and additional, wreck sites.

These financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred net losses since inception, which raises substantial doubt about the Company’s ability to continue as a going concern. Based on its historical rate of expenditures, the Company expects to expend its available cash in less than one month from May 20, 2016. Management's plans include raising capital through the equity markets to fund operations and, eventually, the generation of revenue through its business. The Company does not expect to generate any revenues for the foreseeable future.

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

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

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

The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. For the periods ended March 31, 2016 and 2015, the Company did not report any revenues.

The Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 260-10 which provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Basic and diluted losses per share were the same at the reporting dates as there were no common stock equivalents outstanding at March 31, 2016 and 2015.

Effective January 1, 2008, fair value measurements are determined by the Company's adoption of authoritative guidance issued by the FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities, as permitted. Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The valuation of the Company’s notes recorded at fair value is determined using Level 3 inputs, which consider (i) time value, (ii) current market and (iii) contractual prices.

SEAFARER EXPLORATION CORP. AND SUBSIDIARIES

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

All gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair value hierarchy are recognized in interest income or expense in the accompanying financial statements.

The significant unobservable inputs used in the fair value measurement of the liabilities described above present value of the future interest payments and the default put value. The default put value requires the Company to estimate the probability of default.

Property and Equipment and Depreciation

In accordance with ASC 360-10, the Company, on a regular basis, reviews the carrying amount of long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. The Company determines if the carrying amount of a long-lived asset is impaired based on anticipated undiscounted cash flows, before interest, from the use of the asset. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined based on appraised value of the assets or the anticipated cash flows from the use of the asset, discounted at a rate commensurate with the risk involved. There were no impairment charges recorded during the periods ended March 31, 2016 and 2015.

The FASB issued SFAS No.123 (revised 2004), Share-Based Payment, which was superseded by ASC 718-10. ASC 718-10 provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As of March 31, 2016, the Company has not implemented an employee stock based compensation plan.

The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services , which was superseded by ASC 505-50. The Company has issued compensatory shares for various services including, but not limited to, executive, board of directors, business consulting, corporate advisory, accounting, research, archeological, operations, strategic planning, corporate communications, financial, legal and administrative consulting services. As determined by Management the Company may issue compensatory shares in the future for these or other services.

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

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

SEAFARER EXPLORATION CORP. AND SUBSIDIARIES

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

The Company elected to account for this hybrid contract under the guidance of ASC 815-15-25-4. This guidance allows an entity that initially recognizes a hybrid financial instrument that under paragraph 815-15-25-1 would be required to be separated into a host contract and a derivative instrument may irrevocably elect to initially and subsequently measure that hybrid financial instrument in its entirety at fair value (with changes in fair value recognized in earnings).

The fair value election is also available when a previously recognized financial instrument subject to a re-measurement event and the separate recognition of an embedded derivative. The fair value election may be made instrument by instrument. For purposes of this paragraph, a re-measurement event (new basis event) is an event identified in generally accepted accounting principles, other than the recognition of an other-than-temporary impairment, that requires a financial instrument to be re-measured to its fair value at the time of the event but does not require that instrument to be reported at fair value on a continuous basis with the change in fair value recognized in earnings. Examples of re-measurement events are business combinations and significant modifications of debt as defined in Subtopic 470-50.

On February 10, 2014, the Board of Directors of the Company under the authority granted under Article V of the Articles of Incorporation, defined and created a new preferred series of shares from the 50,000,000 authorized preferred shares. Pursuant to Article V, the Board of Directors has the power to designate such shares and all powers and matters concerning such shares. Such share class shall be designated Preferred Class B. The preferred class was created for 60 Preferred Class B shares. Such shares each have a voting power equal to one percent of the outstanding shares issued (totaling 60%) at the time of any vote action as necessary for share votes under Florida law, with or without a shareholder meeting. Such shares are non-convertible to common stock of the Company and are not considered as convertible under any accounting measure. Such shares shall only be held by the Board of Directors as a Corporate body, and shall not be placed into any individual name. Such shares were considered issued at the time of this resolution’s adoption, and do not require a stock certificate to exist, unless selected to do so by the Board for representational purposes only. Such shares are considered for voting as a whole amount, and shall be voted for any matter by a majority vote of the Board of Directors. Such shares shall not be divisible among the Board members, and shall be voted as a whole either for or against such a vote upon the vote of the majority of the Board of Directors. In the event that there is any vote taken which results in a tie of a vote of the Board of Directors, the vote of the Chairman of the Board shall control the voting of such shares. Such shares are not transferable except in the case of a change of control of the Corporation when such shares shall continue to be held by the Board of Directors. Such shares have the authority to vote for all matters that require a share vote under Florida law and the Articles of Incorporation.

As of March 31, 2016 and December 31, 2015, the Company’s only significant deferred income tax asset was an estimated net tax operating loss of $11,528,000 and $11,326,000 respectively that is available to offset future taxable income, if any, in future periods, subject to expiration and other limitations imposed by the Internal Revenue Service. Management has considered the Company's operating losses incurred to date and believes that a full valuation allowance against the deferred tax assets is required as of March 31, 2016 and December 31, 2015. Management has evaluated tax positions in accordance with ASC 740 and has not identified any tax positions, other than those discussed above, that require disclosure.

The Company leases 823 square feet of office space located at 14497 North Dale Mabry Highway, Suite 209-N, Tampa, Florida 33618. The Company entered into an amended lease agreement commencing on July 1, 2015 through June 30, 2017. Under the amended lease agreement the base monthly rent is $1,215 from July 1, 2015 through June 30, 2016 and $1,251 from July 1, 2016 to June 30, 2017. There may be additional monthly charges for pro-rated maintenance, late fees, etc.

The Company has an operating lease for a house located in Palm Bay, Florida. The Company uses the house to store equipment and gear and to provide temporary work-related living quarters for its divers, personnel, consultants and independent contractors involved in its exploration and recovery operations. The term of the lease agreement commenced on October 1, 2015 and expires on October 31, 2016. The Company pays $1,300 per month to lease the operations house.

The Company evaluates each financial instrument to determine whether it meets the definition of “conventional convertible” debt under ASC 815-40. The note payable conversion feature of the outstanding convertible debt met the definition of conventional convertible for purposes of applying the conventional convertible exemption. The definition of conventional contemplates a limitation on the number of shares issuable under the arrangement. Since the convertible notes achieved the conventional convertible exemption, the Company was required to consider whether the hybrid contracts embody a beneficial conversion feature. The calculation of the effective conversion amount did result in a beneficial conversion feature.

