GB SCIENCES INC - Quarter Report: 2008 December (Form 10-Q)
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
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For the
quarterly period ended December 31, 2008
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¨
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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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)
____________________
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Delaware
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59-3733133
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|
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(State
or other Jurisdiction of
|
(IRS
Employer I.D. No.)
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|
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Incorporation
or organization)
|
|
___________________________
5401
S. Kirkman Road
Suite
310
Orlando,
Florida 32819
(407)
926-6180
(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.
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Class
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Outstanding as of December 31, 2008
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|
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Common
stock, .0001 par value
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886,816
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SIGNATURE
EXPLORATION AND PRODUCTION CORP.
FORM
10-Q
INDEX
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PART
I.
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FINANCIAL
INFORMATION
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Item
1.
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Financial
Statements
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|
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Consolidated
Balance Sheet (unaudited) at December 31, 2008 and March 31,
2008
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3
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|
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Consolidated
Statements of Operations (unaudited) for the Three and Nine Months Ended
December 31, 2008 and 2007
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4
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|
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Consolidated
Statements of Cash Flows (unaudited) for the Three and Nine Months Ended
December 31, 2008 and 2007
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5
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|
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Notes
to Consolidated Financial Statements (unaudited)
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6
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|
|
|
||
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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11
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|
|
||
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Item
3.
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Quantitative
and Qualitative Disclosers About Market Risks
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13
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|
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||
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Item
4.
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Controls
and Procedures
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13
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|
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||
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PART
II
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OTHER
INFORMATION
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||
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Item
1.
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Legal
Proceedings
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14
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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14
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Item
3.
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Defaults
Upon Senior Securities
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14
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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14
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Item
5.
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Other
Information
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14
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Item
6.
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Exhibits
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14
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||
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SIGNATURE PAGE
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15
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SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
(An
Exploration Stage Company)
Consolidated
Balance Sheets
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December 31,
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March 31,
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|||||||
|
2008
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2008
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|||||||
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(unaudited)
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||||||||
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Assets
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||||||||
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Current
assets:
|
||||||||
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Cash
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$ | 456 | $ | 766 | ||||
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Total
assets
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$ | 456 | $ | 766 | ||||
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Liabilities and Capital
Deficit
|
||||||||
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Current
liabilities:
|
||||||||
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Accounts
payable
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$ | 9,366 | $ | 20,455 | ||||
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Accrued
expenses
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51,056 | 33,642 | ||||||
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Loans
from stockholders
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252,500 | 159,000 | ||||||
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Other
note payable
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4,000 | 4,000 | ||||||
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Total
current liabilities
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316,922 | 217,097 | ||||||
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Capital
deficit:
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||||||||
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Common
stock, $0.0001 par value, 250,000,000 shares authorized as of December 31,
2008 and March 31, 2008, respectively, 886,816 shares issued and
outstanding
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89 | 89 | ||||||
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Additional
paid-in capital
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1,469,650 | 1,469,648 | ||||||
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Accumulated
deficit
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(1,786,205 | ) | (1,686,068 | ) | ||||
|
Total
capital deficit
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(316,466 | ) | (216,331 | ) | ||||
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Total
liabilities and capital deficit
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$ | 456 | $ | 766 | ||||
See
accompanying notes to the consolidated financial statements.
3
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
(An
Exploration Stage Company)
Consolidated
Statements of Operations (unaudited)
|
For the Three Months
Ended December 31,
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For the Nine Months Ended
December 31,
|
Inception
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||||||||||||||||||
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2008
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2007
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2008
|
2007
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(March 1, 2008
to December 31,
2008)
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||||||||||||||||
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Net
revenue
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$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
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Cost
of revenue
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- | - | - | - | - | |||||||||||||||
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Gross
profit (loss)
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- | - | - | - | - | |||||||||||||||
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General
and administrative expenses
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15,713 | 18,061 | 84,058 | 126,291 | 92,074 | |||||||||||||||
|
Loss
from continuing operations
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(15,713 | ) | (18,061 | ) | (84,058 | ) | (126,291 | ) | (92,074 | ) | ||||||||||
|
Other
income (expense):
|
||||||||||||||||||||
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Interest
expense
|
(6,279 | ) | (2,989 | ) | (16,077 | ) | (7,107 | ) | (17,906 | ) | ||||||||||
|
Net
loss before discontinued operations
|
$ | (21,992 | ) | $ | (21,050 | ) | $ | (100,135 | ) | (133,398 | ) | $ | (109,980 | ) | ||||||
| Discontinued operations | ||||||||||||||||||||
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Gain/(loss)
from discontinued operations
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- | (10,138 | ) | - | 14,575 | - | ||||||||||||||
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Net
loss
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(21,992 | ) | (31,188 | ) | (100,135 | ) | (118,823 | ) | (109,980 | ) | ||||||||||
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Weighted
average common shares outstanding – basic and diluted
|
886,816 | 886,816 | 886,816 | 886,816 | 886,816 | |||||||||||||||
|
Net
loss per share from continuing operations - basic and
diluted
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$ | (0.02 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.15 | ) | $ | (0.12 | ) | |||||
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Net
gain/(loss) per share from discontinued operations - basic and
diluted
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$ | - | $ | ( 0.01 | ) | $ | - | $ | 0.02 | $ | - | |||||||||
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Net
loss per share - basic and diluted
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$ | (0.02 | ) | $ | (0.03 | ) | $ | (0.11 | ) | $ | (0.13 | ) | $ | (0.12 | ) | |||||
See
accompanying notes to the consolidated financial statements.
