GB SCIENCES INC - Quarter Report: 2008 September (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
________________________
FORM
10-Q
__________________________
(Mark
One)
|
ý
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
quarterly period ended September 30, 2008
|
¨
|
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.)
|
___________________________
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
ü
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Act). Yes No ü
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 September 30, 2008
|
|
Common
stock, .0001 par value
|
886,816
|
SIGNATURE
EXPLORATION AND PRODUCTION CORP.
FORM
10-Q
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
(An
Exploration Stage Company)
|
Assets
|
|||||||
|
September
30,
|
March
31,
|
||||||
|
2008
|
2008
|
||||||
|
(unaudited)
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
|
$
|
978
|
$
|
766
|
|||
|
Total
assets
|
$
|
978
|
$
|
766
|
|||
|
Liabilities
and Capital Deficit
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
11,519
|
$
|
20,455
|
|||
|
Accrued
expenses
|
43,431
|
33,642
|
|||||
|
Loans
from stockholders
|
236,500
|
159,000
|
|||||
|
Other
note payable
|
4,000
|
4,000
|
|||||
|
Total
current liabilities
|
295,450
|
217,097
|
|||||
|
Capital
deficit:
|
|||||||
|
Common
stock, $0.0001 par value, 250,000,000
|
|||||||
|
shares
authorized as of September 30, 2008 and March 31, 2008, respectively,
886,816 shares issued and outstanding
|
89
|
89
|
|||||
|
Additional
paid-in capital
|
1,469,650
|
1,469,648
|
|||||
|
Accumulated
deficit
|
(1,764,211
|
)
|
(1,686,068
|
)
|
|||
|
Total
capital deficit
|
(294,472
|
)
|
(216,331
|
)
|
|||
|
Total
liabilities and capital deficit
|
$
|
978
|
$
|
766
|
|||
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
(An
Exploration Stage Company)
|
For
the Three Months Ended
|
For
the Six Months Ended
|
Inception
(March
1, 2008 to
|
||||||||||||||
|
September
30,
|
September
30,
|
September
30,
|
||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
2008)
|
||||||||||||
|
Net
revenue
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Cost
of revenue
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
Gross
profit (loss)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
General
and administrative expenses
|
19,144
|
33,132
|
68,345
|
108,231
|
76,361
|
|||||||||||
|
Loss
from continuing operations
|
(19,144
|
)
|
(33,132
|
)
|
(68,345
|
)
|
(108,231
|
)
|
(76,361
|
)
|
||||||
|
Other
income (expense):
|
||||||||||||||||
|
Interest
expense
|
(5,348
|
)
|
(2,504
|
)
|
(9,798
|
)
|
(4,118
|
)
|
(11,627
|
)
|
||||||
|
|
||||||||||||||||
|
Net
loss before discontinued operations
|
$
|
(24,492
|
)
|
$
|
(35,636
|
)
|
$
|
(78,143
|
)
|
(112,349
|
)
|
$
|
(87,988
|
)
|
||
|
Discontinued
operations
|
||||||||||||||||
|
Gain
from discontinued operations
|
—
|
38,027
|
—
|
24,715
|
—
|
|||||||||||
|
Net
income/(loss)
|
(24,492
|
)
|
2,391
|
(78,143
|
)
|
(87,634
|
)
|
(87,988
|
)
|
|||||||
|
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
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
$
|
(0.09
|
)
|
$
|
(0.13
|
)
|
$
|
(0.10
|
)
|
|
|
Net
gain per share from discontinued operations - basic and
diluted
|
$
|
—
|
$
|
0.04
|
$
|
—
|
$
|
0.03
|
$
|
—
|
||||||
|
Net
loss per share - basic and diluted
|
$
|
(0.03
|
)
|
$
|
(0.00
|
)
|
$
|
(0.09
|
)
|
$
|
(0.10
|
)
|
$
|
(0.10
|
)
|
|
See
accompanying notes to the consolidated financial statements.
