GB SCIENCES INC - FORM 10-Q - February 14, 2014

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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, 2013

¨
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.)
___________________________
 
4700 Millenia Blvd, Suite 175
Orlando, FL 32839
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)
___________________________

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


Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
                                [X] Yes    [ ] No

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

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

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


                      Class                                                                        Outstanding as of February 14, 2014
Common stock, .0001 par value                                                                         850,104



EXCEPT WHERE AND AS OTHERWISE STATED TO THE CONTRARY IN THIS ANNUAL REPORT, ALL SHARE AND PRICES PER SHARE HAVE BEEN ADJUSTED TO GIVE RETROACTIVE EFFECT TO THE CHANGE IN THE PRICE PER SHARE OF THE COMMON STOCK RESULTING FROM THE TEN -FOR-ONE REVERSE SPLIT OF THE COMMON STOCK THAT TOOK EFFECT ON SEPTEMBER 3, 2013.
 
 
-1-
 
 
 
 
SIGNATURE EXPLORATION AND PRODUCTION CORP.

FORM 10-Q


INDEX
PART I – FINANCIAL INFORMATION
Page
Item 1.
Financial Statements
  
     
 
Condensed Balance Sheet (unaudited) at December 31, 2013 and March 31, 2013
3
 
Condensed Statements of Operations (unaudited) for the Nine Months Ended December 31, 2013 and 2012 and the Period from March 1, 2008 (Inception) to December 31, 2013
4
 
Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended December 31, 2013 and 2012 and the Period from March 1, 2008 (Inception) to December 31, 2013
5
 
Notes to Condensed Financial Statements (unaudited)
6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
12
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
15
Item 4.
Controls and Procedures
15
     
PART II – OTHER INFORMATION
  
   
Item 1.
Legal Proceedings
15
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
15
Item 3.
Defaults Upon Senior Securities
19
Item 4.
Mine Safety Disclosures
19
Item 5.
Other Information
19
Item 6.
Exhibits
20
     
SIGNATURE PAGE
21
 
 
-2-
 


 
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
Condensed Balance Sheets

                   Assets
            
         
March 31,
  
   
2013
    
2013
  
             
Current assets:
            
            Cash
  
$
51
    
$
2,427
  
Debt issuance costs
    
2,932
      
3,963
  
Prepaid expenses and other current assets
    
100
      
100
  
                 
Total current assets
    
3,083
      
6,490
  
                 
Property and Equipment:
                
                 
                    Property and Equipment, less accumulated depreciation of  $905 and $777
    
-
      
128
  
                 
                    Total property and equipment
    
-
      
128
  
                 
Total assets
  
$
3,083
    
$
6,618
  
                 
Liabilities and Stockholders’
Equity (Deficiency)
                
                 
Current liabilities:
                
Accounts payable
  
$
11,412
    
$
11,886
  
Accrued interest
    
241,219
      
208,088
  
Other accrued expenses
    
68,992
      
45,751
  
Convertible notes from shareholders
    
447,750
      
442,750
  
Convertible notes from shareholders, at fair value
    
177,029
      
227,521
  
Derivative liability, at fair value
    
197,671
      
260,311
  
                 
Total current liabilities
    
1,144,073
      
1,196,307
  
                 
Commitments and contingencies
    
-
      
-
  
                 
Stockholders’ equity (deficiency):
                
 Common stock, $0.0001 par value, 250,000,000 shares authorized 850,110 shares issued and outstanding at December 31, 2013 and March 31, 2013
    
85
      
85
  
Additional paid-in capital
    
4,367,028
      
 4,367,028
  
Deficit accumulated related to abandoned activities
    
(1,676,223
)
    
(1,676,223
)
Deficit accumulated during exploration stage
    
(3,831,879
)
    
(3,880,579
)
                 
Total stockholders’ equity (deficiency)
    
(1,140,989
)
    
(1,189,689
)
                 
Total liabilities and stockholders’ equity (deficiency)
  
$
3,083
    
$
6,618
  

See accompanying notes to the financial statements.
 
