UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________
Commission file number: 333-82580
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(Exact name of small business issuer as specified in its charter)
Delaware (State or other Jurisdiction of Incorporation or organization) | | 59-3733133 (IRS Employer I.D. No.) |
201 St Charles Avenue, Ste 2500
New Orleans, LA 70170
Phone: (504) 599-5929
Fax: (504) 524-7979
(Address and telephone number of
principal executive offices)
(Address, including zip code, and telephone and facsimile numbers, including area code, of
registrant’s executive offices)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| Class | | Outstanding as of June 30, 2009 |
| Common stock, .0001 par value | | 897,142 |
SIGNATURE EXPLORATION AND PRODUCTION CORP.
FORM 10-Q
INDEX
| PART I. | FINANCIAL INFORMATION | | |
| | | | |
| Item 1. | Financial Statements | | |
| | Consolidated Balance Sheet (unaudited) at June 30, 2009 and March 31, 2009 | | 3 |
| | Consolidated Statements of Operations (unaudited) for the Three Months Ended June 30, 2009 and 2008 | | 4 |
| | Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended June 30, 2009 and 2008 | | 5 |
| | Notes to Consolidated Financial Statements (unaudited) | | 6 |
| | | | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 10 |
| | | | |
| Item 3. | Quantitative and Qualitative Disclosers About Market Risks | | 12 |
| | | | |
| Item 4. | Controls and Procedures | | 12 |
| | | | |
| PART II | OTHER INFORMATION | | |
| | | | |
| Item 1. | Legal Proceedings | | 12 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | | 13 |
| Item 3. | Defaults Upon Senior Securities | | 13 |
| Item 4. | Submission of Matters to a Vote of Security Holders | | 13 |
| Item 5. | Other Information | | 13 |
| Item 6. | Exhibits | | 14 |
| | | | |
| SIGNATURE PAGE | | 15 |
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
Consolidated Balance Sheets
| | | June 30, | | | | |
| | | | | | | |
| | | | | | | |
| Assets | | | | | | |
| | | | | | | |
| Current assets: | | | | | | |
| Cash | | $ | 695 | | | $ | 4,032 | |
| Prepaid expenses and other current assets | | | 450 | | | | 675 | |
| | | | | | | | | |
| Total assets | | $ | 1,145 | | | $ | 4,707 | |
| | | | | | | | | |
| Liabilities and Capital Deficiency | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 5,607 | | | $ | 8,439 | |
| Accrued interest | | | 41,874 | | | | 16,232 | |
| Other accrued expenses | | | 26,071 | | | | 40,318 | |
| Loans from stockholders | | | 309,000 | | | | 291,000 | |
| Other note payable | | | 4,000 | | | | 4,000 | |
| | | | | | | | | |
| Total current liabilities | | | 386,552 | | | | 359,989 | |
| | | | | | | | | |
| Commitments and contingencies | | | - | | | | - | |
| | | | | | | | | |
| Capital deficiency: | | | | | | | | |
| Common stock, $0.0001 par value, 250,000,000 shares authorized 897,142 shares issued and outstanding | | | 90 | | | | 90 | |
| Additional paid-in capital | | | 1,470,163 | | | | 1,470,163 | |
| Deficit accumulated related to abandoned activities | | | (1,676,223 | ) | | | (1,676,223 | ) |
| Deficit accumulated during exploration stage | | | (179,437 | ) | | | (149,312 | ) |
| | | | | | | | | |
| Total capital deficiency | | | (385,407 | ) | | | (355,282 | ) |
| | | | | | | | | |
| Total liabilities and capital deficiency | | $ | 1,145 | | | $ | 4,707 | |
See accompanying notes to the consolidated financial statements.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
Consolidated Statements of Operations (unaudited)
For the three months ended June 30, 2009 and 2008,
and the Period from March 1, 2008 (Inception) to June 30, 2009
| | | | | | | | | Inception March 1, 2008 – June 30, 2009 | |
| | | | | | | | | | |
| Net revenue | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| Cost of revenue | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | |
| Gross profit (loss) | | | - | | | | - | | | | | |
| | | | | | | | | | | | | |
| General and administrative expenses | | | 22,479 | | | | 49,201 | | | | 147,116 | |
| | | | | | | | | | | | | |
| Loss from continuing operations | | | (22,479 | ) | | | (49,201 | ) | | | (147,116 | ) |
| | | | | | | | | | | | | |
| Other expense | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Interest expense | | | (7,646 | ) | | | (4,450 | ) | | | (32,321 | ) |
| | | | | | | | | | | | | |
| Net loss | | $ | (30,125 | ) | | $ | (53,651 | ) | | $ | (179,437 | ) |
| | | | | | | | | | | | | |
| Weighted average common shares outstanding – basic and diluted | | | 897,142 | | | | 886,816 | | | | 888,996 | |
| | | | | | | | | | | | | |
| Net loss per share - basic and diluted | | $ | (0.03 | ) | | $ | (0.06 | ) | | $ | (0.20 | ) |
See accompanying notes to the financial statements.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
For the three months ended June 30, 2009 and 2008,
and the Period from March 1, 2008 (Inception) to June 30, 2009
| | | | | | | | | Inception (March 1, 2008 – June 30, 2009 | |
| | | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | | |
| Net loss | | $ | (30,125 | ) | | $ | (53,651 | ) | | $ | (179,437 | ) |
| | | | | | | | | | | | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Stock compensation | | | - | | | | - | | | | 516 | |
| | | | | | | | | | | | | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| Other assets | | | - | | | | - | | | | (450 | ) |
| Accounts payable | | | (2,832 | ) | | | (6,875 | ) | | | (11,924 | ) |
| Accrued expenses | | | 11,620 | | | | 34,441 | | | | 34,761 | |
| | | | | | | | | | | | | |
| Net cash used in operating activities | | | (21,337 | ) | | | (26,085 | ) | | | (156,534 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Proceeds from issuance of debt to stockholders | | | 18,000 | | | | 26,500 | | | | 156,500 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net cash provided by financing activities | | | 18,000 | | | | 26,500 | | | | 156,500 | |
| | | | | | | | | | | | | |
| Net increase(decrease) in cash | | | (3,337 | ) | | | 415 | | | | (34 | ) |
| | | | | | | | | | | | | |
| Cash, beginning of year | | $ | 4,032 | | | $ | 766 | | | $ | 729 | |
| | | | | | | | | | | | | |
| Cash, end of year | | $ | 695 | | | $ | 1,181 | | | $ | 695 | |
| | | | | | | | | | | | | |
| Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | |
| Interest | | $ | - | | | $ | - | | | $ | - | |
See accompanying notes to the financial statements.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2009
NOTE 1 - ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the U. S. Securities and Exchange Commission for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. Interim results are not necessarily indicative of the results that may be expected for the year. The unaudited condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operation, for the year ended March 31, 2009, contained in the Company’s March 31, 2009 Annual Report on Form 10-K.
The Company’s condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced net losses since April 4, 2001 which losses have caused an accumulated deficit of approximately $1,855,000 as of June 30, 2009. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. The Company is currently in the process of acquiring and developing crude oil and natural gas leases. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern.
NOTE 2 – BASIS OF PRESENTATION
Reporting Entity. Signature Exploration and Production Corp. (“Signature” or “the Company”) was incorporated on April 4, 2001 under the laws of the State of Delaware. The Company is authorized to issue 250,000,000 shares of common stock, par value $.0001. As of March 1, 2008, the Company became an exploration stage company engaged in the acquisition and development of crude oil and natural gas leases in the United States. In accordance with Statements of Financial Accounting Standards 7, we have reported our Statement of Operations and Statement of Cash Flows from the inception as an exploration stage company to the current reporting period of December 31, 2008. The Company’s office is located in Orlando, Florida.
Principles of Consolidation. The Company’s condensed consolidated financial statements for the three months ended June 30, 2009 and 2008, include the accounts of its wholly owned subsidiary A&Z Golf Corp., a Delaware corporation. All intercompany balances and transactions have been eliminated.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2009
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Exploration Stage Company. The Company is considered to be in the exploration stage, pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by Development Stage Enterprises”.
Cash and Cash Equivalents. The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
Revenue Recognition. Revenue associated with the production and sales of crude oil, natural gas, natural gas liquids and other natural resources owned by the Company will be recognized when production is sold to a purchaser at a fixed or determinable price when delivery has occurred and title passes from the Company to its customer, and if the collectability of the revenue is probable.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes. The Company utilizes Statement of Financial Accounting Standards (“SFAS”) No. 109, "Accounting for Income Taxes", which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in financial statements or tax returns. Deferred tax items are reflected at the enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding the success of future operations, management has valued the deferred tax asset allowance at 100% of the related deferred tax assets. The Company’s financial position, results of operations or cash flows were not impacted by the adoption of FASB Interpretation No. 48, “Accounting for Uncertain Tax Positions.”
Loss per Share. The Company utilizes Financial Accounting Standards Board Statement No. 128, “Earnings Per Share.” Statement No. 128 requires the presentation of basic and diluted loss per share on the face of the statement of operations.