4
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
(An
Exploration Stage Company)
Consolidated
Statements of Cash Flows
For
the Nine Months ended December 31, 2008 and 2007
|
2008
|
2007
|
Inception
(March 1, 2008 to
December 31, 2008)
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||||||||||
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Cash
flows from operating activities:
|
||||||||||||
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Net
loss
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$ | (100,135 | ) | $ | (118,823 | ) | $ | (109,980 | ) | |||
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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||||||||||||
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Amortization
of deferred stock-based employee compensation
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- | 39,555 | - | |||||||||
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Changes
in operating assets and liabilities:
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||||||||||||
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Accounts
payable
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(11,089 | ) | 4,254 | (8,164 | ) | |||||||
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Accrued
expenses
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17,414 | 6,107 | 17,871 | |||||||||
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Net
cash used in continuing operating activities
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(93,810 | ) | (168,739 | ) | (100,273 | ) | ||||||
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Net
cash provided by discontinued operating activities
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- | 172,964 | - | |||||||||
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Net
cash provided by (used in) operating activities
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(93,810 | ) | 4,225 | (100,273 | ) | |||||||
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Cash
flows from financing activities:
|
||||||||||||
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Proceeds
from issuance of debt to stockholders
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93,500 | 84,000 | 100,000 | |||||||||
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Net
cash provided by continuing financing activities
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93,500 | 84,000 | 100,000 | |||||||||
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Net
cash used in discontinued financing activities
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- | (145,656 | ) | - | ||||||||
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Net
cash provided by (used in) financing activities
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93,500 | (61,656 | ) | 100,000 | ||||||||
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Net
decrease in cash
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(310 | ) | (57,431 | ) | (273 | ) | ||||||
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Cash,
beginning of the period
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$ | 766 | $ | 73,833 | $ | 729 | ||||||
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Cash,
end of the period
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$ | 456 | $ | 16,402 | $ | 456 | ||||||
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Supplemental
disclosures of cash flow information:
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||||||||||||
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Cash
paid during the year for:
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||||||||||||
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Interest
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$ | - | $ | - | $ | - | ||||||
See
accompanying notes to the consolidated financial statements.
5
SIGNATURE
EXPLORATION AND PRODUCTION CORP.
Notes
to Consolidated Financial Statements (unaudited)
December
31, 2008
NOTE
1 – BASIS OF PRESENTATION
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, 2008, contained in the Company’s March
31, 2008 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 $1,790,000 as of December 31, 2008. 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 - ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
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 and nine months ended December 31, 2008 and 2007, include the
accounts of its wholly owned subsidiary A&Z Golf Corp., a Delaware
corporation. All intercompany balances and transactions have been
eliminated.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
6
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
December
31, 2008
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The Company has net operating loss carryforwards that
may be offset against future taxable income. 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.”
The
Company has not recognized a liability as a result of the implementation of FIN
48. A reconciliation of the beginning and ending amount of unrecognized tax
benefits has not been provided since there is no unrecognized benefit as of the
date of adoption. The Company has not recognized interest expense or penalties
as a result of the implementation of FIN 48.
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 December 31, 2008. However, these
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.
7
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
December
31, 2008
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
Fair Value of
Financial Instruments.
The
Company adopted SFAS No. 157, “Fair Value Measurements” on April 1,
2008.
This
Statement 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 are currently
evaluating the disclosure requirements under EITF 07-5. We do not expect EITF
07-5 to have a material impact on our financial condition or results of
operations.
NOTE
4 – DISCONTINUED OPERATIONS
Discontinued
Operations. In February 2008, the Company elected to discontinue the
operations of its diabetic treatment centers and its orthotic and prosthetic
joint venture, due to the inability to attract investments into these types of
businesses. As a result, the Company recorded a gain on discontinued
operations of $-0- and $10,138 during the three months ended December 31, 2008
and 2007, respectively, and $-0- and $14,575 during the nine months ended
December 31, 2008 and 2007, respectively.