 
-3-
 


SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
Statements of Operations (unaudited)
 
For the Nine Months ended December 31, 2013 and 2012,
and the Period from March 1, 2008 (Inception) to December 31, 2013

   
For the Three Months Ended December 31,
    
For the Nine Months Ended December 31,
        
   
2013
    
2012
    
2013
    
2012
    
Inception March 1, 2008 – December 31, 2013
  
                               
                               
Net revenue
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
                                         
Cost of revenue
    
-
      
-
      
-
      
-
      
-
  
                                         
Gross profit (loss)
    
-
      
-
      
-
      
-
      
-
  
                                         
Stock Compensation
    
-
      
-
      
-
      
-
      
2,085,078
  
Loss on oil and gas assets
    
-
      
-
      
-
      
-
      
168,189
  
Investor relations
    
-
      
-
      
-
      
-
      
567,814
  
General and administrative expenses
    
12,801
      
5,509
      
56,271
      
55,313
      
593,312
  
                                         
Loss from continuing operations
    
(12,801
)
    
(5,509
)
    
(56,271
)
    
(55,313
)
    
(3,414,393
)
                                         
Other income/(expense)
                                        
                                         
     Change in fair value of convertible notes
    
(70,570
)
    
57,133
      
65,335
      
223,993
      
271,060
  
     Change in fair value of warrants
    
(86,955
)
    
50,982
      
78,385
      
263,266
      
289,185
  
     Loss on extinguishment of debt
    
-
      
-
      
-
      
-
      
(177,941
)
     Loss on loan modification
    
-
      
-
      
-
      
-
      
(283,000
)
     Interest expense
    
(12,722
)
    
(12,650
)
    
(38,749
)
    
(38,482
)
    
(516,792
)
                                         
Total other income/(expense)
    
(170,247
)
    
95,465
      
104,971
      
448,777
      
(417,488
)
                                         
Net income/(loss)
  
$
(183,048
)
  
$
89,956
    
$
48,700
    
$
393,464
    
$
(3,831,881
)
                                         
Weighted average common shares outstanding – basic and diluted
    
850,110
      
850,110
      
850,110
      
1,005,774
      
919,232
  
                                         
Net income/( loss) per share - basic and diluted
  
$
(0.22
)
  
$
0.11
    
$
0.06
    
$
0.39
    
$
(4.17
)

See accompanying notes to the financial statements.
 
 
-4-
 
 
SIGNATURE EXPLORATION AND PRODUCTION CORP.
(An Exploration Stage Company)
 Condensed Statements of Cash Flows
For the Nine months ended December 31, 2013 and 2012,
and the Period from March 1, 2008 (Inception) to December 31, 2013

 
                   
 Cash flows from operating activities:
                  
     
2013
      
2012 
      
Inception (March 1, 2008 - March 31, 2013) 
  
Net income/(loss)
  
$
48,700
    
$
393,464
    
$
(3,831,881
)
                         
Adjustments to reconcile net loss to net cash used in
                        
operating activities:
                        
Depreciation expense
    
128
      
225
      
905
  
Loss on oil and gas assets
    
-
      
-
      
168,189
  
Stock compensation
    
-
      
-
      
2,172,350
  
Loss on loan modification
    
-
      
-
      
283,000
  
Loss on extinguishment of debt
    
-
      
-
      
177,941
  
Change in fair value of convertible notes
    
(65,335
)
    
(223,993
)
    
(271,060
)
 Change in fair value of warrants
    
(78,385
)
    
(263,266
)
    
(289,185
)
Non-cash interest
    
5,619
      
5,413
      
394,086
  
Changes in operating assets and liabilities:
                        
                                           Other assets
    
-
      
350
      
5,363
  
                                           Accounts payable
    
(475
)
    
2,217
      
(6,118
)
                                           Accrued expenses
    
56,372
      
49,216
      
168,626
  
                         
Net cash used in operating activities
    
(33,376
)
    
(36,374
)
    
(1,027,783
)
                         
Cash flows from investing activities:
                        
                         
                                            Investment in oil and gas properties
    
-
      
-
      
(72,189
)
                                            Purchase of property and equipment
    
