ITEM 1.
DESCRIPTION OF BUSINESS
Company Background
Our company was incorporated in the State of Delaware on April 4, 2001, under the name of “Flagstick Ventures, Inc.” On March 28, 2008, a majority of our stockholders approved changing our name to Signature Exploration and Production Corp. as our business model had changed to becoming an independent energy company engaged in the acquisition and development of crude oil and natural gas leases in the United States. As of March 31, 2010, we have not yet generated revenues or incurred expenses related to the energy operations.
Our common stock is quoted for trading on the OTC Bulletin Board under the symbol SXLP.
Our principal executive offices are located at 3200 Southwest Freeway, Suite 3300, Houston, Texas, 77027. Our telephone number is (888) 898-3594.
Business Strategy
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.
Our search for oil and gas leases or interests in leases has been directed towards small and medium-sized oil and natural gas production companies and properties. For our initial acquisitions, we are seeking lower risk property interests. In building our portfolio of oil and gas interests, we intend to include non-operated interests in producing wells and exploration interests in a development stage oil and gas properties. As we continue to development our portfolio of interests, we will search for properties and interests that have the following qualities:
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at least developmental drilling in proven producing areas;
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significant additional production capacity through developmental drilling, recompletions and workovers;
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further developmental potential; and
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in some cases, ability to assume operatorship or appointment of a known operator with relevant experience in the area.
Seasonality
The exploration for oil and natural gas reserves depends on access to areas where operations are to be conducted. Seasonal weather variations, including freeze-up and break-up affect access in certain circumstances. Natural gas is used principally as a heating fuel and for power generation. Accordingly, seasonal variations in weather patterns affect the demand for natural gas.
Markets
We are currently in the exploration stage and we have not generated revenues. We are not producing oil or gas and we have no customers. The availability of a ready market and the prices obtained for oil and gas produced depend on many factors, including the extent of domestic production and imports of oil and gas, the proximity and capacity of natural gas pipelines and other transportation facilities, fluctuating demand for oil and gas, the marketing of competitive fuels, and the effects of governmental regulation of oil and gas production and sales.
A ready market exists for domestic oil and gas through existing pipelines and transportation of liquid products. Whether there exists an international market depends upon the existence of international delivery systems and on political and pricing factors.
Competition
The strength of commodity prices has resulted in significantly increased industry operating cash flows and has led to increased drilling activity. This has increased competition for undeveloped lands; skilled personnel; access to drilling rigs, service rigs and other equipment; and access to processing and gathering facilities, all of which may cause drilling and operating costs to increase. Some of our competitors are larger than us and have substantially greater financial and marketing resources. In addition, some of our competitors may be able to secure products and services from vendors on more favorable terms, offer a greater product selection, and adopt more aggressive pricing policies than we can.
Government Regulation
Our operations will be subject to various types of regulation at the federal, state and local levels. Such regulation includes requiring permits for the drilling of wells; maintaining bonding requirements in order to drill or operate wells; implementing spill prevention plans; submitting notification and receiving permits relating to the presence, use and release of certain materials incidental to oil and gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface usage and the restoration of properties upon which wells have been drilled, the plugging and abandoning of wells and the transporting of production.
Our operations will be also subject to various conservation matters, including the regulation of the size of drilling and of spacing units or proration units, the number of wells which may be drilled in each unit, and the unitization or pooling of oil and gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases, which may make it more difficult to develop oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and gas wells, generally limit the venting or flaring of gas, and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to limit the amounts of oil and gas we may be able to produce from our wells and to limit the number of wells or the locations at which we may be able to drill.
Operations on properties in which we have an interest are subject to extensive federal, state and local environmental laws that regulate the discharge or disposal of materials or substances into the environment and otherwise are intended to protect the environment. Numerous governmental agencies issue rules and regulations to implement and enforce such laws, which are often difficult and costly to comply with and which carry substantial administrative, civil and criminal penalties and in some cases injunctive relief for failure to comply.
Some laws, rules and regulations relating to the protection of the environment may, in certain circumstances, impose “strict liability” for environmental contamination. These laws render a person or company liable for environmental and natural resource damages, cleanup costs and, in the case of oil spills in certain states, consequential damages without regard to negligence or fault. Other laws, rules and regulations may require the rate of oil and gas production to be below the economically optimal rate or may even prohibit exploration or production activities in environmentally sensitive areas. In addition, state laws often require some form of remedial action, such as closure of inactive pits and plugging of abandoned wells, to prevent pollution from former or suspended operations.
Legislation has been proposed in the past and continues to be evaluated in Congress from time to time that would reclassify certain oil and gas exploration and production waste as hazardous waste. If such reclassification is successful, it would make these wastes subject to much more stringent storage, treatment, disposal and clean-up requirements, which could have a significant adverse impact on operating costs. From time to time initiatives to further regulate the disposal of oil and gas wastes are also proposed in certain states and may include initiatives at the county, municipal and local government levels. These various initiatives could have a similar adverse impact on operating costs.
The regulatory burden of environmental laws and regulations increases our cost and risk of doing business and consequently affects our profitability. The federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, also known as the “Superfund” law, imposes liability, without regard to fault, on certain classes of persons with respect to the release of a “hazardous substance” into the environment. These persons include the current or prior owner or operator of the disposal site or sites where the release occurred and companies that transported, disposed or arranged for the transport or disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources. It is not uncommon for the federal or state government to pursue such claims. The federal Environmental Protection Agency and various state agencies continue to promulgate regulations that limit the disposal and permitting options for certain hazardous and non-hazardous wastes.
It is also not uncommon for neighboring landowners and other third parties to file claims for personal injury or property or natural resource damages allegedly caused by the release of hazardous substances into the environment.
Employees
We currently have one employee, our CEO, Steven Weldon. He is not covered by a collective bargaining agreement, nor have we experienced a strike or other adverse work stoppage due to organized labor.
ITEM 1A.
ITEM 1A.
RISK FACTORS
Risks Specific to Our Company
We have limited operating funds, and our ability to continue as a going concern is dependent upon our ability to obtain additional capital to operate the business.
We have experienced net losses since April 4, 2001, which losses have caused an accumulated deficit of approximately $4,993,000 as of March 31, 2010. In addition, we have consumed net cash used in operating activities of approximately $542,000 and $129,000 for the years ended March 31, 2010 and 2009, respectively. We will require additional funds to sustain and expand our current business, and to continue implementing our business plan. Our lack of sufficient financing to implement our business plan, and our expectation to continue operating losses for the foreseeable future raises substantial doubt about our ability to continue as a going concern.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
Our independent registered certified public accounting firm has issued its report, which includes an explanatory paragraph for going concern uncertainty on our financial statements as of March 31, 2010. Our ability to continue as a going concern is heavily dependent upon our ability to obtain additional capital to sustain operations. Currently, we have no commitments to obtain additional capital, and there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
Since we are in the early stage of development and have a limited operating history, it may be difficult for you to assess our business and future prospects.
We have no history of revenues from oil and natural gas operations and have no significant tangible assets. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. With this limited operating history our company must be considered in the exploration stage. Our success is significantly dependent on a successful acquisition, drilling, completion and production program. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. We are in the exploration stage and potential investors should be aware of the difficulties normally encountered by enterprises in the exploration stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
We will need additional capital, the availability of which is uncertain, to fund our business and complete the implementation of our business plan.
We will require additional financing in order to carry out our business plan. Such financing may take the form of the issuance of common or preferred stock or debt securities, or may involve bank financing. There can be no assurance that we will obtain such additional capital on a timely basis, on favorable terms, or at all. If we are unable to generate the required amount of additional capital, our ability to meet our financial obligations and to implement our business plan may be adversely affected.
As we have incurred losses since inception, we are not now, nor will we be in the foreseeable future, in a position to pay dividends on our issued and outstanding stock.
We have never declared or paid cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business.
Our management may be unable to effectively integrate future acquisitions and to manage our growth and we may be unable to fully realize any anticipated benefits of these acquisitions.
Our future results will depend in part on our success in implementing our growth and acquisition strategy. Our ability to implement this strategy will be dependent on our ability to identify, consummate and successfully assimilate acquisitions on economically favorable terms. In addition, acquisitions involve a number of special risks that could adversely affect our operating results, including the diversion of management’s attention, failure to retain key acquired personnel, risks associated with unanticipated events or liabilities, legal, accounting and other expenses associated with acquisitions, some or all of which could increase our operating costs, reduce our revenues and cause a material adverse effect on our business, financial condition and results of operations. We have no preliminary agreements or understandings to acquire or be acquired by a company as of the date of this prospectus.