Issue

Maturity

March 31,

Interest

Conversion

Date

2016

Rate

Convertible notes payable:

April 20, 2015

April 20, 2016

38,000

6.00

0.00320

Unamortized discounts

1,720

Balance

36,280

Convertible notes payable – related party
January 12, 2016	July 12, 2016	$	5,000	6.00	%	0.00200

Convertible notes payable, in default
October 31, 2012	April 30, 2013	$	8,000	6.00	%	0.0040
November 20, 2012	May 20, 2013		50,000	6.00	%	0.0050
January 19, 2013	July 30, 2013		5,000	6.00	%	0.0040
February 11, 2013	August 11, 2013		9,000	6.00	%	0.0060
September 25, 2013	March 25, 2014		10,000	6.00	%	0.0125
August 28, 2009	November 1, 2009		4,300	10.00	%	0.0150
April 7, 2010	November 7, 2010		70,000	6.00	%	0.0080
November 12, 2010	November 7, 2011		40,000	6.00	%	0.0050
October 4, 2013	April 4, 2014		50,000	6.00	%	0.0125
October 30, 2013	October 30, 2014		50,000	6.00	%	0.0125
May 15, 2014	November 15, 2014		40,000	6.00	%	0.0070
October 13, 2014	April 13, 2015		25,000	6.00	%	0.0050
June 29, 2015	December 29, 2015		25,000	6.00	%	0.0050
September 18, 2015	March 18, 2016		25,000	6.00	%	0.0020
Balance		$	411,300

Convertible notes payable - related party, in default
January 19, 2013	July 30, 2013	$	15,000	6.00	%	0.0040
January 9, 2009	January 9, 2010		10,000	10.00	%	0.0150
January 25, 2010	January 25, 2011		6,000	6.00	%	0.0050
January 18, 2012	July 18, 2012		50,000	8.00	%	0.0040
July 26, 2013	January 26, 2014		10,000	6.00	%	0.0100
January 17, 2014	July 17, 2014		31,500	6.00	%	0.0060
May 27, 2014	November 27, 2014		7,000	6.00	%	0.0070
July 21, 2014	January 25, 2015		17,000	6.00	%	0.0080
October 16, 2014	April 16, 2015		21,000	6.00	%	0.0045
July 14, 2015	January 14, 2016		9,000	6.00	%	0.0030
Balance		$	176,500

Issue Date	Maturity Date	2016		Interest Rate

Notes payable:
March 15, 2016	June 15, 2016	$	17,000	6.00%
		$	17,000


Notes payable, in default –related parties:
February 24, 2010	February 24, 2011	$	7,500	6.00%
October 6, 2015	November 11, 2015		10,000	6.00%
			17,500

Notes payable, in default:
June 23, 2011	August 23, 2011		25,000	6.00%
April 27, 2011	April 27, 2012		5,000	6.00%
			30,000

		$	64,500

The Company does not have additional sources of debt financing to refinance its convertible notes payable and notes payable that are currently in default. If the Company is unable to obtain additional capital, such lenders may file suit, including suit to foreclose on the assets held as collateral for the obligations arising under the secured notes. If any of the lenders file suit to foreclose on the assets held as collateral, then the Company may be forced to significantly scale back or cease its operations which would more than likely result in a complete loss of all capital that has been invested in or borrowed by the Company. The fact that the Company is in default of several promissory notes held by various lenders makes investing in the Company or providing any loans to the Company extremely risky with a very high potential for a complete loss of capital.

At March 31, 2016 the Company had a loan outstanding to a shareholder in the amount of $2,920 at 0% interest and another loan outstanding to a shareholder in the amount of $260 at 0% interest. The Company also had three loans outstanding to its CEO, a loan in the amount of $29,683 with a 6% annual rate of interest, a loan in the amount of $100 at 0% interest, and a loan in the amount of $4,000 at 6% rate of interest and an option to convert the loan into restricted shares of the Company’s common stock at $0.002.

On August 28, 2015 the Company entered into a convertible note payable with a corporation. The note payable, with a face value of $44,000, including a $4,000 of original issue discount, bears interest at 12.0% per annum and is due on August 28, 2016. The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at the Variable Conversion Price. The Variable Conversion Price is defined as 62% multiplied by the lowest closing bid price for the Company’s common stock during the twenty (20) trading day period including the day the notice of conversion is received by the Company. If the Company’s market capitalization is less than $1,000,000 on the day immediately prior to the date of the notice of conversion, then the conversion price shall be 25% multiplied by the lowest closing price as of the date notice of conversion is given and if the closing price of the Company’s common stock on the day immediately prior to the date of the notice of conversion is less than $0.00075 then the conversion price shall be 25% multiplied by the lowest closing price as of the date a notice of conversion is given. The conversion feature is subject to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the conversion price.

In the evaluation of the financing arrangement, the Company concluded that the conversion feature did not meet the conditions set forth in current accounting standards for equity classification. Since equity classification is not available for the conversion feature, it requires bifurcation and liability classification, at fair value. The Company elected to account for this hybrid contract under the guidance of ASC 815-15-25-4.

In connection with the issuance of the convertible note payable, the Company recognized day-one derivative loss totaling $32,210 related to the recognition of (i) the hybrid note and (ii) the derivative instrument arising from the fair value measurement due to the fair value of the hybrid note and embedded derivative exceeding the proceeds that the Company received from the arrangement. Therefore, the Company was required to record a $32,210 loss on the derivative financial instrument and is included in interest expense. In addition, the fair value will change in future periods, based upon changes in the Company’s common stock price and changes in other assumptions and market indicators used in the valuation techniques. These future changes will be currently recognized in interest expense or interest income on the Company’s statement of operations.

On September 3, 2015 the Company entered into a convertible note payable with a corporation. The note payable in the amount of $38,500, including a $3,500 original issue discount, and bears interest at 12.0% per annum and is due on September 3, 2017. According to the terms of the note, the Company was eligible to utilize up to $200,000 of credit under the note, with potential proceeds received of $180,000, however the Company elected to borrow only the $38,500. Any additional amount borrowed under this note would require approval of both the Company and the lender. The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at the Variable Conversion Price. The Variable Conversion Price is defined as 65% multiplied by the lowest trade price for the Company’s common stock in the twenty-five (25) trading day period previous to the conversion. The conversion feature is subject to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the conversion price.

In connection with the issuance of the convertible note payable, the Company recognized day-one derivative loss totaling $42,308 related to the recognition of (i) the hybrid note and (ii) the derivative instrument arising from the fair value measurement due to the fair value of the hybrid note and embedded derivative exceeding the proceeds that the Company received from the arrangement. Therefore, the Company was required to record a $29,789 loss on the derivative financial instrument and is included in interest expense. In addition, the fair value will change in future periods, based upon changes in the Company’s common stock price and changes in other assumptions and market indicators used in the valuation techniques. These future changes will be currently recognized in interest expense or interest income on the Company’s statement of operations.

On September 8, 2015, the Company entered into a convertible note payable with a corporation. The convertible note payable, with a face value of $27,000, bears interest at 8.0% per annum and is due on September 8, 2016. The note payable is convertible, at the holder’s option, into the Company’s common shares at the Variable Conversion Price. The Variable Conversion Price is defined as 65% multiplied by the lowest closing bid price for the Company’s common stock during the fifteen (15) trading day period including the day the notice of conversion is received by the Company. The conversion feature is subject to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the conversion price.

