Commitment and Contingencies

12 Months Ended

Dec. 31, 2011

Commitment and Contingencies:

Legal Matters and Contingencies

NOTE 13 – LEGAL PROCEEDINGS

On December 11, 2009, the Company, its CEO and transfer agent were named as defendants in Case Number 09-CA-030763, filed in the Circuit Court of Hillsborough County, Florida, by 31 individuals and 1 corporation. The lawsuit alleges that the Company, its CEO, and its transfer agent wrongfully refused to remove the restrictive legend from certain shares of the Company’s common stock that are collectively owned by the plaintiffs, which prevented the plaintiffs from selling or transferring their shares of the Company’s common stock.  The plaintiffs allege that they have lost approximately $1,041,000 as of the date of the lawsuit. The plaintiffs are seeking actual damages in an amount greater than $15,000, punitive damages to be determined at trial, injunctive relief requiring the defendants to reissue the plaintiff’s stock without the restrictive legends, injunctive relief barring the defendants from removing the stock legends from any Seafarer stock until the dispute with the plaintiffs is fully resolved, injunctive relief barring the defendants from selling their Seafarer stock, directly or indirectly, until the dispute with the plaintiffs is fully resolved, a declaratory judgment that plaintiffs are entitled to have their shares reissued without the restrictive legend, such other incidental and consequential damages as may be proven at trial, costs, interest, and legal expenses allowed by law and such other further relief as the court may deem just and proper.  The Company contends that the restrictive legends were either (i) not qualified for removal under Rule 144 promulgated under the Securities Act of 1933, (ii) the plaintiffs failed to provide sufficient facts supporting removal of the restrictive legends, or (iii) the plaintiffs failed to provide sufficient facts to demonstrate that the distribution was not part of a plan or scheme to evade the registration requirements of the Securities Act of 1933. The Company had previously been in settlement discussions with the plaintiffs however on September 1, 2011 the plaintiffs filed a motion for summary judgment in the matter. The Company’s legal counsel filed a response to the motion for summary judgment, in which pleading and supporting affidavit, the Company presented factual allegations that the initial investment by one of the Plaintiff’s (the “Lead Plaintiff”) was made in the private company of Seafarer, Inc. on June 15, 2007 for $5,000. The Lead Plaintiff was issued shares of the private company Seafarer, Inc. which was later involved in a transaction of a reverse merger with a public company becoming Seafarer Exploration Corp. Upon the merger such private shares as held by the Lead Plaintiff were exchanged for 34,700,000 shares of the public company with all such share rights being held by the Lead Plaintiff. The Company alleged in its responsive court filing, that at the time of the investment, share rights and disbursal of such shares in the public company, the Lead Plaintiff was a registered and licensed broker with the NASD; any ownership interests and in this case a control position held by the Lead Plaintiff would have had to have been reported to overseeing authorities. The Company alleged in its filing that in order to avoid and evade the detection, knowledge of oversight authorities and restrictions of the Securities Act and regulations of the governing bodies over his licensing in the brokerage business, the Lead Plaintiff instructed the former transfer agency for the Company to not issue a physical certificate to himself, but keep the shares in book entry form. The Company alleges that the Lead Plaintiff then instructed the transfer agent to instead issue the shares to a private corporation (the “private corporation”), informing the transfer agent that he (the Lead Plaintiff) had sold the shares in a private transaction. The Company also alleged in the court filing that on or about July 18, 2008 the Lead Plaintiff instructed the transfer agent to issue the shares to the private corporation, as a third party straw man entity. Then on or about October 13, 2008, the Lead Plaintiff, in order to avoid any level of scrutiny or restriction over his ownership of such shares, then “purchased” such shares back from the private corporation, but in order to again avoid and evade detection, knowledge and regulation of governing authorities, the Lead Plaintiff immediately instructed the transfer agent that he was “gifting” such shares to family, friends, and his own acquaintances. The Lead Plaintiff made the distribution of such shares on that same date as the purchase from the private corporation, and actually had the private corporation “gift” the shares to the people and entities named as Plaintiffs in the main complaint on October 18, 2008. The Company and CEO maintain in their court filings that such transactions were unlawful under Rule 144 and that the distribution scheme was done in order to avoid the strictures of the Securities Act. The transfer agent has also brought on new counsel alleging the same matters in response to the case. As of the filing of this Form 10-K such matter has not gone to hearing on the Plaintiff’s motion for summary judgment.