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
(An
Exploration Stage Company)
For
the Six Months ended September 30, 2008 and 2007
|
2008
|
2007
|
Inception
(March
1, 2008 to September 30, 2008)
|
||||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
loss
|
$
|
(78,143
|
)
|
$
|
(87,634
|
)
|
$
|
(87,988
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in
|
||||||||||
|
operating
activities:
|
||||||||||
|
Amortization
of deferred stock-based employee compensation
|
—
|
39,555
|
—
|
|||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Accounts
payable
|
(8,935
|
)
|
20,422
|
(6,010
|
)
|
|||||
|
Accrued
expenses
|
9,790
|
6,809
|
10,247
|
|||||||
|
Net
cash used in continuing operating activities
|
(77,288
|
)
|
(20,848
|
)
|
(83,751
|
)
|
||||
|
Net
cash provided by discontinued operating activities
|
—
|
34,890
|
—
|
|||||||
|
Net
cash provided by (used in) operating activities
|
(77,288
|
)
|
14,042
|
(83,751
|
)
|
|||||
|
Cash
flows from financing activities:
|
||||||||||
|
Proceeds
from issuance of debt to stockholders
|
77,500
|
45,000
|
84,000
|
|||||||
|
Net
cash provided by continuing financing activities
|
77,500
|
45,000
|
84,000
|
|||||||
|
Net
cash used in discontinued financing activities
|
—
|
(74,789
|
)
|
—
|
||||||
|
Net
cash provided by (used in) financing activities
|
77,500
|
(29,789
|
)
|
84,000
|
||||||
|
Net
increase/(decrease) in cash
|
212
|
(15,747
|
)
|
249
|
||||||
|
Cash,
beginning of the period
|
$
|
766
|
$
|
73,833
|
$
|
729
|
||||
|
Cash,
end of the period
|
$
|
978
|
$
|
58,086
|
$
|
978
|
||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||
|
Cash
paid during the year for:
|
||||||||||
|
Interest
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
See
accompanying notes to the consolidated financial statements.
SIGNATURE
EXPLORATION AND PRODUCTION CORP.
September
30, 2008
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited 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 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 consolidated financial statements should be read in conjunction with
the 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 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 $1,760,000 as of September 30, 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 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 September 30,
2008.
The
Company’s office is located in Orlando, Florida.
Principles
of Consolidation.
The
Company’s consolidated financial statements for the three and six months ended
September 30, 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.
Revenue
Recognition.
The
Company will derive revenue primarily from the sale of produced natural gas
and
crude oil. The Company will report revenue as the gross amount received
before taking into account production taxes and transportation costs, which
are
reported as separate expenses. Revenue will be recorded in the month
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2008
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
the
Company’s production is delivered to the purchaser, but payment is generally
received between 30 and 90 days after the date of production. No revenue
will be recognized unless it is determined that title to the product has
transferred to a purchaser. At the end of each month, the Company will
estimate the amount of production delivered to the purchaser and the price
the
Company will receive. The Company will use its knowledge of its
properties, their historical performance, the anticipated effect of weather
conditions during the month of production, New York Mercantile Exchange
(“NYMEX”) and local spot market prices, and other factors as the basis for these
estimates.
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 September 30, 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.
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 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
carrying amount of cash, accounts receivable, accounts payable, and other
current liabilities approximates fair value because of the short term maturity
of these instruments.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
Statement 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. Statement 157 applies under other accounting
pronouncements that require or permit fair value measurements. The Company
has
adopted SFAS No. 157 effective at the beginning of fiscal year 2009. Statement
157 did not have a material impact on our consolidated results of operations,
financial position or liquidity.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” Statement 159 provides all entities
with an option to report selected financial assets and liabilities at fair
value. The Statement became effective as of the beginning of the Company’s 2009
fiscal year. The Company did not apply the fair value option to any financial
instruments; therefore, SFAS 159 will have no effect on our consolidated
financial statements
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 $38,027
during the three months ended September 30, 2008 and 2007, respectively, and
$-0- and $24,715 during the six months ended September 30, 2008 and 2007,
respectively.
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2008
NOTE
5 - LOANS FROM STOCKHOLDERS
The
following is a table of loans from stockholders at September 30, 2008 and their
related accrued interest:
|
Date
Issued
|
Due
Date
|
Principal
Amount
|
Accrued
Interest
|
|||||||
|
10/13/06
|
01/11/07
|
$
|
6,000
|
$
|
1,178
|
|||||
|
11/03/06
|
02/01/07
|
6,000
|
1,145
|
|||||||
|
12/20/06
|
03/20/07
|
6,000
|
1,000
|
|||||||
|
12/26/06
|
03/26/07
|
6,500
|
1,145
|
|||||||
|
02/19/07
|
05/18/07
|
6,000
|
966
|
|||||||
|
03/28/07
|
06/28/07
|
30,000
|
4,524
|
|||||||
|
05/09/07
|
08/07/07
|
3,000
|
418
|
|||||||
|
05/30/07
|
08/28/07
|
3,000
|
410
|
|||||||
|
06/28/07
|
09/26/07
|
22,000
|
2,775
|
|||||||
|
07/06/07
|
10/04/07
|
7,000
|
864
|
|||||||
|
08/14/07
|
11/12/07
|
5,000
|
564
|
|||||||
|
08/14/07
|
11/12/07
|
5,000
|
564
|
|||||||
|
10/02/07
|
12/31/07
|
7,500
|
682
|
|||||||
|
10/02/07
|
12/31/07
|
5,000
|
454
|
|||||||
|
11/02/07
|
03/14/08
|
22,500
|
1,778
|
|||||||
|
12/26/07
|
03/25/08
|
4,000
|
323
|
|||||||
|
02/03/08
|
05/30/08
|
8,000
|
523
|
|||||||
|
03/10/08
|
06/08/08
|
6,500
|
416
|
|||||||
|
04/24/08
|
07/23/08
|
13,500
|
585
|
|||||||
|
06/12/08
|
09/10/08
|
13,000
|
390
|
|||||||
|
07/28/08
|
10/26/08
|
40,000
|
699
|
|||||||
|
09/05/08
|
12/04/08
|
11,000
|
76
|
|||||||
|
Total
|
$
|
236,500
|
$
|
21,479
|
||||||
The
loans
from stockholders are collateralized by 23,650,000 restricted shares of the
Company’s common stock and bear interest at 10% per annum. As of September 30,
2008, accrued interest payable of $21,479 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 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 except the note dated
September 5, 2008. 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.