-
      
-
      
(906
)
                         
                                            Net cash used in investing activities
    
-
      
-
      
(73,095
)
                         
Cash flows from financing activities:
                        
                                            Proceeds from issuance of debt to stockholders
    
31,000
      
34,200
      
1,100,200
  
                         
                                            Net cash provided by financing activities
    
31,000
      
34,200
      
1,100,200
  
                         
Net increase (decrease) in cash
    
(2,376
)
    
(2,174
)
    
(678
)
                         
Cash, beginning of year
  
$
2,427
    
$
2,174
    
$
729
  
                         
Cash, end of year
  
$
51
    
$
-
    
$
51
  
                         
Supplemental disclosures of cash flow information:
                        
Cash paid during the year for:
                        
Interest
  
$
-
    
$
-
    
$
-
  
                         
 
 
 
 
Non-cash investing and financing activities:
                        
Stock issued for legal retainer included in other assets
  
$
-
    
$
-
    
$
5,462
  
Convertible debt issued for oil and gas lease agreements
  
$
-
    
$
-
    
$
96,000
  
Stock issued to settle convertible debt
  
$
-
    
$
-
    
$
125,250
  
Stock issued to settle interest expense
  
$
-
    
$
-
    
$
373
  

The accompanying notes are an integral part of the financial statements.

 
 
-5-
 
 
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Condensed Financial Statements (unaudited)
December 31, 2013

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, 2013, contained in the Company’s March 31, 2013 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 $5,500,000 as of December 31, 2013. 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 with U.S. GAAP, 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, 2013. The Company’s office is located in Orlando, FL.
 
 
-6-
 
 
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Condensed Financial Statements (unaudited)
December 31, 2013

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 Nine 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 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.

Income/(Loss) per Share. The Company’s basic and diluted income/(loss) per share has been calculated using the weighted average number of common shares outstanding during the period. The Company has 6,558,927 dilutive common stock equivalent shares outstanding as of December 31, 2013.

Oil and gas properties.
The Company accounts for its oil and gas activities under the successful efforts method. 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

There were no recently issued accounting pronouncements that will have a material impact on the Company’s financial statements.
 
-7-
 
 
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Condensed Financial Statements (unaudited)
December 31, 2013

NOTE 4 – FAIR VALUE MEASUREMENTS

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.  

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.  

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 holds certain financial liabilities which are measured at fair value on a recurring basis in accordance with ASC topic 825-10-15.  The elections are made on an instrument by instrument basis.  In valuing the instruments for which a fair value election has been made, Level 3 inputs are generally required.  The Company has elected to implement the fair value option to account for certain convertibles notes and detachable warrants.

The tables below detail the Company’s assets and liabilities measured at fair value.

   
Fair Value Measurements December 31, 2013
        
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Convertible notes from stockholders, at fair value
  
$
-
    
$
-
    
$
177,029
    
$
177,029
  
Derivative liability
  
$
-
    
$
-
    
$
197,671
    
$
197,671
  
   
 
Fair Value Measurement March 31, 2012
          
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Convertible notes from stockholders, at fair value
  
$
-
    
$
-
    
$
227,521
    
$
227,521
  
Derivative liability
  
$
-
    
$
-
    
$
260,311
    
$
260,311
  
 
 
-8-
 
 
SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY
Notes to Condensed Financial Statements (unaudited)
December 31, 2013

NOTE 4 – FAIR VALUE MEASUREMENTS, CONTINUED
 
The following table presents the changes in Level 3 instruments measured on a recurring basis for the period ended December 31, 2013:
 
   
Convertible Notes
    
Derivative Liability
    
Total
  
                   
Balance,  March 31, 2012
  
$
227,521
    
$
260,311
    
$
487,832
  
                         
Realized and unrealized gains (losses);
    
65,335
      
78,385
      
143,720
  
      Included in other income (expense)
    
-
      
-
      
-
  
Purchases, issuances, and settlements
    
14,843
      
15,745
      
30,588
  
Balance, December 31, 2013
  
$
177,029
    
$
197,671
    
$
374,700
  
                         
 