Risks Specific to Our Industry
We face strong competition from larger oil and gas companies, which could harm our business and ability to operate profitably.
The exploration and production of oil and gas business is highly competitive. Other oil and gas companies will compete with us by bidding for exploration and production licenses and other properties and services that we will need to operate our business in the countries in which we expect to operate. This competition is increasingly intense as prices of oil and natural gas on the commodities markets have risen in recent years. Additionally, other companies engaged in our line of business may compete with us from time to time in obtaining capital from investors.
Oil and gas properties have limited lives and, as a result, we may seek to replace and expand our reserves through the acquisition of new properties. In addition, there is a limited supply of desirable oil and gas lands available in North America where we would consider conducting exploration and/or production activities. The major oil and gas companies are often better positioned to obtain the rights to exploratory acreage for which we may compete.
Competitors include larger, foreign owned companies, which, in particular, may have access to greater resources than us, may be more successful in the recruitment and retention of qualified employees and may conduct their own refining and petroleum marketing operations. These factors may give them a competitive advantage. Oil and natural gas exploration and development activities are dependent on the availability of drilling and related equipment, transportation, power and technical support in the particular areas and our access to these facilities may be limited due to high competition. Shortages and/or the unavailability of necessary equipment or other facilities will impair our activities, either by delaying our activities, increasing our costs or otherwise.
We may not be able to develop oil and gas reserves on an economically viable basis.
To the extent that we succeed in discovering oil and/or natural gas reserves at our future properties, we are not sure that these reserves will be capable of supporting production levels we project or in sufficient quantities to be commercially viable. These risks are more acute in the early stages of exploration. Our expenditures on exploration may not result in new discoveries of oil or natural gas in commercially viable quantities. It is difficult to project the costs of implementing an exploratory drilling program due to the inherent uncertainties of drilling in unknown formations, the costs associated with encountering various drilling conditions such as over pressured zones, tools lost in the hole, changes in drilling plans and locations as a result of prior exploratory wells or additional seismic data and interpretations thereof.
We may encounter operating hazards related to oil and gas exploration and production, which may result in substantial losses to our business and your investment.
We are subject to operating hazards normally associated with the exploration and production of oil and gas, including unexpected formations or pressures, premature declines of reservoirs, blowouts, sour gas release, explosions, craterings, pollution, earthquakes, labor disruptions, fires, pipeline ruptures, oil spills, the invasion of water into producing formations and other environmental hazards and risks. The occurrence of any such operating hazards could result in substantial losses to us due to injury or loss of life and damage to or destruction of oil and gas wells, formations, production facilities or other properties, which could result in substantial losses to our business.
Our business is subject to environmental legislation and any changes in such legislation could negatively affect our results of operations.
The oil and gas industry is subject to many laws and regulations which govern the protection of the environment, health and safety and the management, transportation and disposal of hazardous substances. These laws and regulations may require removal or remediation of pollutants and may impose civil and criminal penalties for violations. Some of the laws and regulations authorize the recovery of natural resource damages by the government, injunctive relief and the imposition of stop, control, remediation and abandonment orders.
The costs arising from compliance with environmental and natural resource laws and regulations may increase our costs of operations, as well as further restrict our operations. If the costs of such compliance exceeds what we may have budgeted for, our ability to earn revenues will be harmed. Any regulatory changes that impose additional environmental restrictions or requirements on us could adversely affect us through increased operating costs, which could have a material adverse effect on our results of operations.
Any oil and gas we may discover or produce may not be readily marketable at the time of production, delaying our ability to generate meaningful revenue.
Crude oil, natural gas, condensate and other oil and gas products are generally sold to other oil and gas companies, government agencies and other industries. Natural gas associated with oil production is often not marketable due to demand or transportation limitations and is often flared at the producing well site. Pipeline facilities do not exist in certain areas of exploration and, therefore, any actual sales of discovered oil and gas might be delayed for extended periods until such facilities are constructed.
Risks Related to Our Securities
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person's account for transactions in penny stocks; and
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the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
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obtain financial information and investment experience objectives of the person; and
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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
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sets forth the basis on which the broker or dealer made the suitability determination; and
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Future sales of shares may adversely impact the value of our stock
We will seek to raise additional capital through the sale of our common stock. Future sales of our common stock could cause the market price of our common stock to decline.
Possible issuance of additional shares may impact the price of our stock
Our Certificate of Incorporation authorizes the issuance of 250,000,000 shares of common stock. Approximately 97% of our authorized common stock remains un-issued. Our Board of Directors has the power to issue any or all of such additional common stock without stockholder approval. Investors should be aware that any stock issuances might result in a reduction of the book value or market price, if any, of the then outstanding common stock. If we were to issue additional common stock, such issuance will reduce proportionate ownership and voting power of the other stockholders. Also, any new issuance of common stock may result in a change of control.
Our share price may be highly volatile.
The market prices of equity securities of small companies have experienced extreme price volatility in recent years not necessarily related to the individual performance of specific companies. Factors such as announcements by us, or our competitors concerning products, technology, governmental regulatory actions, other events affecting healthcare companies generally and general market conditions may have a significant impact on the market price of our shares and could cause it to fluctuate substantially.
If we complete future acquisitions, we may dilute existing stockholders by issuing more of our common stock or we may incur expenses related to debt and goodwill, which could reduce our earnings.
We may issue equity securities in future acquisitions that could be dilutive to our stockholders. We also may incur additional debt in future acquisitions. Interest expense on debt incurred to fund our acquisitions may significantly reduce our profitability. While goodwill and other intangible assets with indefinite lives are not amortized to expense under generally accepted accounting principles, we would be required to review all of these assets at regular intervals for impairment and to charge an appropriate amount to expense when we identify impairment. If we identify impairment and are required to write-off a significant portion of our intangible assets at one time, then there could be a material adverse impact on our stock price.
ITEM 1B.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None
ITEM 2.
ITEM 2.
PROPERTY
Our executive offices are located at 3200 Southwest Freeway, Ste 3300, Houston, TX 77027.
ITEM 3.
ITEM 3.
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 4.
ITEM 4.
SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Part II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is quoted on the OTC Bulletin Board under the symbol "SXLP".
For the periods indicated, the following table sets forth the high and low per share intra-day sales prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
For the periods indicated, the following table sets forth the high and low per share intra-day sales prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
Dividends and Dividend Policy
We have never declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business and for general corporate purposes. We cannot assure you that we will pay dividends in the future. Our future dividend policy is within the discretion of our Board of Directors and will depend upon various factors, including our results of operations, financial condition, capital requirements and investment opportunities.
Recent Sales of Unregistered Securities
February 2010 Convertible Notes and Warrants
On February 10, 2010, Signature Exploration and Production Corp. (the "Company") entered into two Convertible Note Agreements ("Notes") for a total of $352,942. The Company received aggregate proceeds of $200,000 on $235,295 of debts reflecting a 15% original issue discount to the Note holders. The remaining balance of $117,647 is due upon the request of the Company when the funds are needed for operations. The aggregate proceeds of the additional funds will be $100,000 reflecting a 15% original issue discount to the Note holders.
The Notes are due on February 10, 2011. The note holders may convert any portion of the Notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.65. The Notes include an anti-dilution adjustment that may not be adjusted below $0.01.
Simultaneously with the issuance of these Notes, the Company issued to each Note holder a 5-year warrant (the "Warrant") to purchase 271,494 shares of common stock of the Company. The Warrant is exercisable at a price equal to $0.75 The Warrants include an anti-dilution adjustment that may not be adjusted below $0.01.
The note holder will only be allowed to convert shares or exercise warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.
Due to the liquidity of the Company’s and investor ownership restrictions in theses note and warrants, the Company chose to value these liabilities at fair market value as discussed in Note 4. The principle amount due on these notes is $235,295, whereas, the Company’s aggregate fair value of the notes is $57,880 and the remaining $88,401 has been allocated to the derivative liability.