Basic loss per share has been calculated using the weighted average number of common shares outstanding during the period. The Company has 5,000,000 common stock equivalent shares outstanding as of June 30, 2009. However, such common stock equivalents, were not included in the computation of diluted net loss per share as their inclusion would have been anti-dilutive.
Full Cost Method. The Company will utilize the full-cost method of accounting for petroleum and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties, interest and costs of drilling of productive and non-productive wells into the full cost pool. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made, the Company assesses quarterly whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.
All items classified as unproved property are assessed on a quarterly basis for possible impairment or reduction in value. Properties are assessed on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to amortization.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2009
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Fair Value of Financial Instruments.
The Company adopted SFAS No. 157, “Fair Value Measurements” on April 1, 2008, and prioritizes the inputs used in measuring fair value into the following hierarchy:
| | Level 1 | Quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| | Level 2 | Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; |
| | Level 3 | Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. |
The implementation of SFAS 157 did not materially affect the carrying value of cash, accounts receivable, accounts payable, and other current liabilities.
Recent Accounting Pronouncements
In June 2008 the Financial Accounting Standards Board Emerging Issues Task Force (EITF) reached a consensus on EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock.” This EITF will be effective for fiscal years beginning after December 15, 2008. We do not expect EITF 07-5 to have a material impact on our financial condition or results of operations.
NOTE 4 – LOANS FROM STOCKHOLDERS
The following is a table of loans from stockholders at March 31, 2009 and their related accrued interest:
| | | | | | | | |
| | | | | | | | | |
| Balance at April 1, 2008 | | $ | 159,000 | | | $ | 31,654 | |
| | | | | | | | | | | |
| 04/24/08 | | 07/23/08 | | | 13,500 | | | | 1,598 | |
| 06/12/08 | | 09/10/08 | | | 13,000 | | | | 1,365 | |
| 07/28/08 | | 10/26/08 | | | 40,000 | | | | 3,699 | |
| 09/05/08 | | 12/04/08 | | | 11,000 | | | | 901 | |
| 10/31/08 | | 01/29/09 | | | 16,000 | | | | 1,067 | |
| 01/13/09 | | 04/13/09 | | | 10,000 | | | | 465 | |
| 02/06/09 | | 05/07/09 | | | 9,500 | | | | 379 | |
| 03/31/09 | | 06/29/09 | | | 19,000 | | | | 475 | |
| 05/06/09 | | 08/04/09 | | | 18,000 | | | | 271 | |
| | | | | | | | | | | |
| Total | | | | $ | 309,000 | | | $ | 41,874 | |
The loans from stockholders totaling $259,000 are collateralized by 25,900,000 restricted shares of the Company’s common stock and bear interest at 10% per annum. As of June 30, 2009, accrued interest payable of $41,874 is included in accrued expenses in the accompanying balance sheet. The loans from stockholders and related accrued interest are due no later than ninety days from the date of the loan.
SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
June 30, 2009
NOTE 4 – LOANS FROM STOCKHOLDERS, CONTINUED
Loans from stockholders totaling $50,000 are convertible into restricted shares of common stock of the Company and contain a beneficial conversion feature.
The Company is currently in default on all of these loans. The Company may use the collateral of restricted shares of the Company’s common stock to satisfy these loans. As of June 30, 2009, no stockholders have made demands for payment of these loans.
NOTE 5 – RELATED PARTY TRANSACTIONS
In February 2009 the Company entered into agreements with its CEO and a significant stockholder in which they agreed to limit the transfer of their common stock holdings to 5 percent or less for each calendar month for the next two years. In exchange, the Company issued them 10,326 shares of restricted common stock. The Company recognized compensation expense of $516 for the year ended March 31, 2009.
NOTE 6 – SUBSEQUENT EVENT
Option Agreement. On August 3, 2009, we signed an Option Agreement allowing the Company to purchase up to a fifty percent working interest in the oil and gas exploration and development activities on 2,087 acres known as Medicine River Ranch. This option is valid for one year or until a Definitive Participation Agreement is either entered into or rejected by both parties. The Company issued 25,000 shares of restricted common stock upon execution of this agreement and an additional 75,000 shares of restricted common stock will be issued upon acceptance of a Definitive Participation Agreement.
Loans From Stockholders. On July 3, 2009, the Company entered into loan agreements with stockholders for $6,000. The loans from stockholders are secured by 600,000 shares of the Company’s common stock and bear interest at 10 percent per annum. The loans from stockholders and related accrued interest are due no later than ninety days from the date of the loan.