The convertible notes and derivative liability in the preceding tables were measured at fair value, in accordance with ASC Topic 825-10-15, as one instrument and that fair value was allocated to each component.  The Company made the fair value election due to this methodology providing a fairer representation of the economic substance of the transaction within the fair value hierarchy. Due to the lack of relevant and market reflective Level 1 and Level 2 inputs, the Company valued the instruments using Level 3 inputs, which require significant judgment and estimates on behalf of management in developing model assumptions. The factors considered in developing those assumptions included; the Company’s inability to attract investment at terms more favorable to the Company, the lack of success in developing oil properties thus far, the continuing reduction in the net assets of the Company and the Company’s history of default on currently outstanding debt.
 
Based on management’s evaluation of the assumptions discussed above, the liabilities were initially recorded in an amount equal to the transaction price, which represented the fair value of the total liability at initial recognition. The model used by the Company is calibrated so that the model value at initial recognition equals the transaction price. On an ongoing basis the fair value model used in valuing the convertible notes and derivative liability utilizes the following inputs; exercise price per warrant, conversion price per share, contract term, volatility, current stock prices and risk free rates. The following assumptions were made in the model: (1) risk free interest rate of 0.13% to 1.75%, (2) remaining contractual life of 1 to 4.12 years, (3) expected stock price volatility of 395% to 798% and (4) expected dividend yield of zero.

The carrying amounts of cash, accounts payable and accrued expenses approximate their respective fair values because of the short-term maturity of these items. The carrying amount of the Company’s convertible notes from shareholders represents the face value of the notes, which approximated fair value at the time of issuance.

NOTE 5 – CONVERTIBLE NOTES AND WARRANTS

Convertible Notes from Shareholders

The Company has debt outstanding to shareholders, which was issued between 2006 and 2009. The debt was not issued with warrants and some of the debt was not originally issued with a conversion feature. During fiscal years 2009 and 2010, the notes without conversion features were modified to contain a conversion feature, for which the Company recorded a loss on the modification.  Convertible notes from shareholders issued during fiscal year 2010 contained a beneficial conversion feature, with the discount being amortized over the term of the note, see table below.

 
 
-9-
 
 
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Condensed Financial Statements (unaudited)
December 31, 2013

NOTE 5 – CONVERTIBLE NOTES AND WARRANTS, CONTINUED

   
Convertible Notes
    
Accrued Interest
  
Balance, beginning of period
  
$
442,750
    
$
208,088
  
Amortization of beneficial conversion feature
    
-
      
-
  
Purchases, issuances, and settlements
    
5,000
      
-
  
Accrued interest
    
-
      
33,131
  
Balance, end of period
  
$
447,750
    
$
241,219
  

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 $0.10. 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 $442,750 of convertible notes from shareholders and $241,156 of related accrued interest.  As of December 31, 2013, no shareholders have made demands for payment of these loans.

In November 2013, the Company entered into two one year note agreements expiring in one year totaling $5,000 from shareholders that accrue interest at a rate of 10 percent per annum. If any event of default shall occur and be continuing for a period of seven calendar days, the interest rate increases to 12% per annum and convert the notes and accrued interest, or any portion thereof, into shares of common stock at a price per share equal to 75% of the average of the three lowest trading prices occurring at any time during the twenty trading days preceding conversion.
 
Convertible Notes from Shareholders at fair value and derivative liability

The table below provides the details of the convertible notes from shareholders at fair value and the derivative liability at fair value for each issuance of convertible notes with detachable warrants for which a fair value election was made. See Note 4 for a discussion of the fair value election and a reconciliation of the change in the fair value of the notes and derivative liability.
 