January 2010 Convertible Notes and Warrants
On January 13, 2010, Signature Exploration and Production Corp. (the "Company") entered into two Convertible Note Agreements ("Notes") for a total of $64,706. The Company received aggregate proceeds of $55,000 reflecting a 15% original issue discount to the Note holders.
The Notes are due on January 13, 2011. The note holders may convert any portion of the Notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.35. The Notes include an anti-dilution adjustment that may not be adjusted below $0.01.
Simultaneously with the issuance of these Notes, the Company issued to each Note holder a 5-year warrant (the "Warrant") to purchase 92,437 shares of common stock of the Company. The Warrant is exercisable at a price equal to $0.50. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.01.
The note holder will only be allowed to convert shares or exercise warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.
Due to the liquidity of the Company’s and investor ownership restrictions in theses note and warrants, the company chose to value these liabilities at fair market value as discussed in Note 4. The principle amount due on these notes is $64,706, whereas, the Company’s aggregate fair value of the notes is $13,541 and the remaining $13,675 has been allocated to the derivative liability.
December 2009 Convertible Notes and Warrants
On December 7, 2009, Signature Exploration and Production Corp. (the "Company") entered into two Convertible Note Agreements ("Notes") for a total of $352,942. The Company received aggregate proceeds of $300,000 reflecting a 15% original issue discount to the Note holders.
The Notes are due on December 7, 2010. The note holders may convert any portion of the Notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.35. The Notes include an anti-dilution adjustment that may not be adjusted below $0.01.
Simultaneously with the issuance of this Note, the Company issued to each Note holder a 5-year warrant (the "Warrant") to purchase 504,203 shares of common stock of the Company. The Warrant is exercisable at a price equal to $0.50. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.01.
The note holder will only be allowed to convert shares or exercise warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.
The Company made a fair value election to account for the complete package of debt and warrants as it provides the best indicator of the Company’s obligation related to the transaction. See Note 4. The principle amount due on these notes is $352,942, whereas, the Company’s aggregate fair value of the notes is $187,054 and the remaining $189,974 has been allocated to the derivative liability.
Convertible Notes from Shareholders
On February 23, 2010 we modified promissory notes in the amount of $2,000, which are now included in convertible debt. Interest has accrued on the outstanding principal balance from February 6, 2008 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by these notes into our common stock at a strike price equal to a $0.01. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized a loss of $2,000 and $-0- on the loan modification as of March 31, 2010 and 2009, respectively.
On October 20, 2009, we modified promissory notes in the amount of $78,500, which are now included in convertible debt. Interest has accrued on the outstanding principal balance from January 13, 2009 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by these notes into our common stock at a strike price equal to a $0.01. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized a loss of $78,500 and $-0- on the loan modification as of March 31, 2010 and 2009, respectively.
On October 13, 2009, the Company entered into two Convertible Note Agreements for $22,000 and $15,000. The notes will accrue interest at the rate of 10% per annum and are due on October 13, 2010. The note holders may convert any portion of the notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.01. The company recognized $16,958 and $-0- of interest expense as a result of this conversion feature as of March 31, 2010 and 2009, respectively.
On August 27, 2009, we sold in a private placement, a promissory note in the amount of $60,000 to an investor in exchange for a participation agreement in an oil and gas prospect. Interest has accrued on the outstanding principal balance from August 27, 2009 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by this note into our common stock at a strike price equal to a $0.01. This note was due on November 20, 2009. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized $60,000 and $-0- of interest expense as a result of this conversion feature as March 31, 2010 and 2009, respectively. The Company is currently in default on this note and related accrued interest. The investor can covert this debt to shares of the Company’s common stock to satisfy these notes or make an immediate demand for payment. As of March 31, 2010, the investor has not made demands for payment of this note.
On August 17, 2009, we sold in a private placement, a promissory note in the amount of $18,000 to an investor in exchange for a land lease agreement. Interest has accrued on the outstanding principal balance from August 17, 2009 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by this note into our common stock at a strike price equal to a $0.01. This note was due on November 20, 2009. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized $18,000 and $-0- of interest expense as a result of this conversion feature as of March 31, 2010 and 2009, respectively. The Company is currently in default on this note and related accrued interest. The investor can covert this debt to shares of the Company’s common stock to satisfy these notes or make an immediate demand for payment. As of March 31, 2010, the investor has not made demands for payment of this note.
On August 17, 2009, we sold in a private placement, a promissory note in the amount of $18,000 to a stockholder in exchange for a land lease agreement. Interest has accrued on the outstanding principal balance from August 17, 2009 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by this note into our common stock at a strike price equal to a $0.01. This note was due on November 20, 2009. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized $18,000 and $-0- of interest expense as a result of this conversion feature as of March 31, 2010 and 2009, respectively. The Company is currently in default on this note and related accrued interest. The investor can covert this debt to shares of the Company’s common stock to satisfy these notes or make an immediate demand for payment. As of March 31, 2010, the investor has not made demands for payment of this note.
On March 4, 2009, we modified promissory notes in the amount of $202,500, which are now included in convertible debt. Interest has accrued on the outstanding principal balance from October 10, 2006 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by these notes into our common stock at a strike price equal to a $0.01. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The Company converted $7,250 of these notes into 725,000 shares of the Company’s common stock. A balance of $195,250 remains on these promissory notes. The Company is currently in default on these notes and related accrued interest. The note holders can covert this debt to shares of the Company’s common stock to satisfy these notes. As of March 31, 2010, no stockholders have made demands for payment of these loans.
During 2007, we sold in private placements, promissory notes totaling $50,000 to a stockholder. Interest accrued on the outstanding principal balance at a rate of 10 percent per annum. The note holder had the sole option of converting the principal represented by these notes into our common stock at a strike price equal to a $0.01. These notes are currently in default. The Company converted $12,000 of these notes into 1,200,000 shares of the Company’s common stock. A balance of $38,000 remains on these promissory notes. The Company is currently in default on these notes and related accrued interest. The note holders can covert this debt to shares of the Company’s common stock to satisfy these notes. As of March 31, 2010, no stockholders have made demands for payment of these loans.
Consulting Agreements
On January 11, 2010 the Company issued 4,137 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $6,330 fair value of the shares issued as stock-based consulting.
On January 13, 2010 the Company issued 7,500 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $11,400 fair value of the shares issued as stock-based consulting.
On February 5, 2010 the Company issued 2,500 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $2,625 fair value of the shares issued as stock-based consulting.
On February 10, 2010 the Company issued 36,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $37,800 fair value of the shares issued as stock-based consulting.
On February 10, 2010 the Company issued 10,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $10,500 fair value of the shares issued as stock-based consulting.
On March 4, 2010 the Company issued 10,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $10,200 fair value of the shares issued as stock-based consulting.
On March 15, 2010 the Company issued 10,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $10,400 fair value of the shares issued as stock-based consulting.
Option Agreement
On August 3, 2009, we signed an Option Agreement allowing the Company to purchase up to a fifty percent working interest in the oil and gas exploration and development activities on 2,087 acres known as Medicine River Ranch. This option is valid for one year or until a Definitive Participation Agreement is either entered into or rejected by both parties. The Company issued 25,000 shares of restricted common stock upon execution of this agreement and an additional 75,000 shares of restricted common stock were to be issued upon acceptance of a Definitive Participation Agreement. On January 29, 2010, both parties agreed to cancel this option and the issued shares were returned to the Company.
Employment Agreements
On September 29, 2009, the Company entered into an Employment Agreement with Steven Weldon, our Chief Executive Officer. As compensation for entering into this Agreement, the Company granted and issued to Mr. Weldon 3,600,000 shares of the common stock of the Company. The stock is restricted as defined by the rules and regulations promulgated under the Securities Act of 1933, as amended. The shares are fully paid and non-assessable. An expense of $900,000 was recognized for year ended March 31, 2010.
The shares issued pursuant to this Agreement are subject to certain terms and conditions. The shares are represented by 36 certificates of 100,000 shares each. All Certificates not delivered to the Executive are being held by the Company. One certificate representing 100,000 shares will be delivered to the Executive on the 30th of each month beginning October 30, 2009. In the event that Mr. Weldon’s employment pursuant to this agreement is terminated for any reason, the shares represented by certificates still held by the Company will be contributed back to the Company for cancellation.
