GB SCIENCES INC - FORM 10-Q

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EX-31.2 - EXHIBIT 31.2 - GB SCIENCES INC	v232707_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - GB SCIENCES INC	v232707_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - GB SCIENCES INC	v232707_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - GB SCIENCES INC	v232707_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

o	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 x

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

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 August 13, 2011
Common stock, .0001 par value	31,127,930

SIGNATURE EXPLORATION AND PRODUCTION CORP.

FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Balance Sheet (unaudited) at June 30, 2011 and March 31, 2011	3
	Condensed Statements of Operations (unaudited) for the Three Months Ended June 30, 2011 and 2011	4
	Condensed Statements of Cash Flows (unaudited) for the Three Months Ended June 30, 2011 and 2011	5
	Notes to Condensed Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosers About Market Risks	17

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	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	20
Item 6.	Exhibits	20

SIGNATURE PAGE		21

SIGNATURE EXPLORATION AND PRODUCTION CORP.

(An Exploration Stage Company)

Condensed Balance Sheets

	June 30,			March 31,
	2011			2011
	(unaudited)
Assets
Current assets:
Cash	$	4,637		$	47,692
Debt issuance costs		9,012			14,329
Prepaid expenses and other current assets		5,913			5,913

Total current assets		19,562			67,934

Property and Equipment:

Property and Equipment, less accumulated depreciation of $345		560			635
Oil and gas properties, unproven		36,000			36,000

Total property and equipment		36,635			36,635

Total assets	$	56,122		$	104,569

Liabilities and Capital Deficiency

Current liabilities:
Accounts payable	$	14,000		$	363
Accrued interest		130,682			119,031
Other accrued expenses		19,000			19,000
Convertible notes from shareholders		446,750			446,750
Convertible notes from shareholders, at fair value		585,173			440,775
Derivative liability, at fair value		554,443			393,726

Total current liabilities		1,750,048			1,419,645

Commitments and contengencies		-			-

Capital deficiency:
Common stock, $0.0001 par value, 250,000,000 shares authorized 31,127,930 and 7,101,104 shares issued and outstanding for the three months ended June 30, 2011 and March 31, 2011		3,113			710
Additional paid-in capital		4,259,999			4,262,403
Deficit accumulated related to abandoned activities		(1,676,223	)		(1,676,223	)
Deficit accumulated during exploration stage		(4,280,815	)		(3,901,966	)

Total capital deficiency		(1,693,926	)		(1,315,076	)

Total liabilities and capital deficiency	$	56,122		$	104,569

See accompanying notes to the financial statements.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

(An Exploration Stage Company)

Condensed Statements of Operations (unaudited)

For the three months ended June 30, 2011 and 2010,

and the Period from March 1, 2008 (Inception) to June 30, 2011

	2011			2010			Inception March 1, 2008 – June 30, 2011
Net revenue	$	-		$	-		$	-

Cost of revenue		-			-			-

Gross profit (loss)		-			-

Stock compensation		-			-			2,085,078
Loss on oil and gas assets		-			67,189			132,263
Investor relations		990			62,070			568,804
General and administrative expenses		55,777			91,915			414,184

Loss from continuing operations		(56,767	)		(221,174	)		(3,200,255	)

Other expense

Change in fair value of convertible notes		(144,398	)		(78,613	)		(102,804	)
Change in fair value of warrants		(160,717	)		(6,491	)		(136,812	)
Loss on extinguishment of debt		-			-			(177,941	)
Loss on loan modification		-			-			(283,000	)
Interest expense		(16,968	)		(45,698	)		(379,98	)

Total other expenses		(322,083	)		(130,802	)		(1,080,485	)

Net loss	$	(378,850	)	$	(351,976	)	$	(4,280,740	)

Weighted average common shares outstanding – basic and diluted		22,852,023			7,045,549			5,522,837

Net loss per share - basic and diluted	$	(0.02	)	$	(0.05	)	$	(0.78	)

See accompanying notes to the financial statements.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

(An Exploration Stage Company)

Condensed Statements of Cash Flows

For the three months ended June 30, 2011 and 2010,

and the Period from March 1, 2008 (Inception) to June 30, 2011

							Inception
							(March 1, 2008
	2011			2010			– June 30, 2011

Cash flows from operating activities:
Net loss	$	(378,850	)	$	(351,976	)	$	(4,280,740	)

Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense		75			-			270
Stock compensation		-			32,100			2,172,350
Loss on oil and gas assets		-			67,189			132,189
Loss on loan modification		-			-			283,000
Loss on extinguishment of debt		-			-			177,941
Change in fair value of convertible notes		144,398			78,613			102,804
Change in fair value of warrants		160,717			6,491			136,810
Non-cash interest		5,318			35,701			367,763
Changes in operating assets and liabilities:
Other assets								(450	)
Accounts payable		13,637			69			(3,530	)
Accrued interest		11,650			9,996			8,096
Accrued expenses		-			1,487

Net cash used in operating activities		(43,055	)		(120,330	)		(903,497	)

Cash flows from investing activities:

Investment in property and equipment		-			-			(906	)
Investment in oil and gas properties		-			-			(72,189	)

Net cash used in investing activities		-			-			(73,095	)

Cash flows from financing activities:
Proceeds from issuance of debt to stockholders		-			100,000			980,500
Proceeds from issuance of debt		-			-			-

Net cash provided by financing activities		-			100,000			980,500

Net increase (decrease) in cash		(43,055	)		(20,330	)		3,908

Cash, beginning of period	$	47,692		$	22,258		$	729

Cash, end of period	$	4,637		$	1,928		$	4,637

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
Stock issued to settle convertible debt	$	-			-		$	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)

June 30, 2011

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, 2011, contained in the Company’s March 31, 2011 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 $5,957,000 as of June 30, 2011. 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 June 30, 2011. The Company’s office is located in Houston, Texas.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

June 30, 2011

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 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 96,135,916 common stock equivalent shares outstanding as of June 30, 2011. 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.

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.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

June 30, 2011

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

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 June 30, 2011
	Level 1		Level 2		Level 3		Total
Convertible notes from stockholders, at fair value	$	-	$	-	$	585,173	$	585,173
Derivative liability	$	-	$	-	$	554,443	$	554,443

	Fair Value Measurement March 31, 2011
	Level 1		Level 2		Level 3		Total
Convertible notes from stockholders, at fair value	$	-	$	-	$	440,775	$	440,775
Derivative liability	$	-	$	-	$	393,726	$	393,726

SIGNATURE EXPLORATION AND PRODUCTION CORP. AND SUBSIDIARY

Notes to Condensed Financial Statements (unaudited)

June 30, 2011

NOTE 4 – FAIR VALUE MEASUREMENTS, CONTINUED

The following table presents the changes in Level 3 instruments measured on a recurring basis for the years ended June 30, 2011:

	Convertible Notes		Derivative Liability		Total

Balance, March 31, 2011	$	440,775	$	393,726	$	834,501

Realized and unrealized gains (losses);
Included in other income (expense)		144,398		160,717		305,115
Purchases, issuances, and settlements		-		-		-
Balance, June 30, 2011	$	585,173	$	554,443	$	1,139,616

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 0.29% to 2.01%, (2) remaining contractual life of 1 to 4.73 years, (3) expected stock price volatility of 406% 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 – 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
Kennedy		60,000
Catron		36,000
Nettie Rhodes		5,000

Dry hole costs		(132,189	)

Total	$	36,000

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

June 30, 2011

NOTE 5 – OIL AND GAS PROPERTIES, CONTINUED

Koliba Prospect – Bloomington TX

In October 2009, we acquired a 15% working interest in this well. The Koliba well prospect covers 143 acres over an anticlinal structure (target) located in the North McFaddin Field. 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. The Company determined that it was not financially feasible to drill this well. As a result of this, a loss on oil and gas assets was recognized in the amount of $5,000.

NOTE 6 – 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.

	Convertible Notes		Accrued Interest
Balance, beginning of period	$	446,750	$	119,031
Amortization of beneficial conversion feature		-		-
Accrued interest		-		11,651
Balance, end of period	$	446,750	$	130,682

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.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

June 30, 2011

NOTE 6 – CONVERTIBLE NOTES AND WARRANTS, CONTINUED

The Company is currently in default on the entire $446,750 of convertible notes from shareholders and the $130,682 of related accrued interest. As of June 30, 2011, no shareholders have made demands for payment of these loans.

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, 2011		Fair Value at June 30, 2011		Fair Value at March 31, 2011		Fair Value at June 30, 2011
December 2009	$	352,942	$	300,000	$	173,258	$	222,696	$	169,675	$	244,653
January 2010		64,706		60,000		9,690		13,236		12,073		17,447
February 2010 (1)		352,942		300,000		182,621		247,130		135,840		187,635
August 2010		58,824		50,000		35,586		48,398		35,994		49,598
March 2011		70,590		60,000		39,620		53,713		40,144		55,110
	$	900,004	$	770,000	$	440,775	$	585,173	$	393,726	$	554,443

(1)	A portion of the proceeds from this debt, $100,000 was not received until April 2010.

