GB SCIENCES INC - FORM 10-Q - February 14, 2011

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EX-31.1 - GB SCIENCES INC	v211238_ex31-1.htm
EX-32.1 - GB SCIENCES INC	v211238_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	For the quarterly period ended December 31, 2010

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

Commission file number: 333-82580

SIGNATURE EXPLORATION AND PRODUCTION CORP.

(Exact name of small business issuer as specified in its charter)

Delaware

(State or other Jurisdiction of

Incorporation or organization)

59-3733133

(IRS Employer

I.D. No.)

3200 Southwest Freeway, Ste 3300

Houston, Texas 77027

Phone: (888) 895-3594

Fax: (888) 800-5918

(Address and telephone number of

principal executive offices)

(Address, including zip code, and telephone and facsimile numbers, including area code, of

registrant’s executive offices)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company þ

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding as of February 13, 2011
Common stock, .0001 par value	7,101,104

SIGNATURE EXPLORATION AND PRODUCTION CORP.

FORM 10-Q

INDEX


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Balance Sheet at December 31, 2010 (unaudited) and March 31, 2010	3
	Condensed Statements of Operations (unaudited) for the Three and Nine Months Ended December 31, 2010 and 2009	4
	Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended December 31, 2010 and 2009	5
	Notes to Condensed Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosers About Market Risks	16

Item 4.	Controls and Procedures	17

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	18
Item 5.	Other Information	18
Item 6.	Exhibits	18

SIGNATURE PAGE		19

SIGNATURE EXPLORATION AND PRODUCTION CORP.

(An Exploration Stage Company)

Condensed Balance Sheets

	December 31,			March 31,
	2010			2010
	(unaudited)
Assets
Current assets:
Cash	$	2,136		$	22,258
Debt issuance costs		15,617			75,823
Prepaid expenses and other current assets		10,450			450

Total current assets		28,203			98,531

Property and Equipment:

Property and Equipment, less accumulated depreciation of $150		755			-
Oil and gas properties, unproven		41,001			168,189

Total assets	$	69,959		$	266,720

Liabilities and Capital Deficiency

Current liabilities:
Accounts payable	$	-		$	-
Accrued interest		102,676			72,670
Other accrued expenses		19,000			19,000
Convertible notes from shareholders		446,750			426,708
Convertible notes from shareholders, at fair value		498,157			258,475
Derivative liability, at fair value		325,880			292,050

Total current liabilities		1,392,463			1,068,903

Commitments and contingencies		-			-

Capital deficiency:
Common stock, $0.0001 par value, 250,000,000 shares authorized 7,101,104 and 7,012,534 shares issued and outstanding for the quarter and year ended December 31, 2010 and March 31, 2010		710			701
Additional paid-in capital		4,264,202			4,190,012
Deficit accumulated related to abandoned activities		(1,676,223	)		(1,676,223	)
Deficit accumulated during exploration stage		(3,911,193	)		(3,316,673	)

Total capital deficiency		(1,322,502	)		(802,183	)

Total liabilities and capital deficiency	$	69,959		$	266,720

See accompanying notes to the condensed financial statements.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

(An Exploration Stage Company)

Condensed Statements of Operations (unaudited)

For the three and nine months ended December 31, 2010 and 2009,

and the Period from March 1, 2008 (Inception) to December 31, 2010

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,						Inception March 1, 2008 – December 31,
	2010			2009			2010			2009			2010
Net revenue	$	-		$	-		$	-		$	-		$	-

Cost of revenue		-			-			-			-			-

Gross profit (loss)		-			-			-			-			-

Loss on oil and gas assets		60,074			-			127,188			-			127,188
Investor relations		750			238,112			64,005			238,344			567,814
General and administrative expenses		18,893			166,218			169,561			2,104,468			2,425,895

Loss from continuing operations		(79,717	)		(404,330	)		(360,754	)		(2,342,802	)		(3,120,897	)

Other income/(expense)

Change in fair value of convertible notes		8,626			-			(92,715	)		-			(50,984	)
Change in fair value of warrants		8,916			-			(4,330	)		-			56.357
Loss on extinguishment of debt		-			-			-			-			(177,941	)
Loss on loan modification		-			(78,500	)		-			(78,500	)		(283,000	)
Interest expense		(40,414	)		(74,890	)		(136,721	)		(135,718	)		(334,728	)

Total other income/(expense)		(22,872	)		(153,390	)		(233,766	)		(214,218	)		(790,296	)