On October 7, 2009, the Company entered into an Employment Agreement with Jordan Estra, our former Chief Executive Officer. As compensation for entering into this Agreement, the Company granted and issued to Mr. Estra 3,600,000 shares of the common stock of the Company. The stock is restricted as defined by the rules and regulations promulgated under the Securities Act of 1933, as amended. The shares are fully paid and non-assessable.
The shares issued pursuant to this Agreement were subject to certain terms and conditions. The shares were represented by 36 certificates of 100,000 shares each. All Certificates not delivered to the Executive are being held by the Company. One certificate representing 100,000 shares has been delivered to the Executive on the 7th of each month beginning November 7, 2009.
Upon the resignation of Mr. Estra’s on December 29, 2009, 3,327,000 shares represented by certificates still held by the Company were contributed back to the Company for cancellation. Mr. Estra received a total of 273,000 restricted shares and an expense of $131,040 was recognized for the year ended March 31,2010.
Note Conversions
During the year ended March 31, 2010, the Company converted a total of $21,250 of notes payable and $373 of interest payable from certain Note Holders into common stock of the Company. The Company issued 2,125,000 shares of our common stock to satisfy the principal balances of the notes payable and 37,254 shares of our common stock to satisfy accrued interest of the notes payable. A loss of $177,941 was recognized for the conversion of a $2,000 note during the year ended March 31, 2010.
Agreement
During the year ended March 31, 2010 the Company entered into agreements with its former CEO and a significant stockholder in which they agreed to limit the transfer of their common stock holdings to 5 percent or less for each calendar month for a period of two years. In exchange, the Company issued them 10,326 shares of restricted common stock. The Company recognized compensation expense of $516 for the year ended March 31, 2009.
Equity Compensation Plan Information
The 2007 Amended Stock Option Plan was adopted by the Board of Directors on February 6, 2008. Under this plan, a maximum of 8,000,000 shares of our common stock, par value $0.0001, were authorized for issue. The vesting and terms of all of the options are determined by the Board of Directors and may vary by optionee; however, the term may be no longer than 10 years from the date of grant.
On August 20, 2009, the Company issued 4,000,000 options to a consultant valued at $984,600 under the 2007 Plan. The option’s exercise price is equal to fifty percent (50%) of the average closing bid price for the three day period prior to notice of exercise. The consultant will only be allowed to purchase shares upon the exercise of the option or portion thereof to the extent that, at the time of the purchase, the purchase will not result in the consultant beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.
These options are fully vested and represent the only options outstanding as of December 31, 2010.
We used the Black-Scholes option pricing model to determine the fair value of the option grant. We valued the stock grant based on the following assumptions:
On August 11, 2005, the Board of Directors adopted the 2005 Restricted Stock Plan (the “2005” Plan”) and it was approved on August 11, 2005 by a majority of our stockholders at the 2005 Annual Meeting. The terms of the 2005 Plan provide for grants of restricted stock awards.
Under the 2005 Plan, the total number of shares of restricted common stock that may be subject to the granting of Awards during the term of the 2005 Plan shall be equal to 5,000,000 shares. Shares with respect to which awards previously granted that are forfeited, cancelled or terminated are returned to the plan and may be reissued. A grant of 4,000 shares was made to a director and 2,000 shares to an employee. The director forfeited 1,400 shares on April 21, 2006 when he resigned and the employee forfeited 200 shares on May 31, 2006 when he was terminated.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA
N/A
ITEM 7.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATION
The following discussion of our plan of operation, financial condition and results of operations should be read in conjunction with the Company’s financial statements, and notes thereto, included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed in this Annual Report.
Overview
Our company was incorporated in the State of Delaware on April 4, 2001, under the name of “Flagstick Ventures, Inc.” On March 28, 2008, a majority of our stockholders approved changing our name to Signature Exploration and Production Corp. as our business model had changed to becoming an independent energy company engaged in the acquisition and development of crude oil and natural gas leases in the United States. As of March 31, 2010, we have not yet generated revenues or incurred expenses related to the energy operations.
Plan of Operation
Our strategy is to continue making acquisitions of select properties that have been identified as economically attractive, technically and geologically sound and have significant upside potential.
We are building our business through the acquisition of producing oil and natural gas wells, interests and leases. Our strategy is to combine the secure and reliable revenue source of operating and non-operated interests from producing oil wells with the potential of an oil and gas exploration project. We are purchasing operating and non-operating interests, acquiring development stage exploration property and carrying 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.
Unproven Properties
Koliba Prospect - Bloomington TX
In October 2009, we acquired a 15% working interest in this well. The Koliba well prospect covers 143 acres over an anticlinal structure (target) located in the North McFaddin Field. The prospect which is both a structural and strategraphic trap that includes a four way closure. This well is considered a low risk/high reward prospect due to its proximity to the previous producing well and the potential for multiple pay sand discoveries in the prolific Frio interval. Drilling began on this property on June 29, 2010.
Catron Prospect - Carton County, NM
We acquired a lease of 1,320 acres in Catron County, New Mexico. The lease term is for ten years. We are evaluating options for the use of this land.
Kenedy Prospect - Kenedy County, TX
In August 2009, we acquired a 10% working interest with an option to acquire 10% on additional wells on a 980 acre prospect located in Kenedy County, Texas. A 3-D seismic has been performed on this property and reviewed by a geophysicist who has advised us of two potential targets for drilling.
Nettie Rhodes Prospect - Young County, Texas
In August 2009, we acquired a five percent turnkey working interest on the Nettie Rhodes Lease. The Nettie Rhodes Lease is located in the southwest corner of Young County, Texas. It is approximately six miles north east of the town of Woodson, Texas and consists of approximately 160 acres. The land is on the west flank of the Bend Arch located in central Texas. There are currently five wells on properties adjacent to this lease that are producing oil and natural gas. We are currently evaluating and obtaining cost estimates to perform a 3-D seismic on this lease.
Cash Requirements
We estimate that we will require an additional $1,386,000 to fund our currently anticipated requirements for ongoing operations for our existing business for the next twelve-month period. We expect to pay $51,000 for professional fees and expense related to being a public company, $45,000 for expenses related to general operations and $19,000 for a rent settlement. We will also need approximately $1,271,000 to repay $1,198,000 of notes payable and the related interest of approximately $73,000.
Based upon our cash position, we will need to raise additional capital prior to the end of the second quarter of 2010 in order to fund current operations. These factors raise substantial doubt about our ability to continue as a going concern. We are pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financings. We are in discussions with our existing stockholders to provide additional funding in exchange for notes or equity. In order to finance existing operations and pay current liabilities over the next twelve months, we will need to raise $1,375,000 of capital. However, there can be no assurance that the requisite financing will be consummated in the necessary time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans or possibly cease operations. No assurance can be given that we will be able to operate profitably on a consistent basis, or at all, in the future.
Results of Operations
Comparison of the fiscal year ended March 31, 2010 and March 31, 2009.
FINANCIAL INFORMATION
Stock Compensation. Stock compensation expenses increased by approximately $2,018,000 in 2010. This increase can be attributed to employee compensation of $1,031,000 and consulting expense of $987,000.
Investor Relations. Investor relations expenses increased by approximately $504,000 in 2010.
General and Administrative. General and administrative expenses decreased by $5,000 in 2010 due to a decrease in professional fees.
Other Expenses. Other expenses increased by $105,000 in 2010 due to a gain in the fair value of convertible notes and warrants of $102,000, an increase in loan modifications of $56,000 and increase of $150,000 in interest expense on notes payable and interest related to the beneficial conversion feature of convertible notes issued during the year ended March 31, 2010.
Liquidity and Capital Resources
We had cash balances totaling approximately $22,000 as of March 31, 2010. Historically, our principal source of funds has been cash generated from financing activities.
Cash flow from operations. We have been unable to generate either significant liquidity or cash flow to fund our current operations. We anticipate that cash flows from operations will be insufficient to fund our business operations for the next twelve-month period.
Cash flows from investing activities. There was $72,000 and $-0- of cash used in investing activities for the purchase of oil and gas leases for the years ended March 31, 2010 and 2009.
Cash flows from financing activities. Net cash provided by financing activities was generated from promissory notes that total $632,500 and $132,000 for the years ended March 31, 2010 and 2010.
Variables and Trends
We have no operating history with respect to our acquisition and development of oil and gas properties. In the event we are able to obtain the necessary financing to move forward with our business plan, we expect our expenses to increase significantly as we grow our business. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of our future performance and must be considered in light these circumstances.