8
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
December
31, 2008
NOTE
5 – LOANS FROM STOCKHOLDERS
The
following is a table of loans from stockholders at December 31, 2008 and their
related accrued interest:
|
Date
Issued
|
Due Date
|
Principal
Amount
|
Accrued
Interest
|
|||||||
|
10/13/06
|
01/11/07
|
$ | 6,000 | $ | 1,328 | |||||
|
11/03/06
|
02/01/07
|
6,000 | 1,295 | |||||||
|
12/20/06
|
03/20/07
|
6,000 | 1,150 | |||||||
|
12/26/06
|
03/26/07
|
6,500 | 1,307 | |||||||
|
02/19/07
|
05/18/07
|
6,000 | 1,116 | |||||||
|
03/28/07
|
06/28/07
|
30,000 | 5,274 | |||||||
|
05/09/07
|
08/07/07
|
3,000 | 493 | |||||||
|
05/30/07
|
08/28/07
|
3,000 | 485 | |||||||
|
06/28/07
|
09/26/07
|
22,000 | 3,324 | |||||||
|
07/06/07
|
10/04/07
|
7,000 | 1,038 | |||||||
|
08/14/07
|
11/12/07
|
5,000 | 689 | |||||||
|
08/14/07
|
11/12/07
|
5,000 | 689 | |||||||
|
10/02/07
|
12/31/07
|
7,500 | 869 | |||||||
|
10/02/07
|
12/31/07
|
5,000 | 579 | |||||||
|
11/02/07
|
03/14/08
|
22,500 | 2,341 | |||||||
|
12/26/07
|
03/25/08
|
4,000 | 423 | |||||||
|
02/03/08
|
05/30/08
|
8,000 | 726 | |||||||
|
03/10/08
|
06/08/08
|
6,500 | 578 | |||||||
|
04/24/08
|
07/23/08
|
13,500 | 923 | |||||||
|
06/12/08
|
09/10/08
|
13,000 | 715 | |||||||
|
07/28/08
|
10/26/08
|
40,000 | 1,699 | |||||||
|
09/05/08
|
12/04/08
|
11,000 | 351 | |||||||
|
10/31/08
|
01/29/09
|
16,000 | 267 | |||||||
|
Total
|
$ | 252,500 | $ | 27,659 | ||||||
The loans
from stockholders are collateralized by 20,250,000 restricted shares of the
Company’s common stock and bear interest at 10% per annum. As of December 31,
2008, accrued interest payable of $27,659 is included in accrued expenses in the
accompanying consolidated balance sheet. The loans from shareholders
and related accrued interest are due no later than ninety days from the date of
the loan.
Loans
from stockholders totaling $50,000 are convertible into 5,000,000 restricted
shares of common stock of the Company and contain a beneficial conversion
feature. The Company recognized $18,500 of interest expense as a
result of this conversion feature during the year-ended March 31,
2008.
The
Company is currently in default on all of these loans. The note
holders have not requested for these notes to be paid with the restricted common
stock used to collateralize the notes. The Company may
use the collateral to satisfy these loans in the future.
9
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
December
31, 2008
NOTE
6 – STOCKHOLDERS’ EQUITY (CAPITAL DEFICIT)
On
February 20, 2008, the majority holders of the Company’s common stock approved
by written consent amending the articles of incorporation of the Corporation to
decrease the number of outstanding shares of the Corporation’s capital stock in
the form of a reverse stock-split where-in the Corporation will give (1) one
share of common stock for every (50) fifty shares outstanding (the
“Stock-Split”) and amending the articles of incorporation of the Corporation to
increase the authorized capital of the Corporation to Two Hundred Fifty Million
(250,000,000) common shares.
As a
result of this reverse stock-split, the Company’s stockholders’ equity has been
restated to give retroactive recognition to the stock split in prior periods by
reclassifying from additional paid-in-capital to common stock. Except where and
as otherwise stated to the contrary in this quarterly report, all share and
prices per share have been adjusted to give retroactive effect to the change in
the price per share of the common stock resulting from the one for fifty reverse
split of the common stock that took effect on March 28, 2008.
NOTE
7 – SUBSEQUENT EVENT
Loan From
Stockholder. In January 2009, the Company entered into a loan agreement
with a stockholder for $10,000. The loan from stockholder is secured by
1,000,000 restricted shares of the Company’s common stock and bears interest at
10 percent per annum. The loan from stockholder and related accrued interest are
due no later than ninety days from the date of the loan.
In
February 2009, the Company entered into a loan agreement with a stockholder for
$9,500. The loan from stockholder is secured by 950,000 restricted shares of the
Company’s common stock and bears interest at 10 percent per annum. The loan from
stockholder and related accrued interest are due no later than ninety days from
the date of the loan.
10
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
Signature
Exploration and Production Corp. is a Delaware corporation incorporated on April
4, 2001.