Net loss	$	(102,590	)	$	(557,720	)		(594,520	)		(2,557,020	)	$	(3,911,193	)

Weighted average common shares outstanding – basic and diluted		7,097,771			8,344,878			7,071,474			3,418,496			3,803,978

Net loss per share - basic and diluted	$	(0.01	)	$	(0.07	)	$	(0.08	)	$	(0.75	)	$	(1.03	)

See accompanying notes to the unaudited financial statements.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

(An Exploration Stage Company)

Condensed Statements of Cash Flows

For the three months ended December 31, 2010 and 2009,

and the Period from March 1, 2008 (Inception) to December 31, 2010

	2010			2009			Inception (March 1, 2008 – December 31, 2010

Cash flows from operating activities:
Net loss	$	(594,520	)	$	(2,557,020	)	$	(3,911,193	)

Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation, consulting		74,200			2,018,140			2,179,611
Loss on oil and gas assets		127,188			-			127,188
Loss on loan modification		-			78,500			283,000
Loss on extinguishment of debt		-			-			177,941
Change in fair value of convertible notes		92,715			-			50,984
Change in fair value of warrants		4,330			-			(56,357	)
Depreciation expense		150			-			150
Non-cash interest		106,714			108,122			241,792
Changes in operating assets and liabilities:					-
Other assets		(10,000	)		225			(10,450	)
Accounts payable		-			(230	)		(17,529	)
Accrued interest		30,007			27,596			92,419
Accrued expenses		-			(2,243	)		(3,554	)

Net cash used in operating activities		(169,216	)		(326,910	)		(845,998	)

Cash flows from investing activities:
Fixed asset acquisition		(906	)		-			(906	)
Investment in oil and gas properties		-			(20,776	)		(72,189	)

Net cash used in investing activities		(906	)		(20,776	)		(73,095	)

Cash flows from financing activities:
Proceeds from issuance of debt to stockholders		150,000			377,000			920,500

Net cash provided by financing activities		150,000			377,000			920,500

Net increase (decrease) in cash		(20,122	)		29,314			1,407

Cash, beginning of period	$	22,258		$	4,032		$	729

Cash, end of period	$	2,136		$	33,346		$	2,216

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	-		$	-		$	-

Non-cash investing and financing activities:
Convertible debt issued for oil and gas lease agreements	$	-		$	96,000		$	96,000
Stock issued to settle convertible debt	$	-		$	17,250		$	21,250
Stock issued to settle interest expense	$	-		$	-		$	373

See accompanying notes to the financial statements.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

December 31, 2010

NOTE 1 - ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed financial statements have been prepared by the Company, pursuant to the rules and regulations of the U. S. Securities and Exchange Commission for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited condensed financial statements included herein reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. Interim results are not necessarily indicative of the results that may be expected for the year. The unaudited condensed financial statements should be read in conjunction with the condensed financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operation, for the year ended March 31, 2010, contained in the Company’s March 31, 2010 Annual Report on Form 10-K.

The Company’s condensed 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 $5,587,000 as of December 31, 2010. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.

In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. The Company is currently in the process of acquiring and developing crude oil and natural gas leases. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern.

NOTE 2 – BASIS OF PRESENTATION

Reporting Entity. Signature Exploration and Production Corp. (“Signature” or “the Company”) was incorporated on April 4, 2001 under the laws of the State of Delaware. The Company is authorized to issue 250,000,000 shares of common stock, par value $.0001. As of March 1, 2008, the Company became an exploration stage company engaged in the acquisition and development of crude oil and natural gas leases in the United States. In accordance withthe FASB ASC, we have reported our Statement of Operations and Statement of Cash Flows from the inception as an exploration stage company to the current reporting period of December 31, 2010. The Company’s office is located in Houston, Texas.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

December 31, 2010

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.

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 to 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 63,597,576 common stock equivalent shares outstanding as of December 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 accumulated 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.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

December 31, 2010

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Recent Accounting Pronouncements

There were no recently issued accounting pronouncements that will have a material impact on the Company’s financial statements.

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.