In connection with the issuance of the convertible note payable, the Company recognized day-one derivative loss totaling $16,690 related to the recognition of (i) the hybrid note and (ii) the derivative instrument arising from the fair value measurement due to the fair value of the hybrid note and embedded derivative exceeding the proceeds that the Company received from the arrangement. Therefore, the Company was required to record a $16,690 loss on the derivative financial instrument and is included in interest expense. In addition, the fair value will change in future periods, based upon changes in the Company’s common stock price and changes in other assumptions and market indicators used in the valuation techniques. These future changes will be currently recognized in interest expense or interest income on the Company’s statement of operations.

On December 15, 2015 the Company entered into a convertible note payable with a corporation. The note payable in the amount of $27,500, including a $2,500 original issue discount, and bears interest at 12.0% per annum and is due on September 3, 2017. The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at the Variable Conversion Price. The Variable Conversion Price is defined as 65% multiplied by the lowest trade price for the Company’s common stock in the twenty-five (25) trading day period previous to the conversion. The conversion feature is subject to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the conversion price.

In connection with the issuance of the convertible note payable, the Company recognized day-one derivative loss totaling $29,789 related to the recognition of (i) the hybrid note and (ii) the derivative instrument arising from the fair value measurement due to the fair value of the hybrid note and embedded derivative exceeding the proceeds that the Company received from the arrangement. Therefore, the Company was required to record a $29,789 loss on the derivative financial instrument and is included in interest expense. In addition, the fair value will change in future periods, based upon changes in the Company’s common stock price and changes in other assumptions and market indicators used in the valuation techniques. These future changes will be currently recognized in interest expense or interest income on the Company’s statement of operations.

On March 24, 2016 the Company entered into a convertible note payable with a corporation. The note payable, with a face value of $33,000, including a $3,000 of original issue discount, bears interest at 12.0% per annum and is due on March 24, 2017. The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at the Variable Conversion Price. The Variable Conversion Price is defined as 62% multiplied by the lowest closing bid price for the Company’s common stock during the twenty-five (25) trading day period including the day the notice of conversion is received by the Company. If the Company’s market capitalization is less than $1,000,000 on the day immediately prior to the date of the notice of conversion, then the conversion price shall be 25% multiplied by the lowest closing price as of the date notice of conversion is given and if the closing price of the Company’s common stock on the day immediately prior to the date of the notice of conversion is less than $0.0009 then the conversion price shall be 25% multiplied by the lowest closing price as of the date a notice of conversion is given. The conversion feature is subject to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the conversion price.

In connection with the issuance of the convertible note payable, the Company recognized day-one derivative loss totaling $32,210 related to the recognition of (i) the hybrid note and (ii) the derivative instrument arising from the fair value measurement due to the fair value of the hybrid note and embedded derivative exceeding the proceeds that the Company received from the arrangement. Therefore, the Company was required to record a $102,882 loss on the derivative financial instrument and is included in interest expense. In addition, the fair value will change in future periods, based upon changes in the Company’s common stock price and changes in other assumptions and market indicators used in the valuation techniques. These future changes will be currently recognized in interest expense or interest income on the Company’s statement of operations.

Additionally, the holders of these convertible notes at fair value have substantial rights and protections regarding dilution if certain events, including a default were to occur. There are a number of events that could trigger a default, including but not limited to failure to pay principal or interest, failure to issue shares under the conversion feature, breach of covenants, breach of representations and warranties, appointment of a receiver or trustee, judgments, bankruptcy, delisting of common stock, failure to comply with the exchange act, liquidation, cessation of operations, failure to maintain assets, material financial statement restatement, reverse split of borrowers stock, etc. In the event of default the interest rates for each of the notes at fair value may increase to rates of 24% per annum or greater.

Furthermore, there are additional events that could cause the lenders to be owed additional shares of common stock above and beyond the shares due from a conversion. Some of these events include, but are not limited to a merger or consolidation of the Company, dividend distribution or spin off, dilutive issuances of the Company’s stock, etc. If the lenders receives additional shares of the Company’s common stock due to any of the foregoing events or for other reasons, then this may have an extremely dilutive effect on the shareholders of the Company. Such dilution may result in a substantial decrease in the price per share of the Company’s common stock. The potential highly dilutive nature of these notes presents a very high degree of risk to the Company and its shareholders.

On March 1, 2014, Seafarer entered into a partnership and ownership with Marine Archaeology Partners, LLC, with the formation of Seafarer’s Quest, LLC. Such LLC was formed in the State of Florida for the purpose of permitting, exploration and recovery of artifacts from a designated area on the east coast of Florida. Such site area is from a defined, contracted area by a separate entity, which a portion of such site is designated from a previous contracted holding through the State of Florida. Under such agreement, Seafarer is responsible for costs of permitting, exploration and recovery, and is entitled to 60% of such artifact recovery. Seafarer has a 50% ownership, with designated management of the LLC coming from Seafarer.

On July 28, 2014, the Company’s partnership with Marine Archeological Partners, LLC, Seafarer’s Quest, LLC received a 1A-31 Permit (the “Permit”) from the Florida Division of Historical Resources for an area identified off of Cape Canaveral, Florida. The Permit is active for three years from the date of issuance. The Company must obtain and maintain various concurrent environmental permits in order to perform operations at the site. The Company has applied for permits from the State of Florida for two additional areas that are in the vicinity of the area. No additional permits have been issued as of the filing date of this report.

The Company has an ongoing verbal agreement with a limited liability company that is controlled by a person who is related to the Company’s CEO to pay the related party consultant $3,000 per month to provide general business consulting, industry research, monitoring and assessing the Company's business and to advise management with respect to an appropriate business strategy on an ongoing basis, commenting on proposed corporate decisions and identifying and evaluating alternative courses of action, perform background research including background checks and provide investigative information on individuals and companies and acting as an administrative specialist to perform various administrative duties and clerical services including reviewing the Company’s agreements and books and records. The consultant provides the services under the direction and supervision of the Company’s CEO. All fees paid to the related party consultant during the period ended March 31, 2016 and 2015 are included as an expense in consulting and contractor expenses in the accompanying statements of operations.

The Company has an ongoing agreement with a limited liability company that is owned and controlled by a person who is related to the Company’s CEO to provide stock transfer agency services. At March 31, 2016, the Company owed the related party limited liability company $28,669 for transfer agency services rendered and for the reimbursement of legal fees. All fees paid to the related party consultant during the period ended March 31, 2016 and 2015 are included as an expense in consulting and contractor expenses in the accompanying statements of operations.

The Company has an ongoing agreement to pay a limited liability company a monthly fee of $3,500 in cash or $5,000 per month in restricted stock for archeological services and the review of historic shipwreck research consulting services. All fees paid to the related party consultant during the period ended March 31, 2016 and 2015 are included as an expense in consulting and contractor expenses in the accompanying statements of operations.