Critical Accounting Policies
Fair Value Measurement. The Company holds certain financial assets which are required to be measured at fair value on a recurring basis in accordance with ASC Topic 820-10. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company’s Level 1 assets include cash.
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets and liabilities consist of notes and convertible notes payable. Due to the short term nature of its notes and convertible notes payable, the Company estimates the fair value of these assets and liabilities at their current basis.
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 fair value elections are made on an instrument by instrument basis. The Company’s Level 3 liabilities consist of convertible notes and detachable warrants accounted for as derivatives. These convertible notes are valued using internally developed valuation models, inputs to which include interest rates, stock price, and volatilities. Unobservable inputs used in these models are significant to the fair values of the liabilities.
Commitments
Except as shown in the following table, as of March 31, 2010, we did not have any material capital commitments, other than funding our operating losses and repaying outstanding debt. It is anticipated that any capital commitments that may occur will be financed principally through borrowings from stockholders (although such additional financing has not been arranged). However, there can be no assurance that additional capital resources and financings will be available to us on a timely basis, or if available, on acceptable terms.
Future payments due on our contractual obligations as of March 31, 2010 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.
Stock-Based Compensation
Please see page, Note 3 of the audited financial statements.
Recent Accounting Pronouncements
Please see page, Note 3 of the audited financial statements.
ITEM 7A.
ITEM 7A.
QUANTITIATIVE AND QUILITATIVE DISCLOSERS ABOUT MARKET RISK
N/A
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS
The financial statements required to be filed hereunder are set forth on pages through and are incorporated herein by this reference.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
There were no other changes in or disagreements with our accountants on accounting and financial disclosure during the last two fiscal years.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer concluded as of December 31, 2010 that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal controls over financial reporting discussed immediately below.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment. The internal controls for the Company are provided by executive management’s review and approval of all transactions. Our internal control over financial reporting also includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2010. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this annual report.
Identified Material Weaknesses
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. The matters involving internal controls over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:
·
ineffective controls over period end financial disclosure and reporting processes including not having a functioning audit committee consisting of independent Board members as well as lack of expertise with respect to the application of US GAAP and SEC rules and regulations.
·
one individual who, as an officer and director of the Company, has sole access and authority to receive cash and make cash disbursements
Management believes that the material weaknesses set forth above did not have an effect on our financial results.
Management’s Remediation Initiatives
As a result of our findings, we have begun to remediate the deficiency. In an effort to remediate the identified material weakness and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
1.
Identify and/or retain a second employee or member of management who is appropriately trained who will also have duel control with respect to the receipt of cash and the making of cash disbursements; and
2.
Establish formal general accounting policies and procedures.
3.
Update some of our current procedures to better address period end financial disclosure.
4.
Update controls relating to other processes.
We anticipate that these initiatives will be at least partially, if not fully, implemented by March 31, 2011. Additionally, we plan to test our updated controls in order to remediate our deficiencies by March 31, 2011.
Conclusion
As a result of management's assessment of the effectiveness of our internal control over financial reporting as of March 31, 2010, and the identification of the material weakness set forth above, management has concluded that our internal control over financial reporting is not effective. It is reasonably possible that, if not remediated, the material weaknesses noted above, could result in a material misstatement in our reported financial statements that might result in a material misstatement in a future annual or interim period. In light of the identified material weakness and the conclusion that our internal control over financial reporting is not effective, management will take the remediation initiatives set forth above. In addition management performed (1) additional review of the area described above, and (2) performed additional analyses, including but not limited to a detailed balance sheet and statement of operations analytical review. These procedures were completed so management could gain assurance that the financial statements and schedules included in this Form 10-K fairly present in all material respects the financial position, results of operations and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting
There were no changes were made during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting, as required by Rules 13a-15(d) and 15d-15(d) under the exchange Act.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The names of our executive officers and directors, their ages as of June 30, 2010, and the positions currently held by each are as follows:
Name
Age
Position
Steven Weldon
Chief Executive Officer and Director
Steven Weldon, a Certified Public Accountant, has served as our Chief Financial Officer since September 2005. Prior to joining Signature Exploration and Production Corp. Mr. Weldon was the Tax Manager for Westgate Resorts, Ltd., a timeshare developer, since July 2000. Since September 2005, Mr. Weldon has also served as the Chief Financial Officer of Inverted Paradigms Corp., a software developer. Mr. Weldon was an adjunct professor at Florida Southern College from January 2002 to October 2005. Since May 2005, Mr. Weldon has served as the president, sole stockholder and director of Steven W. Weldon, PA, a public accounting firm providing tax and accounting services. Mr. Weldon received his Bachelor of Science degree and his Masters in Business Administration from Florida Southern College.
During the past five years none of our directors, executive officers, promoters or control persons was:
1)
the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2)
convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3)
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4)
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.
Section 16(a) Beneficial Ownership Reporting Compliance.
Since we have no stock registered under Section 12(b) or Section 12(g) of the Exchange Act, there are no persons who need to file reports under Section 16(a) of the Exchange Act.
Code of Ethics
We adopted the Signature Exploration and Production Corp. Code of Ethics for the CEO and Senior Financial Officers (the “finance code of ethics”), a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer and other finance organization employees. A copy of the finance code of ethics may be obtained from the Company, free of charge, upon written request delivered to Signature Exploration and Production Corp. 3200 Southwest Freeway, Suite 3300, Houston, TX 77027. If we make any substantive amendments to the finance code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer or Chief Financial Officer, we will disclose the nature of such amendment or waiver in a report on Form 8-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table reflects all compensation awarded to, earned by, or paid to our Chief Executive Officer and president and other employees for all services rendered to us in all capacities during each of the years ended March 31, 2010, 2009 and 2008.
Summary Compensation Table
Directors’ Compensation
Directors are not currently compensated, although each is entitled to be reimbursed for reasonable and necessary expenses incurred on our behalf. All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. Officers are appointed annually by the Board of Directors and each executive officer serves at the discretion of the Board of Directors. Our board of directors does not have an audit or any other committee.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table presents information known to us, as of June 30, 2010, relating to the beneficial ownership of common stock by:
·
each person who is known by us to be the beneficial holder of more than 5% of our outstanding common stock;
·
each of our named executive officers and directors; and
·
our directors and executive officers as a group.
We believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them, except as noted.
Percentage ownership in the following table is based on 7,012,543 shares of common stock outstanding as of June 30, 2010. A person is deemed to be the beneficial owner of securities that can be acquired by that person within 60 days from the date of this Annual Report upon the exercise of options, warrants or convertible securities. Each beneficial owner’s percentage ownership is determined by dividing the number of shares beneficially owned by that person by the base number of outstanding shares, increased to reflect the shares underlying options, warrants or other convertible securities included in that person’s holdings, but not those underlying shares held by any other person.
(1)
Unless otherwise noted, the address of each person listed is c/o Signature Exploration and Production Corp. 3200 Southwest Freeway, Suite 3300, Houston, TX 77027.
(2)
Certain stockholders have the right to convert notes, warrants, or options up to 9.99% ownership as follows: Brannon Limited Partnership - 42,826,037, Bristol Investment Fund, LTD - 9,236,400, Ltd, Bristol Capital, LLC - 6,392,900 and Canyons Trust - 753,200
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
During the year ended March 31, 2009 the Company entered into agreements with its former CEO and a significant stockholder in which they agreed limit the transfer of their common stock holdings to 5 percent or less for each calendar month for a period of two years. In exchange, the Company issued them 10,326 shares of restricted common stock. The Company recognized compensation expense of $516 for the year ended March 31, 2009.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1)
Audit Fees -Audit fees billed to the Company by Mark Bailey and Company, Ltd. for auditing the Company’s annual financial statements and reviewing the financial statements included in the Company’s Quarterly Reports on Form 10-Q.
(2)
Audit-Related Fees - There were no other fees billed by Mark Bailey and Company, Ltd, and during the last two fiscal years for assurance and related services that were reasonably related to the performance of the audit or review of the Company's financial statements and not reported under "Audit Fees" above.
(3)
Tax Fees - There were no tax fees billed during the last past fiscal year for professional services.
(4)
All Other Fees - There were no other fees billed by during the last two fiscal years for products and services provided.