	Fair Value Measurement
	Level 1		Level 2		Level 3		Total
Cash	$	2,136	$	-	$	-	$	2,136
Convertible notes from stockholders	$	-	$	446,750	$	-	$	446,750
Convertible notes from stockholders, at fair value	$	-	$	-	$	498,157	$	498,157
Derivative liability	$	-	$	-	$	325,880	$	325,880

The following table presents the changes in Level 3 instruments measured on a recurring basis for the nine months ended December 31, 2010:

	Convertible Notes		Derivative Liability		Total
Balance, beginning of period	$	258,475	$	292,050	$	550,525
Realized and unrealized gains (losses);
Included in other income (expense)		92,715		4,330		97,045
Included in other comprehensive income		-		-		-
Purchases, issuances, and settlements		146,967		29,500		176,467
Transfers in (out)		-		-		-

Balance, end of period	$	498,157	$	325,880	$	824,037

SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY

Notes to Condensed Financial Statements (unaudited)

December 31, 2010

NOTE 4 – FAIR VALUE MEASUREMENTS, CONTINUED

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. As a result, we were required to record accounting losses beyond our economic exposure. To mitigate the divergence between accounting losses and economic exposure, we elected the fair value option. 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 0.29% to 2.01%, (2) remaining contractual life of 1 to 4.67 years, (3) expected stock price volatility of 547% 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:

Prospect	Costs
Koliba	$	67,189
Kenedy		60,000
Catron		36,000
Nettie Rhodes		5,000

Dry hole costs		(127,189	)

Total	$	41,000

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. Drilling began on this property on June 29, 2010 and was finished on July 19, 2010. After testing the well, it was determined that it was not financially feasible to complete the well and was subsequently capped. As a result of this, a loss on oil and gas assets was recognized in the amount of $67,189.

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. Drilling began on this property November 2010 and was finished in December 2010. After testing the well, it was determined that it was not financially feasible to continue with the well and the Company chose not to participate in the completion of the well. As a result of this, a loss on oil and gas assets was recognized in the amount of $60,000.

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.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

December 31, 2010

NOTE 6 – CONVERTIBLE NOTES AND WARRANTS

August 2010 Convertible Notes and Warrants

On August 17, and 27, 2010, Signature Exploration and Production Corp. (the "Company") entered into two Convertible Note Agreements ("Notes") for a total of $58,824. The Company received aggregate proceeds of $50,000 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes are due on August 17, and 27, 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 $0.10. 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 588,240 shares of common stock of the Company. The Warrant is exercisable at a price equal to $0.15. 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. The principal amount due on these notes is $58,824, whereas, the Company’s aggregate fair value of the notes is $33,372 and $33,618 has been determined to be the fair value of the derivative liability.

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 was received on April 27, 2010. The aggregate proceeds of the additional funds is $100,000 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

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 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. The principal amount due on these notes is $352,942, whereas, the Company’s aggregate fair value of the notes is $291,669 and $125,591 has been determined to be the fair value of the derivative liability.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

December 31, 2010

NOTE 6 – CONVERTIBLE NOTES AND WARRANTS, CONTINUED

of shares of common stock issuable upon exercise of the warrants will increase so that the aggregate exercise price payable, after taking into account the reduction in the exercise price to $0.10 per share, will be equal to the aggregate exercise price of the warrants prior to the adjustment.

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 and a nominal rate of 16.63%.

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 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. The principal amount due on these notes is $64,706, whereas, the Company’s aggregate fair value of the notes is $9,153 and $11,245 has been determined to be the fair value of the derivative liability.

On August 17, 2010, due to the issuance of convertible debt at $0.10 per share, the conversion price of these notes and warrants issued by the Company was reduced to $0.10 per share, pursuant to the anti-dilution provisions of these notes and warrants. Also, pursuant to the anti-dilution provisions of the warrants, the number of shares of common stock issuable upon exercise of the warrants will increase so that the aggregate exercise price payable, after taking into account the reduction in the exercise price to $0.10 per share, will be equal to the aggregate exercise price of the warrants prior to the adjustment.

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 and a nominal rate of 16.63%.

The Notes were due on December 7, 2010 and currently in default. 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.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

December 31, 2010

NOTE 6 – CONVERTIBLE NOTES AND WARRANTS, CONTINUED

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. The principal amount due on these notes is $352,942, whereas, the Company’s aggregate fair value of the notes is $163,966 and $155,426 has been determined to be the fair value of the derivative liability.

Convertible Notes from Shareholders

	Convertible Notes		Accrued Interest
Balance, beginning of period	$	426,708	$	72,670
Amortization of beneficial conversion feature		20,042		-
Conversion to stock		-		-
Note issuances		-		-
Accrued interest		-		30,006
Balance, end of period	$	446,750	$	102,676

Convertible notes from shareholders accrue interest at a rate of 10 percent per annum. The note holders have 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 holders 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 holders beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.