       
 Notes
            
Derivative
Liability (Warrants)
  
 
Month Notes were issued
  
Face Value on Issuance Date
    
 
Proceeds
    
Fair Value at March 31, 2013
    
Fair Value at December 31, 2013
    
Fair Value at March 31, 2013
    
Fair Value at December 31, 2013
  
December 2009(2)
  
$
352,942
    
$
300,000
    
$
44,652
    
$
30,987
    
$
108,018
    
$
79,169
  
January 2010
    
64,706
      
60,000
      
4,785
      
3,430
      
4,746
      
2,686
  
February 2010 (1)
    
352,942
      
300,000
      
95,706
      
71,191
      
64,483
      
44,649
  
August 2010
    
58,824
      
50,000
      
18,148
      
13,306
      
17,382
      
12,196
  
March 2011
    
70,590
      
60,000
      
20,441
      
15,117
      
19,672
      
13,968
  
August 2011
    
47,060
      
40,000
      
16,157
      
11,897
      
15,940
      
11,375
  
February 2012
    
11,766
      
11,000
      
3,044
      
2,521
      
2,837
      
2,278
  
August 2012
    
27,030
      
23,000
      
15,295
      
11,095
      
16,995
      
12,495
  
November 2012
    
13,178
      
11,200
      
7,295
      
5,250
      
8,118
      
5,926
  
February 2013
    
4,118
      
3,500
      
1,998
      
1,452
      
2,120
      
1,534
  
June 2013
    
30,588
      
26,000
      
-
      
10,783
      
-
      
11,395
  
   
$
1,033,744
    
$
884,700
    
$
227,521
    
$
177,029
    
$
260,311
    
$
197,671
  
                                                 

(1)  
A portion of the proceeds from this debt, $100,000 was not received until April 2010.
(2)  
$100,000 of this debt was converted to 1,000,000 shares of common stock.
 
 
-10-
 
 
SIGNATURE EXPLORATION AND PRODUCTION CORP.
Notes to Condensed Financial Statements (unaudited)
December 31, 2013
 
The notes above were all issued with a 15% original issue discount to the note holders and have a nominal interest rate of 16.63%. The note holders may convert, into shares of common stock, any portion of the notes that are outstanding, whether such portion represents principle or interest at $0.10. All of the convertible debt at fair value has a one year maturity. Therefore, at December 31, 2013 $1,003,156 of the debt is in default, although no shareholders have made demands for payment of these loans.

NOTE 5 – CONVERTIBLE NOTES AND WARRANTS, CONTINUED

Each note was issued with a five year warrant to purchase shares of common stock of the Company.  The warrants expire at various dates from 2014 to 2018. The table below shows the change in the number of warrants outstanding as of December 31, 2013 and March 31, 2012.

             
   
Warrants Outstanding
  
   
Number of Shares
    
Exercise Price
  
Outstanding at March 31, 2012
    
1,236,477
    
$
1.50-$1.00
  
  Warrants issued
    
13,178
    
$
1.00
  
  Warrants exercised
    
-
      
-
  
  Warrants expired/cancelled
    
-
      
-
  
Outstanding at December 31, 2013
    
1,249,655
    
$
1.50-$1.00
  

The convertible notes and warrants issued between December 2009 and February 2010 originally contained substantially higher conversion and exercise prices, however, due to the anti-dilution provisions in the agreements, and as a result of the debt and warrants issued in August 2010, all of the previous exercise prices were revised to be $1.00, which was the conversion price contained in the August 2010 note agreement.

All of the notes and warrants contain an anti-dilution adjustment that state the conversion and exercise price may not be adjusted below $1.00.  In addition, the note holder is only allowed to convert shares or exercise warrants or portions 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.

In accordance with ASC topic 815-40, the Company evaluated whether an additional liability should be recorded to reflect the deficiency in authorized shares.  Specifically, the Company considered the guidance in ASC 840-40-35-12, which allows for reclassification of contracts on a systematic, rational and consistently applied basis. Based on this guidance the Company determined that the only potentially convertible shares not currently recorded as a liability relate to the convertible notes from shareholders, in the amount of $442,750. As this debt is already convertible at $1.00 the Company believes this debt would be converted before any other notes and warrant exercises, causing the Company to have enough authorized shares to issue upon the potential conversion of those 442,750 shares. Therefore, no additional liability was recorded at December 31, 2013.

NOTE 6 – STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY)

Subscription Agreements
During June 2013, the Company entered into two Convertible Note Agreements ("Notes") for a total of $30,588.  The Company received aggregate proceeds of $26,000 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes are due in June 2014.  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 $1.00. The Notes includes an anti-dilution adjustment that may not be adjusted below $0.10.