Pre-approval of Audit and Non-Audit Services of Independent Auditor
The Board of Director’s policy is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. The Board of Director’s pre-approval policy with respect to non-audit services is included as Exhibit 99.1 of to this Annual Report. Pre-approval is generally provided for up to 12 months from the date of pre-approval and any pre-approval is detailed as to the particular service or category of services. The Board of Directors may delegate pre-approval authority to one or more of its members when expedition of services is necessary.
PART IV
ITEM 15.
ITEM 15.
EXHIBITS
EXHIBIT
NUMBER
DESCRIPTION
3.1
Form of Articles of Incorporation of Signature Exploration and Production Corp. (Previously filed on Form SB-2, filed with the Securities and Exchange Commission on February 12, 2002)
3.2
Bylaws of Signature Exploration and Production Corp. (Previously filed on Form SB-2, filed with the Securities and Exchange Commission on February 12, 2002)
10.1
Code of Ethics (Previously filed on Form 10-KSB, filed with the Securities and Exchange Commission on June 22, 2004)
10.2
Diabetic Treatment Centers of America, Inc. 2005 Restricted Stock Plan (Previously filed on the Company’s Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on August 5, 2005)
10.3
Joint Venture Agreement (Previously filed on Form 8-K, filed with the Securities and Exchange Commission on May 16,2006)
10.4
Amended Stock Option(5) (Previously filed on Form S-8 POS, filed with the Securities and Exchange Commission on February 8, 2008)
10.5
Letter of Intent Dated February 3, 2009 (Previously filed on Form 10-K, filed with the Securities and Exchange Commission on July 14, 2009)
10.6
Letter of Intent Dated February 24, 2009 (Previously filed on Form 10-K, filed with the Securities and Exchange Commission on July 14, 2009)
10.7
Gating Agreement - Scott Allen (Previously filed on Form 10-K, filed with the Securities and Exchange Commission on July 14, 2009)
10.8
Gating Agreement - SEARA LLC (Previously filed on Form 10-K, filed with the Securities and Exchange Commission on July 14, 2009)
10.9
Gating Agreement - B&R Holding Company, LLC (Previously filed on Form 10-K, filed with the Securities and Exchange Commission on July 14, 2009)
31.1
Certification of Chief Executive Officer Pursuant to Securities and Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
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.*
99.1
Audit Committee Pre-Approval Policy(2)
*Filed Herewith
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Signature Exploration and Production Corp.
We have audited the accompanying balance sheets of Signature Exploration and Production Corp. (an exploration stage company) as of March 31, 2010 and 2009, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended and from inception (March 1, 2008) to date. Signature Exploration and Production Corp.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Signature Exploration and Production Corp. as of March 31, 2010 and 2009, and the results of its operations and cash flows for the years then ended and inception to date, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 of the accompanying financial statements, the Company has incurred losses, has not generated any revenue, and has negative operating cash flows since the inception of the exploration activities. These factors, and the need for additional financing in order for the Company to meet its business plans, raise substantial doubt about its ability to continue as a going concern. Management’s plan to continue as a going concern is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Mark Bailey & Company, Ltd.
Reno, Nevada
July 14,
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
Balance Sheets
See accompanying notes to the financial statements.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
Statements of Operations
For the years ended March 31, 2010 and 2009,
and the Period from March 1, 2008 (Inception) to March 31, 2010
See accompanying notes to the financial statements.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
Statements of Stockholders’ Equity (Capital Deficiency)
For the years ended March 31, 2010 and 2009,
and the Period from March 1, 2008 (Inception) to March 31, 2010
See accompanying notes to financial statements.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
Statements of Cash Flows
For the years ended March 31, 2010 and 2009,
and the Period from March 1, 2008 (Inception) to March 31, 2010
See accompanying notes to the financial statements.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Financial Statements
March 31, 2010
NOTE 1 - 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. A subsidiary included in prior year’s financial statements was dissolved in 2009. 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. 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 March 31, 2010. The Company’s office is located in Houston, Texas.
NOTE 2 - BASIS OF PRESENTATION
The Company’s 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 $4,993,000 at March 31, 2010 of which $3,317,000 has been accumulated during our current exploration activities. In addition, the Company has consumed cash in its operating activities of approximately $542,000 and $129,000 for the years ended March 31, 2010 and 2009, respectively. 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 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 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Exploration Stage Company. The Company is considered to be in the exploration stage.
Cash and Cash Equivalents. The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
Revenue Recognition. Revenue associated with the production and sales of crude oil, natural gas, natural gas liquids and other natural resources owned by the Company will be recognized when production is sold to a purchaser at a fixed or determinable price when delivery has occurred and title passes from the Company to its customer, and if the collectability of the revenue is probable.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Financial Statements
March 31, 2010
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Income Taxes. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in financial statements or tax returns. Deferred tax items are reflected at the enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding the success of future operations, management has valued the deferred tax asset allowance at 100% of the related deferred tax assets.
Loss per Share. The Company’s basic loss per share has been calculated using the weighted average number of common shares outstanding during the period. The Company has 59,208,537 common stock equivalent shares outstanding as of March 31, 2010. However, such common stock equivalents, were not included in the computation of diluted net loss per share as their inclusion would have been anti-dilutive.
Oil and gas properties. In July 2009, the Company changed its method of accounting for its oil and gas exploration and development activities from the full cost method to the successful efforts method. This change did not affect our financial statements as we did not have any activity until the second quarter. Although the full cost method of accounting for oil and gas exploration and development activities continues to be an accepted alternative, the successful efforts method of accounting is the preferred method. The Company believes the successful efforts method provides a more transparent representation of its results of operations and the ability to assess the Company’s investments in oil and gas properties for impairment based on their estimated fair values rather than being required to base valuation on prices and costs as of the balance sheet date.
In accordance with the successful efforts method of accounting for oil and gas properties, costs of productive wells, developmental dry holes and productive leases are capitalized into appropriate groups of properties based on geographical and geological similarities. These capitalized costs are amortized using the unit-of-production method based on estimated proved reserves. Proceeds from sales of properties are credited to property costs, and a gain or loss is recognized when a significant portion of an amortization base is sold or abandoned.
Exploration costs, such as exploratory geological and geophysical costs, delay rentals and exploration overhead, are charged to expense as incurred. Exploratory drilling costs, including the cost of stratigraphic test wells, are initially capitalized but charged to exploration expense if and when the well is determined to be nonproductive. The determination of an exploratory well’s ability to produce must be made within one year from the completion of drilling activities. The acquisition costs of unproved acreage are initially capitalized and are carried at cost, net of accumulated impairment provisions, until such leases are transferred to proved properties or charged to exploration expense as impairments of unproved properties.
Recent Accounting Pronouncements
In December 2008, the Securities and Exchange Commission (SEC) released Final Rule, Modernization of Oil and Gas Reporting. The new disclosure requirements include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserves volumes. The new requirements also will allow companies to disclose their probable and possible reserves to investors. In addition, the new disclosure requirements call for companies to: (a) report the independence and qualifications of its reserves preparer or auditor; (b) file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and (c) report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The new disclosure requirements are effective for financial statements for fiscal years ending on or after December 31, 2009. This Final Rule did not have a significant effect on our current or prior financial position or earnings.
SIGNATURE EXPLORATION AND PRODUCTION CORP
Notes to Financial Statements
March 31, 2010
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
In October 2009, the Financial Accounting Standards Board issued an Accounting Standards Update to update the Extractive Industries-Oil and Gas Topic of the FASB Accounting Standards Codification. The objective of the update is to align the oil and gas reserve estimation and disclosure requirements of the financial accounting standards with the SEC’s final rule discussed above. These amendments did not have a significant effect on our current or prior financial position or earnings.
In June 2008 the Financial Accounting Standards Board Emerging Issues Task Force (EITF) reached a consensus on, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock.” This will be effective for fiscal years beginning after December 15, 2008. This change had a material impact on our financial condition or results of operations as discussed in Note 7.
NOTE 4 - FAIR VALUE MEASUREMENTS
The Company holds certain financial assets which are required to be measured at fair value on a recurring basis in accordance with ASC Topic 820-10. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company’s Level 1 assets include cash.
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets and liabilities consist of notes and convertible notes payable. Due to the short term nature of its notes and convertible notes payable, the Company estimates the fair value of these assets and liabilities at their current basis.
