GB SCIENCES INC - Quarter Report: 2008 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2008

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)

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.

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).    ¨  Yes    No  x

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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SIGNATURE EXPLORATION AND PRODUCTION CORP.

FORM 10-Q

INDEX

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SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Balance Sheets

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SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statements of Operations (unaudited)

For the quarter ended June 30, 2008 and 2007

See accompanying notes to the consolidated financial statements.

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SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

For the quarter ended June 30, 2008 and 2007

See accompanying notes to the consolidated financial statements.

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SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Consolidated Financial Statements (unaudited)

June 30, 2008

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared by the Company without audit, 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 $1,710,000 as of June 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 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 June 30, 2008. The Company’s office is located in Orlando, Florida.

Principles of Consolidation. The Company’s consolidated financial statements for the years ended June 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

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SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements (unaudited)

June 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.

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, 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.

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.

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SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements (unaudited)

June 30, 2008

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 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. SFAS 157 will 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.” SFAS No. 159 provides all entities with an option to report selected financial assets and liabilities at fair value. The Statement’s became effective as of the beginning of an entity’s 2009 fiscal year. The election this fair-value option will not have a material effect on its (consolidated) financial condition, results of operations, cash flows or disclosures.

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 loss on discontinued operations of $-0- and $17,752 during the quarters ended June 30, 2008 and 2007, respectively.

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SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements (unaudited)

June 30, 2008

NOTE 5 – LOANS FROM STOCKHOLDERS

The following is a table of loans from stockholders at June 30, 2008 and their related accrued interest:

The loans from stockholders are collateralized by 18,550,000 restricted shares of the Company’s common stock and bear interest at 10% per annum. As of June 30, 2008, accrued interest payable of $16,232 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 June 12, 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.

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SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements (unaudited)

June 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 – RESTRICTED STOCK BASED COMPENSATION

Consulting Agreement. On May 12, 2006, the Company entered into a one year agreement with Scott Allen, our Chief Executive Officer, to assist in business development and expansion. Mr. Allen was compensated with 5,000,000 shares of restricted common stock valued at $350,000 which is being charged to general and administrative expenses ratably over the term of the agreement. $-0- and $39,556 has been included in general and administrative expense for the three months ended June 30, 2008 and 2007, respectively. As of June 30, 2008, there is no unamortized portion remaining.

NOTE 8 – SUBSEQUENT EVENT

Loan From Stockholder. In July 2008, the Company entered into a loan agreement with a stockholder for $40,000. The loan from stockholder is secured by 4,000,000 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.

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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 second 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 $285,000 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 $285,000 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 $206,000 to repay $190,000 of notes payable and the related interest of approximately $16,000.

Results of Operations

Comparison of the quarter ended June 30, 2008 and June 30, 2007.

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CONSOLIDATED FINANCIAL INFORMATION

General and Administrative. General and administrative expenses decreased by $26,000 in 2008. This decrease can be attributed to the decrease in costs associated with professional and consulting fees of approximately $26,000.

Other Expenses. Other expenses increased by $2,000 in 2008 due to the addition of accrued interest on notes payable.

Gain/(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 $18,000 for our orthotics and prosthetics segment for 2007.

Net Loss. Net loss decreased by $42,000 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 $1,200 as of June 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 $26,500 and $28,000 for the quarter ended June 30, 2008 and 2007. Net cash used in financing activities relating to discontinued operation totaled $-0- and $47,000 for the quarters ended June 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 June 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.

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Future payments due on our contractual obligations as of June 30, 2008 are as follows:

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 MARK 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 June 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.

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

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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.

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.

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EXHIBIT INDEX

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