Simultaneously with the issuance of these Notes, the Company issued to the Note holders a 5-year warrant (the "Warrants") to purchase 131,780 shares of common stock of the Company.  The Warrants are exercisable at a price equal to $0.15. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.10.

The note holders 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.

 
-11-
 
 
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, 2013, we have not yet generated revenues related to the energy operations.

Plan of Operation

Our primary strategy is to develop existing acreage position through the drillbit in order to accrete significant value to our stockholders. The company will continue to seek those acquisitions of select properties that have been identified as attractive, both technically and geologically, and possess meaningful upside potential. 

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 in will have an operator who will be responsible for marketing and production.

Cash Requirements

We estimate that we will require an additional $1,782,000 to fund our currently anticipated requirements for ongoing operations for our existing business for the next twelve-month period. We expect to pay $30,000 for professional fees and expense related to being a public company and $30,000 for expenses related to general operations.  We will also need approximately $1,722,000 to repay $1,481,000 of notes payable and the related interest of approximately $241,000.

Based upon our cash position, we will need to raise additional capital prior by the end of fiscal 2014 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 $1,782,000 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.

 
-12-
 
 
Results of Operations
 
Comparison of the fiscal year ended December 31, 2013 and June 30, 2012.

FINANCIAL INFORMATION

   
For the Three Months Ended December 31,
    
For the Nine Months Ended December 31,
  
   
2013
    
2012
    
2013
    
2012
  
General and administrative
    
13,000
      
5,000
      
56,000
      
55,000
  
Other income/(expense)
    
(170,000
)
    
95,000
      
105,000
      
449,000
  
Net income/(loss)
  
$
(183,000
)
  
$
90,000
      
(49,000
)
  
$
394,000
  

Comparison of the Three Months Ended December 31, 2013 and December 31, 2012

General and Administrative.  General and administrative expenses decreased in 2013 due to a decrease in accrued payroll.

Other Income/(Expense).  Other income decreased in 2013 due to the change in the fair value of convertible notes and warrants.

Comparison of the Nine Months Ended December 31, 2013 and December 31, 2012

General and Administrative.  General and administrative expenses decreased in 2013 due to a decrease in professional fees.

Other Income/(Expense).  Other income decreased in 2013 due to the change in the fair value of convertible notes and warrants.

 Liquidity and Capital Resources

We had cash balances totaling approximately $51 as of December 31, 2013.   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 $0 cash used in investing activities for the Nine months ended December 31, 2013 and 2012.
 
Cash flows from financing activities. Net cash provided by financing activities was generated from promissory notes that total $31,000 and $40,000 for the Nine months ended December 31, 2013 and 2012.

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. The critical accounting policies affecting our financial reporting are summarized in Note 1 to the condensed financial statements included in this quarterly report. Policies involving the most significant judgments and estimates are summarized below.
 
 
-13-
 
 
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
 
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.
 
Convertible notes issued with detachable warrants were measured at fair value, in accordance with ASC Topic 825-10-15, as one instrument, and that fair value was allocated to each component.  The Company made the fair value election due to this methodology providing a fairer representation of the economic substance of the transaction within the fair value hierarchy. Due to the lack of relevant and market reflective Level 1 and Level 2 inputs, the Company valued the instruments using Level 3 inputs, which require significant judgment and estimates on behalf of management in developing model assumptions. The factors considered in developing those assumptions included; the Company’s inability to attract investment at terms more favorable to the Company, the lack of success in developing oil properties thus far, the continuing reduction in the net assets of the Company and the Company’s history of default on currently outstanding debt.
 
Based on management’s evaluation of the assumptions discussed above, the liabilities were initially recorded in an amount equal to the transaction price, which represented the fair value of the total liability at initial recognition.. The model used by the Company is calibrated so that the model value at initial recognition equals the transaction price. On an ongoing basis the fair value model used in valuing the convertible notes and derivative liability utilizes the following inputs; exercise price per warrant, conversion price per share, contract term, volatility, current stock prices and risk free rates. The following assumptions were made in the model: (1) risk free interest rate of 0.13% to 1.75%, (2) remaining contractual life of 1 to 4.12 years, (3) expected stock price volatility of 395% to 798% and (4) expected dividend yield of zero.
 