F-22

SEAFARER EXPLORATION CORP. AND SUBSIDIARIES

 (A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS  

NOTE 13 – LEGAL PROCEEDINGS - continued

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

On March 2, 2010, the Company filed a complaint naming an individual who formerly provided services as a captain, diver, and general laborer to the Company as a defendant in the Circuit Court of Hillsborough County, Florida case number 10-CA-004674. The lawsuit contains numerous counts against the defendant, including civil theft, breach of contract, libel and negligence. Among other matters, the Company alleges that the defendant caused extensive damage to the Company’s main salvage vessel due to negligent operation, breached his separation agreement with the Company, and has made false and defamatory statements damaging the Company’s reputation. The Company alleged that the defendant has engaged is such malicious and defamatory campaign as revenge for his termination by the Company and in effort to obtain additional money from the Company. On April 5, 2011, a jury in Hillsborough County, Florida found in favor of the Company and found that the defendant was responsible for $5,080,000 in compensatory damages. The Company is currently pursuing the punitive damages portion and expects a substantial award of such at trial for the Punitive damages. The punitive damages portion of the case is set for trial in January, 2012. The Company’s management believes that collection of such award is extremely unlikely; however it will continue to pursue the matter against the defendant.

On February 24, 2011, the Company was named as defendants in Case Number 11000393CC filed in the Circuit Court of Martin County, Florida, by a limited liability company. The limited liability company is claiming that the Company owes $12,064, plus court costs and attorney’s fees under a lease agreement. The plaintiff is demanding that the court render judgment against the Company in the amount of $12,064, plus court costs and attorney’s fees pursuant to Section 720.305(1) of the Florida Statutes costs and other relief as the court deems just and proper. Management believes that the limited liability company was paid all of the fees owed to it under the lease agreement and the Company plans to mount a vigorous defense against this claim and is currently seeking all attorney’s fees and costs for what it sees as a spurious claim. The Company has presented proof of payment for all billed liabilities and believes that full payment was made. The Company has filed and will keep pending a motion for sanctions and dismissal of the cause of action.

The Company currently has litigation pending in Pinellas County, the Sixth Judicial Circuit, Civil Case No. 11-05539-Cl-19 naming as Defendants both an individual and a corporation controlled by the individual. The case is a collection case against the corporation for the balance of a promissory note due to Seafarer, and against the individual as a guarantor of the promissory note. The defendants have filed an answer in the nature of a general denial, certain affirmative defenses, and a singular counterclaim against Seafarer and its CEO, individually, alleging that Seafarer and its CEO were negligent in the use or maintenance of a vessel owned by the corporation, for which damages are sought in excess of $15,000. Seafarer’s legal counsel intends to argue that Seafarer’s CEO has been improperly individually joined in this action. The counterclaim allegations are being vigorously legally contested by both the Company and its CEO. Motion to strike and dismiss defenses and counterclaims are currently pending, legal discovery is ongoing, and the pleadings are not otherwise currently “at-issue” to schedule the action for trial. At the time of the filing of this form 10-K Seafarer’s motions have not been set for hearing and dispositions by the court.

Commitments Disclosure

NOTE 12 – DIVISON OF ARTIFACTS AND TREASURE

Under the Exploration Agreement with Tulco that was renewed on June 8, 2010, the Company is required to split any artifacts or treasure that it successfully recovers from the Juno Beach Shipwreck site with the FLDHR and Tulco. Tulco and the Company, assuming that the FLDHR’s portion will be 20%, have agreed to the following division of artifacts and treasure:

20% to the FLDHR

40% to Tulco

40% to the Company

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

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

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

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

To date the Company has not located any artifacts that have any significant monetary value. The chance that the Company will actually recover artifacts of any significant value from the Juno Beach shipwreck site is very remote and highly unlikely.