The Company has an ongoing consulting agreement to pay a limited liability company a minimum of $5,000 per month for providing ongoing business advisory, strategic planning and consulting services, assistance with financial reporting, IT management, and administrative services. The Company also agreed to pay additional compensation to the consultant in the form of cash and/or restricted stock to be awarded solely at the Company’s discretion. The Company also agreed to reimburse the consultant for certain expenses. The agreement is verbal and may be terminated by the Company or the consultant at any time. All fees paid to the related party consultant during the period ended March 31, 2016 and 2015 are included as an expense in consulting and contractor expenses in the accompanying statements of operations.

On March 23, 2016 the Board of Directors signed a universal settlement agreement with the Plaintiffs in the litigation matters of Micah Eldred, et al., v. Seafarer Exploration, et al., Hillsborough County, Florida, Case No. 09-CA-30763, and Micah Eldred v. Seafarer Exploration Corp., et al., Hillsborough County, Florida, Case No. 14-CA-5360, and in the matter of Seafarer Exploration, et al. v. Micah Eldred, et al., Hillsborough County, Florida, Court of Appeals Case No. 14-2884, specifically: Micah Eldred, Michael Daniels, Diane J. Harrison, James Eldred, Mary R. Eldred, Michole Eldred, Nathan Eldred, Toni A. Eldred, Toni A. Eldred FBO Jordan Gratton, Toni A. Eldred FBO Justin Gratton, Vanessa A Verbosh, Oksana Savchenko, Matthew J. Presy, Olessia Kritskaia, Ekaterina Messinger, Abby Lord, Ioulia Hess, Anna Krokhina, George Linder, Christine Zitman, Carl Dilley, Heather Dilley, Robert Lizzano, Elizabeth Lizzano, Karen Lizzano, Susan Miller, Jillian Mally, Michael Mona, Alan Wolper, Sarah Wolper, Alan Wolper FBO Michael Wolper, Spartan Securities Group, Ltd., and Am Asia Consulting entered into the settlement agreement with Seafarer. An earlier named party, CADEF, The Childhood Autism Foundation, Inc., had previously entered into a settlement agreement and is no longer a party in the Litigation.

The settlement called for both cases to be dismissed, with prejudice, and the Plaintiffs in case number 09-CA-30763 agreed to surrender and cancel all of their 32,300,000 shares of restricted common stock which were returned to the treasury of the Corporation. All such shares have been returned for cancellation. On March 23, 2016 Seafarer CEO signed the resolution to cancel the 32,300,000 shares and instructed the transfer agent ClearTrust LLC to cancel the shares and return them to treasury for the benefit of Seafarer thus reducing the number of outstanding shares by 32,300,000 shares. At the present time the dismissal has been filed and the case closed, with all shares cancelled.

On June 18, 2013, Seafarer began litigation against Tulco Resources, LLC, in a lawsuit filed in the Circuit Court in and for Hillsborough County, Florida. Such suit was filed for against Tulco based upon for breach of contract, equitable relief and injunctive relief. Tulco was the party holding the rights under a permit to a treasure cite at Juno Beach, Florida. Tulco and Seafarer had entered into contracts in March 2008, and later renewed under an amended agreement on June 11, 2010. Such permit was committed to by Tulco to be an obligation and contractual duty to which they would be responsible for payment of all costs in order for the permit to be reissued. Such obligation is contained in the agreement of March 2008 which was renewed in the June 2010 agreement between Seafarer and Tulco. Tulco made the commitment to be responsible for payments of all necessary costs for the gaining of the new permit. Tulco never performed on such obligation, and Seafarer during the period of approximately March 2008 and April 2012 had endeavored and even had to commence a lawsuit to gain such permit which was awarded in April 2012. Seafarer alleges in their complaint the expenditure of large amounts of shares and monies for financing and for delays due to Tulco’s non-performance. Seafarer seeks monetary damages and injunctive relief for the award of all rights held by Tulco to Seafarer Seafarer gained a default and final Judgment on such matter on July 23, 2014. Seafarer is now working with the State for the renewed permit to be in Seafarer’s name and rights only, with Tulco removed per the Order of the Court. On March 4, 2015, the Court awarded full rights to the Juno sight to Seafarer Exploration, erasing all rights of Tulco Resources. The company has currently filed an Admiralty Claim over such sight in the United States District Court which is pending final ruling.

On September 3, 2014, the Company filed a lawsuit against Darrel Volentine, of California. Mr. Volentine was sued in two counts of libel per se under Florida law, as well as a count for injunction against the Defendant to exclude and prohibit internet postings. Such lawsuit was filed in the Circuit Court in Hillsborough County, Florida. Such suit is based upon internet postings on www.investorshub.com. On or about October 15, 2015, the Company and Volentine entered into a stipulation whereby Volentine admitted to his tortious conduct, however the stipulated damages agreed to were rejected by the Court, and the Company was proceeding to trial on damages against Volentine in a non-jury trial which was set for December 1, 2015, however, the Defendant filed a motion to recuse the Judge who had set him for a contempt hearing for October 1, 2015 and the trial, the matter was reassigned to a different division due to the Defendant’s fear of not having a fair litigation. The Defendant was the subject of continued contempt of court motion which was heard on April 7, 2016, whereby the Court found a violation and modified the injunction against the Defendant, and imposed other matters of potential penalties against the Defendant for any further violations. The Court also awarded attorney’s fees against the Defendant on behalf of Seafarer for such motion. Discovery is ongoing in such case.

In January of 2016, the Company entered into a convertible promissory note agreement in the amount of $5,000 with an individual who is related to the Company’s CEO. This loan pays interest at a rate of 6% per annum and the principle and accrued interest are due on or before July 12, 2016. The note is not secured and is convertible at the lender’s option into shares of the Company’s common stock at a rate of $0.002 per share.

In February 2016, the Company’s CEO provided a loan to the Company in the amount of $4,000. This loan pays interest at a rate of 6% per annum and if the loan and accrued interest are not repaid within 90 days from February 10, 2016 then the lender is entitled to receive 500,000 shares of the Company’s restricted common stock. The note is not secured and is convertible at the lender’s option into shares of the Company’s common stock at a rate of $0.002 per share.

A convertible note payable dated January 9, 2009 due to a person related to the Company’s CEO with a face amount of $10,000. This note bears interest at a rate of 10% per annum with interest payments to be paid monthly and is convertible at the note holder’s option into the Company’s common stock at $0.015 per share. The convertible note payable was due on or before January 9, 2010 and is secured. This note is currently in default due to non-payment of principal and interest.

A convertible note payable dated January 25, 2010 in the principal amount of $6,000 with a person who is related to the Company’s CEO. This loan pays interest at a rate of 6% per annum and the principle and accrued interest were due on or before January 25, 2011. The note is not secured and is convertible at the lender’s option into shares of the Company’s common stock at a rate of $0.005 per share. This note is currently in default due to non-payment of principal and interest.