Commitments
 
Except as shown in the following table, as of December 31, 2013, 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 December 31, 2013 are as follows:

Convertible notes from shareholders
    
448,000
  
Convertible notes from shareholders, at face value
    
1,034,000
  
Accrued interest
    
241,000
  
         
Total
  
$
1,723,000
  
Off Balance Sheet Arrangements
 
 
-14-
 
 
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3 – QUANTITATIVE AND QUALITATIVE DISCLOSERS ABOUT MARKET RISK

NA

ITEM 4 - CONTROLS AND PROCEDURES

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, 2013.
 
 
Based on their 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. Internal control weaknesses included 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.

Material Weaknesses

In our Form 10-K for the fiscal year ended March 31, 2013 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.

Recent Sales of Unregistered Securities

June 2013 Convertible Notes and Warrants

During June 2013, the Company entered into two Convertible Note Agreements ("Notes") for a total of $30,588.  The Company received aggregate proceeds of $26,000 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes are due in June 2014.  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 $1.00. The Notes includes an anti-dilution adjustment that may not be adjusted below $0.10.

 
-15-
 
 
Simultaneously with the issuance of these Notes, the Company issued to the Note holders a 5-year warrant (the "Warrants") to purchase 131,780 shares of common stock of the Company.  The Warrants are exercisable at a price equal to $0.15. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.10.

The note holders 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.

February 2013 Convertible Notes and Warrants

During February 2013, the Company entered into two Convertible Note Agreements ("Notes") for a total of $4,118.  The Company received aggregate proceeds of $3,500 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes are due in February 2014.  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 $1.00. The Notes includes an anti-dilution adjustment that may not be adjusted below $0.10.

Simultaneously with the issuance of these Notes, the Company issued to the Note holders a 5-year warrant (the "Warrants") to purchase 41,180 shares of common stock of the Company.  The Warrants are exercisable at a price equal to $0.15. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.10.

The note holders 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.

November 2012 Convertible Notes and Warrants

During November 2012, the Company entered into two Convertible Note Agreements ("Notes") for a total of $13,178.  The Company received aggregate proceeds of $11,200 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes are due in November 2013.  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 $1.00. The Notes includes an anti-dilution adjustment that may not be adjusted below $0.10.

Simultaneously with the issuance of these Notes, the Company issued to the Note holders a 5-year warrant (the "Warrants") to purchase 131,780 shares of common stock of the Company.  The Warrants are exercisable at a price equal to $0.15. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.10.

The note holders 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.

July 2012 Convertible Notes and Warrants

On July 17, 2012, the Company issued 115,000 restricted shares of common stock of the Company to two stockholders for $23,000.   On August 15, 2012 the 115,000 restricted shares were returned to the Company in exchange for two Convertible Note Agreements ("Notes") for a total of $27,060 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes are due in February 2013.  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 $1.00. The Notes includes an anti-dilution adjustment that may not be adjusted below $0.10.

Simultaneously with the issuance of these Notes, the Company issued to the Note holders a 5-year warrant (the "Warrants") to purchase 270,600 shares of common stock of the Company.  The Warrants are exercisable at a price equal to $0.15. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.10.

 
-16-
 
 
The note holders 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.


February 2012 Convertible Notes and Warrants

During February 2012, the Company entered into two Convertible Note Agreements ("Notes") for a total of $11,766.  The Company received aggregate proceeds of $11,000 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes are due in February 2013.  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 $1.00. The Notes includes an anti-dilution adjustment that may not be adjusted below $0.10.

Simultaneously with the issuance of these Notes, the Company issued to the Note holders a 5-year warrant (the "Warrants") to purchase 117,660 shares of common stock of the Company.  The Warrants are exercisable at a price equal to $0.15. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.10.

The note holders 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.