Item 2. Management’s Discussion and Analysis or Plan of Operations.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes,” or similar language. These forward-looking statements, including those with respect to our operating results for 2008, are based upon current expectations and beliefs of the Company’s management and are subject to risks and uncertainties that could cause results to differ materially from those indicated in the forward-looking statements. Some, but not all, of the factors, which could cause actual results to differ materially include those set forth in the risks discussed below under the subheading “Risk Factors” and elsewhere in this report. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, or to explain why actual results differ. Readers should carefully review the risk factors described in this section below and in any reports filed with the Securities and Exchange Commission (“SEC”).
Overview
Our company was incorporated in the State of Delaware on April 4, 2001, under the name of “Flagstick Ventures, Inc.” On March 28, 2008, a majority of our stockholders approved changing our name to Signature Exploration and Production Corp. as our business model had changed to becoming an independent energy company engaged in the acquisition and development of crude oil and natural gas leases in the United States. As of June 30, 2009, we have not yet generated revenues or incurred expenses related to the energy operations.
Plan of Operation
We intend to build our business through the acquisition of producing oil and natural gas wells, interests and leases. Our strategy is to combine the secure and reliable revenue source of operating and non-operated interest from producing oil wells with the potential of an oil and gas exploration project. We plan to purchase operating and non-operated interests, acquire a development stage exploration property and carry out an exploration program on the acquired property.
The Company continues to operate with very limited capital. Since our inception in 2001, we have been unable to locate a consistent source of additional financing for use in our operational or expansion plans. The Company is currently attempting to raise sufficient funds to purchase leases of oil and gas properties. We can give no assurances that the Company will be able to purchase any leases. Each oil and gas property in which we obtain an interest in will have an operator who will be responsible for marketing production.
Medicine River Ranch – Barber County, Kansas
In August 2009, we signed an Option Agreement allowing the Company to purchase up to a fifty percent working interest in the oil and gas exploration and development activities on 2,087 acres known as Medicine River Ranch. This option is valid for one year or until a Definitive Participation Agreement is either entered into or rejected by both parties. There are currently three wells on properties adjacent to this lease that is producing oil and natural gas. We are currently evaluating and obtaining cost estimates to perform 3-D seismic on this lease.
Cash Requirements
We estimate that we will require an additional $405,000 to fund our currently anticipated requirements for ongoing operations for our existing business for the next twelve-month period. We expect to pay $35,000 for professional fees and expense related to being a public company, $40,000 for expenses related to general operations and $19,000 for a rent settlement. We will also need approximately $330,000 to repay $295,000 of notes payable and the related interest of approximately $41,000. We are also evaluating additional leases and working interest that will require additional capital once the costs associated with these activities are determined.
Based upon our cash position, we will need to raise additional capital prior to the end of the second quarter of 2009 in order to fund current operations. These factors raise substantial doubt about our ability to continue as a going concern. We are pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financings. We are in discussions with our existing stockholders to provide additional funding in exchange for notes or equity. In order to finance existing operations and pay current liabilities over the next twelve months, we will need to raise $405,000 of capital. However, there can be no assurance that the requisite financing will be consummated in the necessary time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans or possibly cease operations. No assurance can be given that we will be able to operate profitably on a consistent basis, or at all, in the future.
Results of Operations
Comparison of the three months ended June 30, 2009 and June 30, 2008.
FINANCIAL INFORMATION
| | | | | | | |
| General and administrative | | $ | 22,000 | | | $ | 49,000 | |
| Other expense | | | 8,000 | | | | 4,000 | |
| Net loss | | $ | (30,000 | ) | | $ | (53,000 | ) |
General and Administrative. General and administrative expenses decreased by $27,000 in 2009. This decrease can be attributed to the decrease in costs associated with professional fees.
Other Expenses. Other expenses increased by $4,000 in 2009 due to an increase of interest expense on notes payable.
Liquidity and Capital Resources
We had cash balances totaling approximately $700 as of June 30, 2009. Historically, our principal source of funds has been cash generated from financing activities.
Cash flow from operations. We have been unable to generate either significant liquidity or cash flow to fund our current operations. We anticipate that cash flows from operations will be insufficient to fund our business operations for the next twelve-month period.
Cash flows from investing activities. There was no cash provided by investing activities for the years ended June 30, 2009 and 2008.
Cash flows from financing activities. Net cash provided by financing activities was generated from secured promissory notes that total $18,000 and $26,500 for the three months ended June 30, 2009 and 2008.