In
February 2008, the Company elected to discontinue the operations of its diabetic
treatment and its orthotic and prosthetic joint venture, due to the inability to
attract investments into these types of businesses. We intend to
build our continuing business through the acquisition of producing oil and
natural gas wells, interests and leases.
Based
upon the current level of revenues and the cash position, we will need to raise
additional capital prior to the end of the fourth quarter of 2008 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 financing. 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 $364,000 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 worst case 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.
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 operated and non-operated interests from producing
oil wells with the potential of an oil and gas exploration project. We plan to
purchase operated and non-operated interests, acquire a development stage
exploration property and carry out an exploration program on the acquired
property. We are also exploring opportunities related to the
exploration and production of other natural resources.
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 will have an operator who will be responsible for marketing
production.
11
Cash
Requirements
We
estimate that we will require an additional $364,000 to fund our currently
anticipated requirements for ongoing operations for our existing business for
the next twelve-month period. We expect to pay $20,000 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 $285,000 to repay note totaling $257,000 and the related
interest of approximately $28,000.
Results
of Operations
Comparison
of the three and nine ended December 31, 2008 and December 31,
2007.
CONSOLIDATED
FINANCIAL INFORMATION
|
For the Three Months Ended
December 31,
|
For the Nine Months Ended
December 31,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
General
and administrative
|
$ | 16,000 | $ | 18,000 | $ | 84,000 | $ | 126,000 | ||||||||
|
Other
expense
|
6,000 | 3,000 | 16,000 | 7,000 | ||||||||||||
|
(Gain)/loss
from discontinued operations
|
- | 10,000 | - | (14,000 | ) | |||||||||||
|
Net loss
|
$ | 22,000 | $ | 31,000 | $ | 100,000 | $ | 119,000 | ||||||||
Comparison
of the Three Months Ended December 31, 2008 and December 31, 2007
General and
Administrative. General and administrative expenses decreased
by $2,000 in 2008. This decrease can be attributed to the decrease in
costs associated with professional and consulting fees of approximately
$2,000.
Other
Expenses. Other expenses increased by $3,000 in 2008 due to
the addition of accrued interest on notes payable.
Loss From
Discontinued Operations. We discontinued our diabetic
treatment segment and our orthotics and prosthetics joint venture in
2008. This resulted in a loss from discontinued operations of $10,000
for our orthotics and prosthetics segment for 2007.
Net
Loss. Net loss
decreased by $9,000 primarily as a result of the discontinued operations of our
diabetic treatment and orthotics and prosthetics segments.
Comparison
of the Nine Months Ended December 31, 2008 and December 31, 2007
General and
Administrative. General and administrative expenses decreased
by $42,000 in 2008. This decrease can be attributed to the decrease
in costs associated with professional and consulting fees of approximately
$42,000.
Other
Expenses. Other expenses increased by $9,000 in 2008 due to
the addition of accrued interest on notes payable.
Gain From
Discontinued Operations. We discontinued our diabetic
treatment segment and our orthotics and prosthetics joint venture in
2008. This resulted in a gain from discontinued operations of $14,000
for our orthotics and prosthetics segment for 2007.
Net
Loss. Net loss
decreased by $19,000 as a result of our lower professional and consulting fees
and the discontinued operation of our diabetic treatment and orthotics and
prosthetics segments.
Liquidity and Capital
Resources
We had
cash balances totaling approximately $500 as of December 31,
2008. Historically, our principal source of funds has been cash
generated from financing activities.
12
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
financing activities. Net cash provided by financing activities was
generated from secured promissory notes that total $93,500 and $84,000 for the
nine months ended December 31, 2008 and 2007. Net cash used in
financing activities relating to discontinued operations totaled $-0- and
$146,000 for the nine months ended December 31, 2008 and 2007,
respectively.
Variables
and Trends
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
of our limited operating history.
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. The significant accounting policies that we believe are
the most critical to aid in fully understanding and evaluating our reported
financial results can be found in Note 2 of the financial
statements.
Commitments
Except as
shown in the following table, as of December 31, 2008, 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 shareholders
(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 December 31, 2008 are as
follows:
|
Lease
settlement liability
|
$ | 19,000 | ||
|
Loans
from stockholders
|
253,000 | |||
|
Accrued
payroll
|
4,000 | |||
|
Other
loans
|
4,000 | |||
|
Accrued
interest
|
28,000 | |||
|
Total
|
$ | 308,000 |
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.
13
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.
Not
Applicable
Item
3. Defaults Upon Senior Securities.
Not Applicable.
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.
14
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: February
10, 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
|
February
10, 2009
|
|
|
Name:
Steven Weldon
|
(Date)
|
||
|
Title:
Chief Financial Officer and Director
|
|||
15
EXHIBIT
INDEX
|
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.
16