A note payable dated February 24, 2010 in the principal amount of $7,500 with a corporation. The Company’s CEO is a director of the corporation and a former Director of the Company is an officer of the corporation. The loan is not secured and pays interest at a rate of 6% per annum and the principle and accrued interest were due on or before February 24, 2011. This note is currently in default due to non-payment of principal and interest.

A convertible note payable dated January 18, 2012 in the amount of $50,000 with two individuals who are related to the Company’s CEO. This loan pays interest at a rate of 8% per annum and the principle and accrued interest were due on or before July 18, 2012. The note is secured and is convertible at the lender’s option into shares of the Company’s common stock at a rate of $0.004 per share. The note is currently in default due to non-payment of principal and interest.

A convertible note payable dated January 19, 2013 due to a person related to the Company’s CEO with a face amount of $15,000. This note bears interest at a rate of 6% per annum with accrued interest to be paid at the time that the principal balance is repaid or the note is converted into shares of the Company’s common stock. The note is convertible at the note holder’s option into the Company’s common stock at $0.004 per share. The convertible note payable was due on or before July 30, 2013 and is not secured. The note is currently in default due to non-payment of principal and interest.

A convertible note payable dated July 26, 2013 due to a person related to the Company’s CEO with a face amount of $10,000. This note bears interest at a rate of 6% per annum with accrued interest to be paid at the time that the principal balance is repaid or the note is converted into shares of the Company’s common stock. The note is convertible at the note holder’s option into the Company’s common stock at $0.01 per share. The convertible note payable was due on or before January 26, 2014 and is not secured. The note is currently in default due to non-payment of principal and interest.

A convertible note payable dated January 17, 2014 due to a person related to the Company’s CEO with a face amount of $31,500. This note bears interest at a rate of 6% per annum with accrued interest to be paid at the time that the principal balance is repaid or the note is converted into shares of the Company’s common stock. The note is convertible at the note holder’s option into the Company’s common stock at $0.006 per share. The convertible note payable is due on or before July 17, 2015 and is not secured. The note is currently in default due to non-payment of principal and interest.

A convertible note payable dated May 27, 2014 due to a person related to the Company’s CEO with a face amount of $7,000. This note bears interest at a rate of 6% per annum with accrued interest to be paid at the time that the principal balance is repaid or the note is converted into shares of the Company’s common stock. The note is convertible at the note holder’s option into the Company’s common stock at $0.007 per share. The convertible note payable was due on or before November 27, 2014 and is not secured. The note is currently in default due to non-payment of principal and interest.

SEAFARER EXPLORATION CORP. AND SUBSIDIARIES

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – RELATED PARTY TRANSACTIONS - continued

A convertible note payable dated July 21, 2014 due to a person related to the Company’s CEO with a face amount of $17,000. This note bears interest at a rate of 6% per annum with accrued interest to be paid at the time that the principal balance is repaid or the note is converted into shares of the Company’s common stock. The note is convertible at the note holder’s option into the Company’s common stock at $0.008 per share. The convertible note payable was due on or before January 25, 2015 and is not secured. The note is currently in default due to non-payment of principal and interest.

A convertible note payable dated October 16, 2014 due to a person related to the Company’s CEO with a face amount of $21,000. This note bears interest at a rate of 6% per annum with accrued interest to be paid at the time that the principal balance is repaid or the note is converted into shares of the Company’s common stock. The note is convertible at the note holder’s option into the Company’s common stock at $0.0045 per share. The convertible note payable was due on or before April 16, 2015 and is not secured. The note is currently in default due to non-payment of principal and interest.

A convertible note payable dated July 14, 2015 due to a person related to the Company’s CEO with a face amount of $9,000. This note bears interest at a rate of 6% per annum with accrued interest to be paid at the time that the principal balance is repaid or the note is converted into shares of the Company’s common stock. The note is convertible at the note holder’s option into the Company’s common stock at $0.0030 per share. The convertible note payable was due on or before January 14, 2016 and is not secured.

A convertible note payable dated January 12, 2015 due to a person related to the Company’s CEO with a face amount of $5,000. This note bears interest at a rate of 6% per annum with accrued interest to be paid at the time that the principal balance is repaid or the note is converted into shares of the Company’s common stock. The note is convertible at the note holder’s option into the Company’s common stock at $0.0020 per share. The convertible note payable is due on or before July 12, 2016 and is not secured.

In February 2016, the Company’s CEO provided a loan to the Company in the amount of $4,000. This loan pays interest at a rate of 6% per and if the loan and accrued interest are not repaid within 90 days from February 10, 2016 then the lender is entitled to receive 500,000 shares of the Company’s restricted common stock. The note is not secured and is convertible at the lender’s option into shares of the Company’s common stock at a rate of $0.002 per share.

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

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

The Company’s principal business plan is to develop the infrastructure to engage in the archaeologically-sensitive exploration and recovery of historic shipwrecks including eventually conducting archaeological research around the world. The business plan also includes in-depth archival research and translation of historical documents from archives and repositories from around the world. In addition to the research is ongoing education of all independent contractors involved in operations with the Company. College level courses in archaeology are being periodically taught by a Ph.D. to independent contractors in an ongoing program to help educate the independent contractors in context, work methodology, documentation, and conservation. This type of business venture is extremely speculative in nature and there is a tremendous amount of risk that any capital invested in and/or borrowed by the Company could be lost.

It has been estimated by the United Nations Educational, Scientific and Cultural Organization (“UNESCO”) that there are over three million undiscovered shipwrecks around the world and a few of these shipwrecks were lost with verifiable cargoes that contained valuable materials, including artifacts and treasure. However, many of these shipwrecks may have very little archaeological or historical value, and furthermore, a very high percentage of these shipwrecks would not have been carrying valuable cargo including artifacts or treasure of any kind.

The exploration and recovery of historic shipwrecks involves a multi-year, multi stage process. It may take many years and/or be prohibitively expensive to locate, if any are ever located at all, and recover valuable artifacts from historic shipwrecks. Locating and recovering valuable artifacts is very difficult and the probability that the Company will locate valuable artifacts or treasure is remote. If the Company is not able to locate artifacts or treasure with significant value, then there is high probability that the Company will face adverse consequences.

Underwater recovery operations are inherently difficult and dangerous and may be delayed or suspended by weather, sea conditions or other natural hazards. In addition, even though sea conditions in a particular search location may be somewhat predictable, the possibility exists that unexpected conditions may occur, and already have occurred, that adversely affect the Company’s operations. It is also possible that natural hazards may prevent or significantly delay search and recovery operations.

In addition to natural hazards there are constant repair and maintenance issues with treasure salvage vessels which tend to be older vessels that were originally used in other industries that have been converted for use in shipwreck exploration and recovery. The repairs, maintenance and upkeep of this type of vessel, and in particular the Company’s main salvage vessel, is very time consuming and expensive and there may be significant periods of vessel down time that result from lack of financing to make repairs to the vessel.