SIGNATURE
EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 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
October 2008, the Company entered into a loan agreement with a stockholder
for
$16,000. The loan from stockholder is secured by 1,600,000 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.
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 third 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 $342,000 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 non-operated interest from producing oil wells with the
potential of an oil and gas exploration project. We plan to purchase
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.
Cash
Requirements
We
estimate that we will require an additional $342,000 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 $263,000 to repay $241,000 of notes payable and the related
interest of approximately $22,000.
Results
of Operations
Comparison
of the three and six ended September 30, 2008 and September 30,
2007.
CONSOLIDATED
FINANCIAL INFORMATION
|
For
the Three Months Ended
September
30,
|
For
the Six Months Ended
September
30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
General
and administrative
|
$
|
19,000
|
$
|
33,000
|
$
|
68,000
|
$
|
108,000
|
|||||
|
Other
expense
|
5,000
|
3,000
|
10,000
|
4,000
|
|||||||||
|
Gain
from discontinued operations
|
—
|
38,000
|
—
|
25,000
|
|||||||||
|
Net
income/( loss)
|
$
|
(24,000
|
)
|
$
|
2,000
|
$
|
(78,000
|
)
|
$
|
(87,000
|
)
|
||
Comparison
of the Three Months Ended September 30, 2008 and September 30,
2007
General
and Administrative.
General
and administrative expenses decreased by $14,000 in 2008.
This
decrease can be attributed to the decrease in costs associated with professional
and consulting fees of approximately $14,000.
Other
Expenses.
Other
expenses increased by $2,000 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
$38,000 for our orthotics and prosthetics segment for 2007.
Net
Income/(Loss).
Net loss
increased by $26,000 as a result of our increased professional and consulting
fees and the discontinued operation of our diabetic treatment and orthotics
and
prosthetics segments.
Comparison
of the Six Months Ended September 30, 2008 and September 30,
2007
General
and Administrative.
General
and administrative expenses decreased by $40,000 in 2008.
This
decrease can be attributed to the decrease in costs associated with professional
and consulting fees of approximately $40,000.
Other
Expenses.
Other
expenses increased by $6,000 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
$25,000 for our orthotics and prosthetics segment for 2007.
Net
Loss.
Net loss
decreased by $9,000 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 $1,000 as of September 30, 2008.
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 financing activities.
Net cash
provided by financing activities was generated from secured promissory notes
that total $77,500 and $45,000 for the six months ended September 30, 2008
and
2007. Net cash used in financing activities relating to discontinued operations
totaled $-0- and $75,000 for the six months ended September 30, 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 September 30, 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 September 30, 2008 are as
follows:
|
Lease
settlement liability
|
$
|
19,000
|
||
|
Loans
from stockholders
|
237,000
|
|||
|
Accrued
Payroll
|
3,000
|
|||
|
Other
loans
|
4,000
|
|||
|
Accrued
interest
|
21,000
|
|||
|
Total
|
$
|
284,000
|
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.
NA
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 September 30, 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 and forms.
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.
The
Company is not a party to any pending legal proceedings nor is any of its
property subject to pending legal proceedings.
Not
Applicable
Not
Applicable.
Not
Applicable
Not
Applicable.
| (a) |
Exhibits
|
|
EXHIBIT
NUMBER
|
DESCRIPTION
|
|
|
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*
|
||
|
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*
|
||
|
|
||
|
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.*
|
||
|
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.
|
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: November
14, 2008
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 | November 14, 2008 | ||
|
|
(Date)
|
||
|
Name:
Steven
Weldon
Title:
Chief Financial Officer and Director
|
EXHIBIT
INDEX
|
EXHIBIT
NUMBER
|
DESCRIPTION
|
|
|
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*
|
||
|
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*
|
||
|
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.*
|
||
|
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.
|