The Company is currently in default on certain notes totaling $799,692 and related accrued interest. As of December 31, 2010, no stockholders have made demands for payment of these loans.

NOTE 7 – STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY)

Consulting Agreements.

During the nine month ended December 31, 2010, the Company issued 60,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $64,200 fair value of the shares issued as stock-based consulting.

On April 19, 2010, the Company issued 28,571 shares to legal counsel as a retainer for services under the 2007 Plan. The shares were valued at fifty percent (50%) of the closing price on the date of issuance for a total of $10,000.

Item 2. Management’s Discussion and Analysis or Plan of Operations.

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes,” or similar language. These forward-looking statements, including those with respect to our operating results for 2008, are based upon current expectations and beliefs of the Company’s management and are subject to risks and uncertainties that could cause results to differ materially from those indicated in the forward-looking statements. Some, but not all, of the factors, which could cause actual results to differ materially include those set forth in the risks discussed below under the subheading “Risk Factors” and elsewhere in this report. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, or to explain why actual results differ. Readers should carefully review the risk factors described in this section below and in any reports filed with the Securities and Exchange Commission (“SEC”).

Overview

Our company was incorporated in the State of Delaware on April 4, 2001, under the name of “Flagstick Ventures, Inc.” On March 28, 2008, a majority of our stockholders approved changing our name to Signature Exploration and Production Corp. as our business model had changed to becoming an independent energy company engaged in the acquisition and development of crude oil and natural gas leases in the United States. As of December 31, 2010, we have not yet generated revenues 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 March in 2008, we have been unable to locate a consistent source of additional financing for use in our operational or expansion plans. The Company is currently attempting to raise sufficient funds to purchase leases of oil and gas properties. We can give no assurances that the Company will be able to purchase any leases. Each oil and gas property in which we obtain an interest will have an operator who will be responsible for marketing production.

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. Drilling began on this property on June 29, 2010 and was finished on July 19, 2010. After testing the well, it was determined that it was not financially feasible to complete the well and was subsequently capped.

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. . Drilling began on this property November 2010 and was finished in December 2010. After testing the well, it was determined that it was not financially feasible to continue with the well and the Company chose not to participate in the completion of the well.

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 nine 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 $1,506,000 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 $1,391,000 to repay $1,288,000 of notes payable and the related interest of approximately $103,000.

Based upon our cash position, we will need to raise additional capital prior by the end of fiscal 2011 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 $1,506,000 of capital. However, there can be no assurance that the requisite financing will be consummated in the necessary time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans or possibly cease operations. No assurance can be given that we will be able to operate profitably on a consistent basis, or at all, in the future.

Results of Operations

Comparison of the three and nine months ended December 31, 2010 and December 31, 2009.

FINANCIAL INFORMATION

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2010			2009			2010			2009
Investor relations	$	1,000			238,000		$	64,000			238,000
Loss on oil and gas assets		60,000			-			127,000			-
General and administrative		19,000			166,000			169,000			2,106,000
Other income/(expense)		(23,000	)		(153,000	)		(234,000	)		(214,000	)
Net income/( loss)	$	(103,000	)	$	(557,000	)	$	(594,000	)	$	(2,557,000	)

Comparison of the Three Months Ended December 31, 2010 and December 31, 2009

Investor Relations. Investor relations expenses decreased by approximately $237,000 in 2010.

General and Administrative. General and administrative expenses decreased by $147,000 in 2010. This decrease can be attributed to a reduction of professional fees.

Other Income/( Expenses). Other expense decreased by $130,000 in 2010 due to decreases in loan modifications of $79,000, a decrease of $17,000 in the fair value of convertible notes and warrants, and a $58,000 decrease in interest related to the beneficial conversion features of convertible notes. There was an increase in interest expense of $24,000, which partiallly offsetthe decreases.

Loss on Oil and Gas Assets. Loss on oil and gas assets increased by approximately $60,000 in 2010 due to the drilling of a dry well on the Kenedy Prospect.

Comparison of the Nine Months Ended December 31, 2010 and December 31, 2009

Investor Relations. Investor relations expenses decreased by approximately $174,000 in 2010.

Loss on Oil and Gas Assets. Loss on oil and gas assets increased by approximately $127,000 in 2010 due to the drilling of dry wells on the Koliba and Kenedy Prospect.