Variables and Trends
We have no operating history with respect to our acquisition and development of oil and gas properties. In the event we are able to obtain the necessary financing to move forward with our business plan, we expect our expenses to increase significantly as we grow our business. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of our future performance and must be considered in light these circumstances.
Critical Accounting Policies
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available to us. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We have not entered into any transactions to date that require significant judgment or assumption development.
Commitments
Except as shown in the following table, as of June 30, 2009, we did not have any material capital commitments, other than funding our operating losses and repaying outstanding debt. It is anticipated that any capital commitments that may occur will be financed principally through borrowings from stockholders (although such additional financing has not been arranged). However, there can be no assurance that additional capital resources and financings will be available to us on a timely basis, or if available, on acceptable terms.
Future payments due on our contractual obligations as of June 30, 2009 are as follows:
| Lease settlement liability | | $ | 19,000 | |
| Loans from stockholders | | | 309,000 | |
| Other loans | | | 4,000 | |
| Accrued interest | | | 35,000 | |
| | | | | |
| Total | | $ | 367,000 | |
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 3 – QUANTITATIVE AND QUALITATIVE DISCLOSERS ABOUT MARKET RISK
NA
ITEM 4 - CONTROLS AND PROCEDURES
We have evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2008. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that we record, process, summarize, and report information required to be disclosed by us in our quarterly reports filed under the Securities Exchange Act within the time periods specified by the Securities and Exchange Commission’s rules.
During the quarterly period covered by this report, there were no significant changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any pending legal proceedings nor is any of its property subject to pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Agreement
During the year ended March 31, 2009 the Company entered into agreements with its CEO and a significant stockholder in which they agreed limit the transfer of their common stock holdings to 5 percent or less for each calendar month for the next two years. In exchange, the Company issued them 10,326 shares of restricted common stock . The Company recognized compensation expense of $516 for the year ended March 31, 2009.
Convertible Notes
On October 2, 2007, we sold in a private placement, a secured promissory note in the amount of $5,000 to a stockholder. Interest accrued on the outstanding principal balance from October 2, 2007 at a rate of 10 percent per annum. The note holder had the sole option of converting the principal represented by this note into our common stock at a strike price equal to a $0.01. This note was due on December 31, 2007 and is currently in default.
On August 14, 2007, we sold in a private placement, a secured promissory note in the amount of $5,000 to a stockholder. Interest accrued on the outstanding principal balance from August 14, 2007 at a rate of 10 percent per annum. The note holder had the sole option of converting the principal represented by this note into our common stock at a strike price equal to a $0.01. This note was due on November 12, 2007 and is currently in default.
On June 25, 2007, we sold in a private placement, a secured promissory note in the amount of $7,000 to a stockholder. Interest accrued on the outstanding principal balance from June 25, 2007 at a rate of 10 percent per annum. The note holder had the sole option of converting the principal represented by this note into our common stock at a strike price equal to a $0.01. This note was due on September 23, 2007 and is currently in default.
On May 9, 2007, we sold in a private placement, a secured promissory note in the amount of $3,000 to a stockholder. Interest accrued on the outstanding principal balance from May 9, 2007 at a rate of 10 percent per annum. The note holder had the sole option of converting the principal represented by this note into our common stock at a strike price equal to a $0.01. This note was due on August 7, 2007 and is currently in default.
On March 27, 2007, we sold in a private placement, a secured promissory note in the amount of $30,000 to a stockholder. Interest accrued on the outstanding principal balance from March 27, 2007 at a rate of 10 percent per annum. The note holder had the sole option of converting the principal represented by this note into our common stock at a strike price equal to a $0.01. This note was due on June 25, 2007 and is currently in default.
Item 3. Defaults Upon Senior Securities.
The Company is currently in default on all stockholder’s loans totaling $309,000 and accrued interest of approximately $42,000. The Company may use the collateral of restricted shares of the Company’s common stock to satisfy these notes. As of June 30, 2009, no stockholders have made demands for payment of these loans.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits
(a) Exhibits
EXHIBIT NUMBER | | DESCRIPTION |
| | | |
| 31.1 | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended* |
| | | |
| 31.2 | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended* |
| | | |
| 32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.* |
| | | |
| 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.* |
* Filed herewith.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 14, 2009
| SIGNATURE EXPLORATION AND PRODUCTION |
| CORP. |
| |
| By: | /s/ Scott Allen |
| Name: Scott Allen |
| Title: Chief Executive Officer and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
| By: | /s/ Steven Weldon | | August 14, 2009 |
| Name: Steven Weldon | | (Date) |
| Title: Chief Financial Officer and Director | | |