Furthermore, there are very strict international, federal and state laws that govern the exploration and recovery of historic shipwrecks. While the Company has been able to obtain some permits, there is no guarantee that the Company will be able to secure future permits or enter into agreements with government agencies in order to explore and salvage historic shipwrecks. There is a risk that government entities may enact legislation that is so strict that any recovery of artifacts and cargo from historic shipwrecks will be nearly impossible. Additionally, permits and agreements with governmental agencies to conduct historic shipwreck exploration and recovery operations are expensive, in terms of both direct costs and ongoing compliance costs. It is also entirely possible that the Company will not be successful in obtaining title or permission to excavate certain wrecks. It is possible that permits that are sought for potential future international projects may never be issued, and if issued, may not be legal or honored by the entities that issued them.

Even if the Company is able to obtain permits for shipwreck projects there is a possibility that the shipwrecks may have already been salvaged or may not be found, or may not have had anything valuable on board at the time that they sank. It is the Company’s intent to find shipwrecks which research suggest were not salvaged, but there can be no absolute guarantee of previous salvage. In the event that valuable artifacts are located and recovered, it is possible that the cost of recovery will be greater than the value of the artifacts recovered. It is also possible that other entities, including both private parties and governmental entities, will assert conflicting claims and challenge the Company’s rights to the recovered artifacts.

Moreover, there is the possibility that should the Company be successful in locating and salvaging artifacts that have significant archeological and/or monetary value that a country whose ship was salvaged may attempt to claim ownership of the artifacts by pursuing litigation. In the event that the Company is able to make a valid claim to artifacts or other items at a shipwreck site there is a risk of theft of such items at sea, both before or after the recovery or while the artifacts are in transit to a safe destination, as well as when stored in a secured location. Such thefts may not be adequately covered by insurance. Based on a number of these and other potential issues the Company could spend a great deal of time and invest a large sum in a specific shipwreck project and receive very little or no salvage claim or revenue for its work.

There are a number of significant issues and challenges including, but not limited to, government regulation and/or the Company’s inability to secure permits and contracts, lack of financing, lack of revenue and cash flow and continued losses from operations that make the exploration and recovery of historic shipwrecks a speculative and risky business venture. There is also significant expense involved in research and ongoing educational programs. Research expenses involve paying scientists for translations, dues and fees for various historical entities such as archives, travel and accommodations, and research materials. There is a possibility that the Company will be forced to cease its operations if it is not successful in eventually locating valuable artifacts. If the Company were to cease its operations, then it is likely that there would be complete loss of all capital invested in or borrowed by the Company. As such, an investment in Seafarer is extremely speculative and of exceptionally high risk.

There is currently a limited trading market for our securities. We cannot assure when and if an active-trading market in our shares will be established, or whether any such market will be sustained or sufficiently liquid to enable holders of shares of our common stock to liquidate their investment in our company. The sale of unregistered and restricted securities by current shareholders, including shares issued to consultants and shares issued to settle convertible promissory notes and to settle other debts, may cause a significant decline in the market price of the Company’s securities.

The Company has evaluated various opportunities to enter into agreements or contracts to conduct exploration and recovery operations at known historic shipwreck locations or potential locations. The Company has previously spent some of its efforts exploring what it believes is a historic shipwreck site located off of Juno Beach, Florida. As previously noted on its form 8-K filed on May 9, 2011, the Company and Tulco Resources received a 1A-31 Recovery Permit from the Florida Division of Historical Resources. The Recovery Permit was previously active through April 25, 2014. It is necessary for the Company to obtain a renewal to the Recovery Permit for the Juno Beach shipwreck site in order to continue to perform work at the site after April 25, 2014. Management intends to pursue the renewal of the permit in the sole name of Seafarer Exploration Corp. Even with a judge’s order, suchrenewal of the permit is anticipated to be a very slow and complicated process. The potential renewal and name change will eventually involve a State Judge, Federal Judge, the U.S. Marshall’s Service and the Florida Division of Historical Resources. Due to these multiple additional steps, the renewal of the permit has not been issued as of the filing of this report.

The Juno Beach Shipwreck site is a speculative and risky project as far as the potential for the Company to ever locate valuable artifacts or treasure. Although the Company has recovered various artifacts that it believes are interesting, it has not located artifacts and/or treasure of any significant value from the Juno Beach Shipwreck site. There is also the possibility that there are no artifacts of significant value located at the Juno Beach shipwreck site. Even if there are valuable artifacts and/or treasure located at the site, recovering them may be extremely difficult or impossible due to a variety of challenges that include, but are not limited to; inclement weather, hazardous ocean conditions, large amounts of sand that cover large areas of the site, lack the necessary equipment to be able to dig deep enough into the sand, ongoing maintenance and repair issues with the Company’s main salvage vessel, permitting issues and/or a lack of financing, etc. Additionally, Management believes the previous partner, Tulco Resources, deleted a significant portion of the 2003 magnetometer survey which may contain portions of the wreck itself. The Company is planning the process to perform additional research and a cesium vapor magnetometer survey of the deleted area. This survey has not been completed as of the filings of this report.

Moreover, the Company does not currently have sufficient data to positively identify the potential Juno Beach shipwreck, or its country of origin, and it is therefore not possible to determine whether or not the ship was originally carrying cargo of any significant value. Only remnants and scattered pieces of a sunken ship have been located to date; no main shipwreck body has been located. It is also possible, although there is no proof suggesting this, that a ship began to break up on the site but the body of the ship actually sank in another area that is outside of the designated Juno Beach site area and all that was left on the Juno Beach site were scattered remnants of the original ship that have little or no archeological or actual value. There is a possibility that there are no artifacts of significant value located on the Juno Beach shipwreck site.

There is a purported historic shipwreck site in the waters off of Brevard County Florida that the Company desires to explore. In February 2013, the Company signed an agreement with a third party, who has previously explored this site, for the right to explore the site. On March 1, 2014, Seafarer entered into a partnership and ownership with Marine Archaeology Partners, LLC, with the formation of Seafarer’s Quest, LLC. Such LLC was formed in the State of Florida for the purpose of permitting, exploration and recovery of artifacts from a designated area on the east coast of Florida. Such site area is from a defined, contracted area by a separate entity, which a portion of such site is designated from a previous contracted holding through the State of Florida. Under such agreement, Seafarer is responsible for costs of permitting, exploration and recovery, and is entitled to 60% of such artifact recovery. Seafarer has a 50% ownership, with designated management of the LLC coming from Seafarer. Further actions toward expanding the permitted area have been taken for such site and the Company and partnership are awaiting the issuance of such permits by the State of Florida, however no additional permits have been issued as of the filing of this report. There are a significant number of challenges inherent in the exploration and salvage of historic shipwrecks, including the possibility that the Company will never find artifacts of value at the site. Inclement weather, lack of permitting or waiting for permits to be issued or renewed, and a lack of funding may hamper the Company’s ability to continuously perform operations at historic shipwreck sites.