August 2011 Convertible Notes and Warrants

During August 2011, the Company entered into Nine Convertible Note Agreements ("Notes") for a total of $47,060.  The Company received aggregate proceeds of $40,000 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes are due in August 2012.  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 $1.00. The Notes includes an anti-dilution adjustment that may not be adjusted below $0.10.

Simultaneously with the issuance of these Notes, the Company issued to the Note holders a 5-year warrant (the "Warrants") to purchase 470,600 shares of common stock of the Company.  The Warrants are exercisable at a price equal to $0.15. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.10.

The note holders 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.

March 2011 Convertible Notes and Warrants

During March 2011, the Company entered into two Convertible Note Agreements ("Notes") for a total of $70,590.  The Company received aggregate proceeds of $60,000 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes were due in March 2012.  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 $1.00. The Notes include an anti-dilution adjustment that may not be adjusted below $0.10.

Simultaneously with the issuance of these Notes, the Company issued to each Note holder a 5-year warrant (the "Warrant") to purchase 705,900 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 $0.10.

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.

 
-17-
 
 
August 2010 Convertible Notes and Warrants

During August 2010, 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 were due in August 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 $1.00. The Notes include an anti-dilution adjustment that may not be adjusted below $0.10.

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 $0.10.

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.

February 2010 Convertible Notes and Warrants

On February 10, 2010, 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 were 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 $0.10.

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 $0.10.

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 issuance of convertible debt in August 2010 at $1.00 per share, the conversion price of these notes and warrants issued by the Company was reduced to $1.00 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 $1.00 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, 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 were 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 $0.10.

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 $0.10.

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 issuance of convertible debt in August 2010 at $1.00 per share, the conversion price of these notes and warrants issued by the Company was reduced to $1.00 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 $1.00 per share, will be equal to the aggregate exercise price of the warrants prior to the adjustment.

 
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Consulting Agreements

During the year ended March 31, 2011, the Company issued 60,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $62,400 fair value of the shares issued as stock-based consulting.

Employment Agreements

Mr. Alan Gaines, our former Chief Executive Officer and Chairman, had entered into an Employment Agreement with the Company for a one year term beginning May 2, 2011.  Mr. Gaines would have been compensated with 12,013,413 shares of restricted common stock, payable upon the completion of a Qualified Acquisition or Qualified Equity Raise.  An expense of $960,993 would have been recorded as stock compensation at the time a Qualified Acquisition or Qualified Equity Raise was completed.  Upon the resignation of Mr. David on April 18, 2012, the shares were canceled and no expense was recognized.

Dr. Amiel David, our former Chief Operating Officer, had entered into an Employment Agreement with the Company for a one year term beginning May 2, 2011. Dr. David would have been compensated with 12,013,413 shares of restricted common stock, payable upon the completion of a Qualified Acquisition or Qualified Equity Raise.  An expense of $961,073 would have been recorded as stock compensation at the time a Qualified Acquisition or Qualified Equity Raise was completed.  Upon the resignation of Mr. David on April 18, 2012, the shares were canceled and no expense was recognized.

Note Conversions

During the year ended March 31, 2012, the Company converted a total of $104,000 of notes payable from certain Note Holders into common stock of the Company.  The Company issued 1,400,000 shares of our common stock to satisfy the principal balances of the notes payable.

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.

Item 3. Defaults Upon Senior Securities.

The Company is currently in default on stockholder’s loans totaling $1,446,000 and accrued interest of approximately $241,000.  The Company may use the collateral of restricted shares of the Company’s common stock to satisfy these notes.  As of December 31, 2013, no stockholders have made demands for payment of these loans.

Item 4. Mine Safety Disclosures.

Not Applicable

Item 5. Other Information.

Not Applicable.
 
 
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 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*
     
                   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.*
     
                    101
  
XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q
     
*           Filed herewith.
 
 
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SIGNATURES

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


 
 
Date:           February 14, 2014                                           

SIGNATURE EXPLORATION AND PRODUCTION CORP.
 
By:_/s/ Steven Weldon___________
Name: Steven Weldon
 
Title:   Chief Executive Officer, Chairman, and Director
 
 
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