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 fair value elections are made on an instrument by instrument basis. The Company’s Level 3 liabilities consist of convertible notes and detachable warrants accounted for as derivatives. These convertible notes are valued using internally developed valuation models, inputs to which include interest rates, stock price, and volatilities. Unobservable inputs used in these models are significant to the fair values of the liabilities.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Consolidated Financial Statements (unaudited)
March 31, 2010
NOTE 4 - FAIR VALUE MEASUREMENTS, CONTINUED
The following table presents the changes in Level 3 instruments measured on a recurring basis for the year ended March 31, 2010:
The liabilities in the preceding tables were measured at fair value due to events or circumstances the Company identified that significantly impacted the fair value of these liabilities during the periods presented. The liabilities were initially recorded in an amount equal to the undiscounted consideration received. These amounts are adjusted periodically using a Black Scholes option valuation model. The following assumptions were made in the Black-Scholes model: (1) risk free interest rate of 0.41% to 2.6%, (2) remaining contractual life of .66 to 4.79 years, (3) expected stock price volatility of 455.5% to 549.9%, and (4) expected dividend yield of zero.
NOTE 5 - OIL AND GAS PROPERTIES
The Company's aggregate capitalized costs related to oil and natural gas properties, unproven are as follows:
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Consolidated Financial Statements (unaudited)
March 31, 2010
NOTE 5 - OIL AND GAS PROPERTIES, CONTINUED
Koliba Prospect - Bloomington TX
In October 2009, we acquired a 15% working interest in this well. The Koliba well prospect covers 143 acres over an anticlinal structure (target) located in the North McFaddin Field.
Catron Prospect - Carton County, NM
We acquired a lease of 1,320 acres in Catron County, New Mexico. The lease term is for ten years.
Kenedy Prospect - Kenedy County, TX
In August 2009, we acquired a 10% working interest with an option to acquire 10% on additional wells on a 980 acre prospect located in Kenedy County, Texas.
Nettie Rhodes Prospect - Young County, Texas
In August 2009, we acquired a five percent turnkey working interest on the Nettie Rhodes Lease consisting of approximately 160 acres.
NOTE 6 - DEFERRED INCOME TAXES
At March 31, 2010, the Company had net operating loss carryforwards for income tax purposes of approximately $3,555,000 available as offsets against future taxable income. The net operating loss carryforwards are expected to expire at various times from 2022 through 2030.Utilization of the Company’s net operating losses may be subject to substantial annual limitation if the Company experiences a 50% change in ownership, as provided by the Internal Revenue Code and similar state provisions. Such an ownership change would substantially increase the possibility of net operating losses expiring before complete utilization.
The tax effects of the primary temporary differences giving rise to the Company’s deferred tax assets and liabilities are as follows for the year ended March 31, 2010:
Because of the Company’s lack of earnings history, the deferred tax assets have been fully offset by a valuation allowance. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during those periods that the temporary differences become deductible. During the year ended March 31, 2010, the increase in the deferred tax asset valuation allowance amounted to approximately $1,057,000.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Financial Statements
March 31, 2010
NOTE 6 - DEFERRED INCOME TAXES, CONTINUED
The provision for income taxes is different than would result from applying the U.S. statutory rate to profit before taxes for the reasons set forth in the following reconciliation:
NOTE 7 - CONVERTIBLE NOTES AND WARRANTS
February 2010 Convertible Notes and Warrants
On February 10, 2010, Signature Exploration and Production Corp. (the "Company") entered into two Convertible Note Agreements ("Notes") for a total of $352,942. The Company received aggregate proceeds of $200,000 on $235,295 of debts reflecting a 15% original issue discount to the Note holders. The remaining balance of $117,647 is due upon the request of the Company when the funds are needed for operations. The aggregate proceeds of the additional funds will be $100,000 reflecting a 15% original issue discount to the Note holders.
The Notes are due on February 10, 2011. The note holders may convert any portion of the Notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.65. The Notes include an anti-dilution adjustment that may not be adjusted below $0.01.
Simultaneously with the issuance of these Notes, the Company issued to each Note holder a 5-year warrant (the "Warrant") to purchase 271,494 shares of common stock of the Company. The Warrant is exercisable at a price equal to $0.75 The Warrants include an anti-dilution adjustment that may not be adjusted below $0.01.
The note holder will only be allowed to convert shares or exercise warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.
The Company made a fair value election to account for the complete package of debt and warrants as it provides the best indicator of the Company’s obligation related to the transaction. See Note 4. The principle amount due on these notes is $235,295, whereas, the Company’s aggregate fair value of the notes is $57,880 and the remaining $88,401 has been allocated to the derivative liability.
January 2010 Convertible Notes and Warrants
On January 13, 2010, Signature Exploration and Production Corp. (the "Company") entered into two Convertible Note Agreements ("Notes") for a total of $64,706. The Company received aggregate proceeds of $55,000 reflecting a 15% original issue discount to the Note holders.
The Notes are due on January 13, 2011. The note holders may convert any portion of the Notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.35. The Notes include an anti-dilution adjustment that may not be adjusted below $0.01.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Financial Statements
March 31, 2010
NOTE 7 - CONVERTIBLE NOTES AND WARRANTS, CONTINUED
Simultaneously with the issuance of these Notes, the Company issued to each Note holder a 5-year warrant (the "Warrant") to purchase 92,437 shares of common stock of the Company. The Warrant is exercisable at a price equal to $0.50. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.01.
The note holder will only be allowed to convert shares or exercise warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.
The Company made a fair value election to account for the complete package of debt and warrants as it provides the best indicator of the Company’s obligation related to the transaction. See Note 4.. The principle amount due on these notes is $64,706, whereas, the Company’s aggregate fair value of the notes is $13,541 and the remaining $13,675 has been allocated to the derivative liability.
December 2009 Convertible Notes and Warrants
On December 7, 2009, Signature Exploration and Production Corp. (the "Company") entered into two Convertible Note Agreements ("Notes") for a total of $352,942. The Company received aggregate proceeds of $300,000 reflecting a 15% original issue discount to the Note holders.
The Notes are due on December 7, 2010. The note holders may convert any portion of the Notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.35. The Notes include an anti-dilution adjustment that may not be adjusted below $0.01.
Simultaneously with the issuance of this Note, the Company issued to each Note holder a 5-year warrant (the "Warrant") to purchase 504,203 shares of common stock of the Company. The Warrant is exercisable at a price equal to $0.50. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.01.
The note holder will only be allowed to convert shares or exercise warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.
The Company made a fair value election to account for the complete package of debt and warrants as it provides the best indicator of the Company’s obligation related to the transaction. See Note 4.The principle amount due on these notes is $352,942, whereas, the Company’s aggregate fair value of the notes is $187,054 and the remaining $189,974 has been allocated to the derivative liability.
Convertible Notes from Shareholders
On February 23, 2010 we modified promissory notes in the amount of $2,000, which are now included in convertible debt. Interest has accrued on the outstanding principal balance from February 6, 2008 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by these notes into our common stock at a strike price equal to a $0.01. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized a loss of $2,000 and $-0- on the loan modification as of March 31, 2010 and 2009, respectively.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Financial Statements
March 31, 2010
NOTE 7 - CONVERTIBLE NOTES AND WARRANTS, CONTINUED
On October 20, 2009, we modified promissory notes in the amount of $78,500, which are now included in convertible debt. Interest has accrued on the outstanding principal balance from January 13, 2009 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by these notes into our common stock at a strike price equal to a $0.01. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized a loss of $78,500 and $-0- on the loan modification as of March 31, 2010 and 2009, respectively.
On October 13, 2009, the Company entered into two Convertible Note Agreements for $22,000 and $15,000. The notes will accrue interest at the rate of 10% per annum and are due on October 13, 2010. The note holders may convert any portion of the notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.01. The company recognized $16,958 and $-0- of interest expense as a result of this conversion feature as March 31, 2010 and 2009, respectively.
On August 27, 2009, we sold in a private placement, a promissory note in the amount of $60,000 to an investor in exchange for a participation agreement in an oil and gas prospect. Interest has accrued on the outstanding principal balance from August 27, 2009 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by this note into our common stock at a strike price equal to a $0.01. This note was due on November 20, 2009. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized $60,000 and $-0- of interest expense as a result of this conversion feature as March 31, 2010 and 2009, respectively. The Company is currently in default on this note and related accrued interest. The investor can covert this debt to shares of the Company’s common stock to satisfy these notes or make an immediate demand for payment. As of March 31, 2010, the investor has not made demands for payment of this note.