On July 28, 2014, Seafarer’s Quest, LLC received a 1A-31 Exploration Permit with a Dig and Identify modification (the “Permit”) from the Florida Division of Historical Resources for an area identified off of Cape Canaveral, Florida. The Permit is active for three years from the date of issuance. Seafarer, on behalf of Seafarer’s Quest, LLC, had been primarily focusing its operations on this site when the weather permits and funding is available. In addition to the Company’s main salvage vessel, the Company has utilized additional owned and rented vessels in order to perform operations. Inclement weather, difficult sea conditions, and lack of funding have hampered the Company’s ability to perform exploration operations at this site to date. An archeologist with the technical skills, knowledge, and experience from around the world was hired to help insure the integrity of the work. The Company has applied for permits from the State of Florida for two additional areas that are located in the vicinity of the permitted area, however no new permits for additional areas have been issued as of the filing date of this report.

The Company regularly reviews opportunities to perform exploration and recovery operations at purported historic shipwreck sites; however, the Company does have some specific plans to perform exploration and recovery operations at other shipwreck sites at the present time. The Company is actively reviewing other potential historic shipwreck sites, including sites located internationally, for possible exploration and recovery. Seafarer is also continuing to build relationships in Cuba with its educational and humanitarian efforts. Seafarer is currently working on an educational video already completely filmed in Cuba in anticipation of the potential end of the embargo. Should the Company decide that it will pursue exploration and recovery activities at other potential shipwreck sites, it may be necessary to obtain various salvage permits as well as environmental permits.

Since inception, the Company has funded its operations through common stock issuances and loans in order to meet its strategic objectives; however, there can be no assurance that the Company will be able to obtain further funds to continue with its efforts to establish a new business. There is a very significant risk that the Company will be unable to obtain financing to fund its operation and as such the Company may be forced to cease operations at any time which would likely result in a complete loss of all capital that has been invested in and/or borrowed by the Company to date.

The Company expects to continue to incur significant operating losses and to generate negative cash flow from operating activities, while building out its infrastructure in order to explore and salvage historic shipwreck sites and establishing itself in the marketplace. Based on our historical rate of expenditures, the Company expects to expend its available cash in less than one month from May 20, 2016.

The Company’s ability to eliminate operating losses and to generate positive cash flow from operations in the future will depend upon a variety of factors, many of which it is unable to control. If the Company is unable to implement its business plan successfully, it may not be able to eliminate operating losses, generate positive cash flow or achieve or sustain profitability, which may have a material adverse effect on the Company’s business, operations, and financial results, as well as its ability to make payments on its debt obligations, and the Company may be forced to cease operations.

The Company’s lack of operating cash flow and reliance on the sale of its commons stock and loans to fund operations is extremely risky. If the Company is unable to continue to raise capital or obtain loans or other financing on terms that are acceptable to the Company, or at all, then it is highly likely that the Company will be forced to cease operations. If the Company ceases its operations, then it is likely that all capital invested in and/or borrowed by the Company will be lost.

The Company’s net loss for the three month period ended March 31, 2016 was $201,980 as compared to a net loss of $62,230 during the three month period ended March 31, 2015, an increase of approximately 225%. The increase in the net loss for the three month period ended March 31, 2016 was primarily due to the impact of the fair value measurement adjustments on several convertible promissory notes that resulted in an interest expense of $61,070 in 2016 as compared to interest income of $259,519 in 2015. During the three month period ended March 31, 2016 consulting and contractor fees were $77,454 as compared to $179,206 for the three month period ended March 31, 2015. The approximate 57% decrease in consulting and contractor fees in 2016 was largely a result of a decrease in operating activity due to a lull in operations and significantly less stock based compensation being paid for services. The Company incurred travel and entertainment expenses of $16,001 during the three month period ended March 16, 2016 as compared to $13,252 during the three month period ended March 31, 2015, an approximate 21% increase on a quarter-over-quarter basis. The general and administrative expenses for the period ended March 31, 2016 were $9,010 compared to $76,146 for the period ended March 31, 2015, a quarter-over-quarter decrease of approximately 88%. During the three month period ended March 31, 2016, professional fees were $20,500 as compared to $30,210 during the three month period ended March 31, 2015, a decrease of 32%. Professional fees decreased due to the Company paying less for legal fees due to the winding down of a lawsuit. The Company did not incur any significant fees for repairs to the main salvage vessel during for the three month period ended March 31, 2016, all maintenance and light repair work was completed by the Company’s independent contract crew members in the course of their normal duties providing services to the Company and this expense in included in consulting and contractor fees.

A major financial challenge and significant risk facing the Company is a lack of liquidity. The Company continued to operate with significant debt and a working capital deficit during the period ended March 31, 2016. This working capital deficit indicates that the Company is unable to meet its short-term liabilities with its current assets. This working capital deficit is extremely risky for the Company as it may be forced to cease its operations due to its inability to meet its current obligations. If the Company is forced to cease its operations then it is highly likely that all capital invested in and/or loaned to the Company will be lost.

The expenses associated with being a small publicly traded company attempting to develop the infrastructure to explore and salvage historic shipwrecks recovery are extremely prohibitive, especially given that the Company does not currently generate any revenues and does not expect to generate any revenues in the near future. There are ongoing expenses associated with operations that are incurred whether the Company is conducting shipwreck recovery operations or not. Vessel maintenance, particularly for an older vessel such as the Company’s main salvage vessel, upkeep expenses and docking fees are continuous and unavoidable regardless of the Company’s operational status. Management anticipates the Company may need to put the vessel in dry dock in order for additional repairs to be made. These repairs and maintenance are expensive and have a negative impact on the Company’s cash position.

In addition to the operations expenses, a publicly traded company also incurs the significant recurring corporate expenses related to maintaining publicly traded status, which include, but are not limited to accounting, legal, audit, executive, administrative, corporate communications, rent, telephones, etc. The recurring expenses associated with being a publicly traded company are very burdensome for smaller public companies such as Seafarer. This lack of liquidity creates a very risky situation for the Company in terms of its ability to continue operating, which in turn makes owning shares of the Company’s common stock extremely risky and highly speculative. The Company’s lack of liquidity may cause the Company to be forced to cease operations at any time which would likely result in a complete loss of all capital invested in or borrowed by the Company to date.

Due to the fact that the Company does not generate any revenues and does not expect to generate revenues for the foreseeable future the Company must rely on outside equity and debt funding. The combination of the ongoing operational, even during times when there is little to no exploration or recovery activities taking place, and corporate expenses as well as the need for outside financing creates a very risky situation for the Company and its shareholders. This working capital shortfall and lack of access to cash to fund corporate activities is extremely risky and may force the Company to cease its operations which would more than likely result in a complete loss of all capital invested in or loaned to the Company to date.

The exploration and recovery of historic shipwrecks requires a multi-year, multi stage process and it may be many years before any revenue is generated from exploration and recovery activities, if ever. The Company believes that it may be several years before it is able to generate any cash flow from its operations, if any are ever generated at all. Without revenues and cash flow the Company does not have reliable cash flow to pay its expenses. The Company relies on outside financing in the form of equity and debt and it is possible that the Company may not be able to obtain outside financing in the future. If the Company is not able to obtain financing it would more than likely be forced to cease operations and all of the capital that has been invested in or borrowed by the Company would be lost.