General and Administrative. General and administrative expenses decreased by $1,937,000 in 2010. This decrease can be attributed to professional fees of $915,000 and employee compensation of $1,031,000 incurred in 2009, which were offset by an increase in travel expenses of $9,000 in 2010.

Other Income/( Expenses). Other expenses increased by $20,000 in 2010 due to an increase in the fair value of convertible notes and warrants of $97,000 and an increase of $85,000 in interest expense on notes payable and interest related to the amortization of the original issue discount of convertible notes issued during 2010. There was a decrease of $79,000 related to loan modifications and a $83,000 decrease in interest related to the beneficial conversion features of convertible notes

Liquidity and Capital Resources

We had cash balances totaling approximately $2,000 as of December 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 financing activities. Net cash provided by financing activities was generated from promissory notes that total $150,000 and $377,000 for the nine months ended December 31, 2010 and 2009.

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

General

The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable. Policies involving the most significant judgments and estimates are summarized below.

Oil and Gas Activities

We follow the successful efforts method of accounting for our oil and gas activities. Accordingly, costs associated with the acquisition, drilling and equipping of successful exploratory wells are capitalized. Geological and geophysical costs, delay and surface rentals and drilling costs of unsuccessful exploratory wells are charged to expense as incurred. Costs of drilling development wells are capitalized. Upon the sale or retirement of oil and gas properties, the cost thereof and the accumulated depreciation or depletion are removed from the accounts and any gain or loss is credited or charged to operations.

Fair Value of Financial Instruments

Effective May 1, 2008, we adopted guidance issued by the FASB on "Fair Value Measurements" for assets and liabilities measured at fair value on a recurring basis. This guidance establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of this guidance did not have an impact on our financial position or operating results, but did expand certain disclosures.

The FASB 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 at the measurement date. Additionally, the FASB requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

In addition, the FASB issued, "The Fair Value Option for Financial Assets and Financial Liabilities," effective for May 1, 2008. This guidance expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value.

The Company elected measures certain convertible debts and derivative liabilities at fair market value. We elected the fair value option to mitigate the divergence between accounting losses and economic exposure. 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 0.29% to 2.01%, (2) remaining contractual life of 1 to 4.67 years, (3) expected stock price volatility of 547% and (4) expected dividend yield of zero.

Equity-Based Compensation

The computation of the expense associated with stock-based compensation requires the use of a valuation model. The FASB issued accounting guidance requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. We currently use a Black-Scholes option pricing model to calculate the fair value of our stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. This accounting guidance requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.

Commitments

As of December 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.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3 – QUANTITATIVE AND QUALITATIVE DISCLOSERS ABOUT MARKET RISK

ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer has carried out an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of December 31, 2010.

Based on his evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are ineffective. Material weaknesses in the controls over period end financial disclosure and reporting processes included 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.

Material Weaknesses

In our Form 10-K for the fiscal year ended March 31, 2010 under Item 9-A- Controls and Procedures, we identified material weaknesses in our system of internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not a party to any pending legal proceedings nor is any of its property subject to pending legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Consulting Agreements

During the nine months ended December 31, 2010, the Company issued 60,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $64,200 fair value of the shares issued as stock-based consulting.

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 April 19, 2010, the Company issued 28,571 shares to legal counsel as a retain for services under the 2007 Plan. The shares were valued at fifty percent (50%) of the closing price on the date of issuance for a total of $10,000.

Item 3. Defaults Upon Senior Securities.

At December 31, 2010 to Company is in default on stockholder’s loans totaling $799,692 and accrued interest of approximately $103,000. The Company may use the collateral of restricted shares of the Company’s common stock to satisfy these notes. As of December 31, 2010, no stockholders have made demands for payment of these loans.

Item 4. Submission of Matters to a Vote of Security Holders.

Not Applicable

Item 5. Other Information.

Not Applicable.

Item 6. Exhibits

(a) Exhibits

EXHIBIT NUMBER		DESCRIPTION

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*

* Filed herewith.

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SIGNATURE EXPLORATION AND PRODUCTION CORP.

Date: February 14, 2011	By:	/s/ Steven Weldon
		Name: Steven Weldon
		Title: Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

By:	/s/ Steven Weldon	February 14, 2011
	Name: Steven Weldon	(Date)
	Title: Chief Executive Officer and Director

GB SCIENCES INC - FORM 10-Q - February 14, 2011

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GB SCIENCES INC Reports