On August 17, 2009, we sold in a private placement, a promissory note in the amount of $18,000 to an investor in exchange for a land lease agreement. Interest has accrued on the outstanding principal balance from August 17, 2009 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by this note into our common stock at a strike price equal to a $0.01. This note was due on November 20, 2009. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized $18,000 and $-0- of interest expense as a result of this conversion feature as of March 31, 2010 and 2009, respectively. The Company is currently in default on this note and related accrued interest. The investor can covert this debt to shares of the Company’s common stock to satisfy these notes or make an immediate demand for payment. As of March 31, 2010, the investor has not made demands for payment of this note.
On August 17, 2009, we sold in a private placement, a promissory note in the amount of $18,000 to a stockholder in exchange for a land lease agreement. Interest has accrued on the outstanding principal balance from August 17, 2009 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by this note into our common stock at a strike price equal to a $0.01. This note was due on November 20, 2009. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The company recognized $18,000 and $-0- of interest expense as a result of this conversion feature as of March 31, 2010 and 2009, respectively. The Company is currently in default on this note and related accrued interest. The investor can covert this debt to shares of the Company’s common stock to satisfy these notes or make an immediate demand for payment. As of March 31, 2010, the investor has not made demands for payment of this note.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Financial Statements
March 31, 2010
NOTE 7 - CONVERTIBLE NOTES AND WARRANTS, CONTINUED
On March 4, 2009, we modified promissory notes in the amount of $202,500, which are now included in convertible debt. Interest has accrued on the outstanding principal balance from October 10, 2006 at a rate of 10 percent per annum. The note holder has the sole option of converting the principal and interest represented by these notes into our common stock at a strike price equal to a $0.01. The note holder will only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. The Company converted $7,250 of these notes into 725,000 shares of the Company’s common stock. A balance of $195,250 remains on these promissory notes. The Company is currently in default on these notes and related accrued interest. The note holders can covert this debt to shares of the Company’s common stock to satisfy these notes. As of March 31, 2010, no stockholders have made demands for payment of these loans.
During 2007, we sold in private placements, promissory notes totaling $50,000 to a stockholder. Interest accrued on the outstanding principal balance at a rate of 10 percent per annum. The note holder had the sole option of converting the principal represented by these notes into our common stock at a strike price equal to a $0.01. These notes are currently in default. The Company converted $12,000 of these notes into 1,200,000 shares of the Company’s common stock. A balance of $38,000 remains on these promissory notes. The Company is currently in default on these notes and related accrued interest. The note holders can covert this debt to shares of the Company’s common stock to satisfy these notes. As of March 31, 2010, no stockholders have made demands for payment of these loans.
NOTE 8 - STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY)
Consulting Agreements.
On January 11, 2010 the Company issued 4,137 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $6,330 fair value of the shares issued as stock-based consulting.
On January 13, 2010 the Company issued 7,500 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $11,400 fair value of the shares issued as stock-based consulting.
On February 5, 2010 the Company issued 2,500 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $2,625 fair value of the shares issued as stock-based consulting.
On February 10, 2010 the Company issued 36,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $37,800 fair value of the shares issued as stock-based consulting.
On February 10, 2010 the Company issued 10,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $10,500 fair value of the shares issued as stock-based consulting.
On March 4, 2010 the Company issued 10,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $10,200 fair value of the shares issued as stock-based consulting.
On March 15, 2010 the Company issued 10,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $7,700 fair value of the shares issued as stock-based consulting.
Option Agreement. On August 3, 2009, we signed an Option Agreement allowing the Company to purchase up to a fifty percent working interest in the oil and gas exploration and development activities on 2,087 acres known as Medicine River Ranch. This option is valid for one year or until a Definitive Participation Agreement is either entered into or rejected by both parties. The Company issued 25,000 shares of restricted common stock upon execution of this agreement and an additional 75,000 shares of restricted common stock will be issued upon acceptance of a Definitive Participation Agreement. On January 29, 2010, both parties agreed to cancel this option and the issued shares were returned to the Company.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Financial Statements
March 31, 2010
NOTE 8 - STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY), CONTINUED
Employment Agreement. On September 29, 2009, the Company entered into an Employment Agreement with Steven Weldon, our Chief Executive Officer. As compensation for entering into this Agreement, the Company granted and issued to Mr. Weldon 3,600,000 shares of the common stock of the Company. The stock is restricted as defined by the rules and regulations promulgated under the Securities Act of 1933, as amended. The shares are fully paid and non-assessable. An expense of $900,000 was recognized for year ended March 31,2010.
The shares issued pursuant to this Agreement are subject to certain terms and conditions. The shares are represented by 36 certificates of 100,000 shares each. All Certificates not delivered to the Executive are being held by the Company. One certificate representing 100,000 shares will be delivered to the Executive on the 30th of each month beginning October 30, 2009. In the event that Mr. Weldon’s employment pursuant to this agreement is terminated for any reason, the shares represented by certificates still held by the Company will be contributed back to the Company for cancellation.
Employment Agreement. On October 7, 2009, the Company entered into an Employment Agreement with Jordan Estra, our former Chief Executive Officer. As compensation for entering into this Agreement, the Company granted and issued to Mr. Estra 3,600,000 shares of the common stock of the Company. The stock is restricted as defined by the rules and regulations promulgated under the Securities Act of 1933, as amended. The shares are fully paid and non-assessable.
The shares issued pursuant to this Agreement were subject to certain terms and conditions. The shares were represented by 36 certificates of 100,000 shares each. All Certificates not delivered to the Executive are being held by the Company. One certificate representing 100,000 shares will be delivered to the Executive on the 7th of each month beginning November 7, 2009.
Upon the resignation of Mr. Estra’s on December 29, 2009, 3,327,000 shares represented by certificates still held by the Company were contributed back to the Company for cancellation. Mr. Estra received a total of 273,000 restricted shares and an expense of $131,040 was recognized for the year ended March 31,2010.
Note Conversion. During the year ended March 31, 2010, the Company converted a total of $21,250 of notes payable and $373 of interest payable from certain Note Holders into common stock of the Company. The Company issued 2,125,000 shares of our common stock to satisfy the principal balances of the notes payable and 37,254 shares of our common stock to satisfy accrued interest of the notes payable. A loss of $177,941 was recognized for the conversion of a $2,000 note during the year ended March 31, 2010.
NOTE 9 - RELATED PARTY TRANSACTIONS
During the year ended March 31, 2009 the Company entered into agreements with its CEO and a significant stockholder in which they agreed to limit the transfer of their common stock holdings to 5 percent or less for each calendar month for the next two years. In exchange, the Company issued them 10,326 shares of restricted common stock . The Company recognized compensation expense of $516 for the year ended March 31, 2009.
NOTE 10 - STOCK OPTION PLAN
On February 6, 2008, the Board of Directors adopted the Signature Exploration and Production Corp. 2007 Amended Stock Option Plan (“2007 Plan”). Under the 2007 Plan, 8,000,000 shares of the Company’s restricted common stock may be issuable upon the exercise of options issued to employees, advisors and consultants.
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Financial Statements
March 31, 2010
NOTE 10 - STOCK OPTION PLAN, CONTINUED
On August 20, 2009, the Company issued 4,000,000 options to a consultant valued at $984,600 under the 2007 Plan. The option’s exercise price is equal to fifty percent (50%) of the average closing bid price for the three day period prior to notice of exercise. The consultant will only be allowed to purchase shares upon the exercise of the option or portion thereof to the extent that, at the time of the purchase, the purchase will not result in the consultant beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.
These options are fully vested and represent the only options outstanding as of March 31, 2010.
We used the Black-Scholes option pricing model to determine the fair value of the option grant. We valued the stock grant based on the following assumptions:
NOTE 11 - SUBSEQUENT EVENT
On April 27, 2010, Signature Exploration and Production Corp. (the "Company") received the remaining balance due on the note agreement entered into on February 10, 2010. The aggregate proceeds of the additional funds were $100,000 reflecting a 15% original issue discount to the Note holders.