The Company has experienced a net loss in every fiscal year since the reverse merger in 2008. The Company’s losses from operations were $140,909 for the three month period ended March 31, 2016. The Company believes that it will continue to generate losses from its operation for the foreseeable future and the Company may not be able to generate a profit in the long-term, or ever. Due to the significance of these of these matters there is substantial doubt about the Company’s ability to continue as a going concern. Any investment in the Company’s securities is very speculative with a very high chance of a total loss of all invested capital.

The Company does not have additional sources of debt financing to refinance its convertible notes payable and notes payable that are currently in default. If the Company is unable to obtain additional capital, such lenders may file suit, including suit to foreclose on the assets held as collateral for the obligations arising under the secured notes. If any of the lenders file suit to foreclose on the assets held as collateral, then the Company may be forced to significantly scale back or cease its operations which would more than likely result in a complete loss of all capital that has been invested in or borrowed by the Company. The fact that the Company is in default regarding several loans held by various lenders makes investing in the Company or providing any loans to the Company extremely risky with a very high potential for a complete loss of capital.

The convertible notes that have been issued by the Company are convertible at the lender’s option. These convertible notes represent significant potential dilution to the Company’s current shareholders as the convertible price of these notes is generally lower than the current market price of the Company’s shares. As such when these notes are converted into equity there is typically a highly dilutive effect on current shareholders and very high probability that such dilution may significantly negatively affect the trading price of the Company’s common stock. Furthermore, management intends to have discussions or has already had discussions with several of the promissory note holders who do not currently have convertible notes regarding converting their notes into equity. Any such amended agreements to convert promissory notes into equity would more than likely have a highly dilutive effect on current shareholders and there is a very high probability that such dilution may significantly negatively affect the trading price of the Company’s common stock. Some of these note holders have already amended their non-convertible notes to be convertible and converted the notes into equity. Based on conversations with other note holders, the Company believes that additional note holders will amend their notes to contain a convertibility clause and eventually convert the notes into equity.

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments which affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities (see Note 3, Summary of Significant Accounting Policies, contained in the notes to the Company’s financial statements for the periods ended March 31, 2016 and 2015.) On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities which are not readily apparent from other sources. Actual results may differ from these estimates based upon different assumptions or conditions; however, we believe that our estimates are reasonable.

The Company’s management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. The Company’s controls over financial reporting are designed under the supervision of the Company’s Principal Executive Officer/Principal Financial Officer to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to the Company’s management, including the Company’s principal executive officer/principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our principal executive officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of March 31, 2016. Based on this evaluation, management concluded that our financial disclosure controls and procedures were not effective so as to timely record, process, summarize and report financial information required to be included on our Securities and Exchange Commission (“SEC”) reports due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review. However, as a result of our evaluation and review process, management believes that the financial statements and other information presented herewith are materially correct.

The management including its Principal Executive Officer/Principal Financial Officer, does not expect that its disclosure controls and procedures, or its internal controls over financial reporting will prevent all error and all fraud. A control system no matter how well conceived and operated, can provide only reasonable not absolute assurance that the objectives of the control system are met. Further, the design of the control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs.

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

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

A material weakness is a deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) auditing standard 5) or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that a material weakness exists due to a lack of segregation of duties, resulting from the Company's limited resources and personnel.

During the three month period ended March 31, 2016, the Company issued 4,000,000 shares of its restricted common stock to a consultant for corporate communications consulting services. The Company also issued 1,800,000 shares of its restricted common shares as a loan origination fee to a lender. The Company believes that the issuance of the securities was exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering and based on the fact that such securities were issued for services to sophisticated or accredited investors and persons who are thoroughly familiar with the Company’s proposed business by virtue of their affiliation with the Company.

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

During the three month period ended March 31, 2016, holders of four promissory notes elected to convert all or a portion of the balances of their notes plus accrued interest into 34,717,252 shares of the Company’s common stock. The Company believes that the offer and sale of these securities were exempt from the registration requirements of the Securities Act pursuant to Sections 3(a)(9) under the Securities Act of 1933, as amended.

Florida	90-0473054
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

Description		Level 1				Level 2				Level 3
Notes payable at fair value		$				$				$	286,232

						New
	Fair Value		Change in fair			Convertible					Fair Value
	January 1, 2016		Value			Notes		Conversions			March 31, 2016

Notes payable at fair value	$	311,074	$	(73,079	)	$	135,809	$	(87,572	)	$	286,232

	March 31, 2016			December 31, 2015
Diving vessel	$	326,005		$	326,005
Generator		7,420			7,420
Less accumulated depreciation		(278,645	)		(270,149	)
	$	54,780		$	63,276


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


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

	For the Three Months Ended March 31, 2016			For the Three Months Ended March 31, 2015
Net loss attributable to common stockholders	$	(201,980	)	$	(62,230	)

Weighted average shares outstanding:
Basic and diluted		1,345,436,472			1,047,757,152

Loss per share:
Basic and diluted	$	(0.00	)	$	(0.00	)

February 3, 2016 to August 3, 2017	1,000,000	$0.0050
February 18, 2016 to August 18, 2017	1,500,000	$0.0040
February 19, 2016 to August 19, 2017	5,000,000	$0.0040
March 3, 2016 to September 3, 2017	1,000,000	$0.0040
	8,500,000

	For the Three Months Ended March 31, 2016			For the Three Months Ended March 31, 2015
Income tax at federal statutory rate		(34.00	)%		(34.00	)%
State tax, net of federal effect		(3.96	)%		(3.96	)%
		37.96	%		37.96	%
Valuation allowance		(37.96	)%		(37.96	)%
Effective rate		0.00	%		0.00	%

Face value of the convertible notes payable	$	134,002
Interest expense to record the convertible notes at
fair value on the date of issuance		164,295
Interest income to mark to market the convertible notes on March 31, 2016		(12,065)
March 31, 2016 fair value	$	286,232

Exhibit Number	Description
*31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*99.1		Temporary Hardship Exemption

**101.INS		XBRL Instance Document

**101.SCH		XBRL Taxonomy Extension Schema

**101.CAL		XBRL Taxonomy Extension Calculation Linkbase

**101.DEF		XBRL Taxonomy Extension Definition Linkbase

**101.LAB		XBRL Taxonomy Extension Label Linkbase

**101.PRE		XBRL Taxonomy Extension Presentation Linkbase

	Seafarer Exploration Corp.


Date: May 23, 2016	By:	/s/ Kyle Kennedy
		Kyle Kennedy President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

Date: May 23, 2016	By:	/s/ Chuck Branscomb
		Chuck Branscomb, Director

Date: May 23, 2016	By:	/s/ Robert L. Kennedy
		Robert L. Kennedy, Director