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 June 30, 2011 $770,590 of the debt is in default, although no shareholders have made demands for payment of these loans.

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 2016. The table below shows the change in the number of warrants outstanding as of June 20, 2011 and March 31, 2011.

	Warrants Outstanding
	Number of Shares		Exercise Price
Outstanding at March 31, 2010		1,736,268	$	0.75-$0.50
Warrants issued		1,294,140	$	0.15
Additional warrants exercisable due to anti-dilution provisions		8,302,538	$	0.10
Warrants exercised		-		-
Warrants expired/cancelled		-		-
Outstanding at March 31, 2011		11,332,946	$	0.15-$0.10
Warrants issued		-		-
Additional warrants exercisable due to anti-dilution provisions		-		-
Warrants exercised		-		-
Warrants expired/cancelled		-		-
Outstanding at June 30, 2011		11,332,946	$	0.15-$0.10

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 $0.10, which was the conversion price contained in the August 2010 note agreement.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

June 30, 2011

NOTE 6 – CONVERTIBLE NOTES AND WARRANTS, CONTINUED

All of the notes and warrants contain an anti-dilution adjustment that state the conversion and exercise price may not be adjusted below $0.01. 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.

As part of its ongoing analysis for the proper classification of debt and equity instruments, the Company evaluated how many shares would need to be issued if all debt was converted and all warrants were exercised at the lowest possible price of $0.01. If such conversions and exercises were to take place the Company would have to issue 254,475,600 additional shares. Currently there are 250,000,000 shares authorized, leaving a deficit of 35,603,490 shares, which takes into account the 31,127,930 shares already outstanding at June 30, 2011.

In accordance with ASC topic 815-40, the Company evaluated whether an additional liability should be recorded to reflect the deficit 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 $446,750. As this debt is already convertible at $0.01 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 44,675,000 shares. Therefore, no additional liability was recorded at June 30, 2011.

NOTE 6 – STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY)

Agreements

Mr. Alan Gaines, our Chief Executive Officer and Chairman, has entered into an Employment Agreement with the Company for a one year term beginning May 2, 2011. Mr. Gaines will be compensated with 12,012,413 shares of restricted common stock, payable upon the completion of a Qualified Acquisition or Qualified Equity Raise. An expense of $961,073 will be recorded as stock compensation at the time a Qualified Acquisition or Qualified Equity Raise is completed.

Dr. Amiel David, our Chief Operating Officer, has entered into an Employment Agreement with the Company for a one year term beginning May 2, 2011. Dr. David will be 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 will be recorded as stock compensation at the time a Qualified Acquisition or Qualified Equity Raise is completed.

NOTE 7 – SUBSEQUENT EVENTS

Note Conversion

On July 28, 2011, the Company converted a total of $100,000 of the December 2009 note payable into common stock of the Company. The Company issued 1,000,000 shares of our common stock to satisfy the portion of the principal balance of the note payable.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

Notes to Condensed Financial Statements (unaudited)

June 30, 2011

NOTE 7 – SUBSEQUENT EVENTS (CONTINUED)

The Note is due in August 2012. The note holder may convert any portion of the Note that is outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.10. The Note includes an anti-dilution adjustment that may not be adjusted below $0.01.

Simultaneously with the issuance of this Note, the Company issued to the 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 $0.01.

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.

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 June 30, 2011, 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 production.

Unproven Properties

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.

Cash Requirements

We estimate that we will require an additional $1,628,000 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, $80,000 for expenses related to general operations and $19,000 for a rent settlement. We will also need approximately $1,478,000 to repay $1,347,000 of notes payable and the related interest of approximately $131,000.

Based upon our cash position, we will need to raise additional capital prior by the end of fiscal 2012 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 $1,628,000 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 months ended June 30, 2011 and June 30, 2010.

FINANCIAL INFORMATION

	2011			2010
Investor relations		1,000			62,000
Loss on oil and gas assets		-			67,000
General and administrative		56,000			91,000
Other expense		322,000			131,000
Net loss	$	(379,000	)	$	(351,000	)

Investor Relations. Investor relations expenses decreased by approximately $61,000 in 2011 to reduce expenses.

Loss on Oil and Gas Assets. Loss on oil and gas assets decreased by approximately $67,000 in 2011 As no properties were impaired during the three months ended June 30, 2011.

General and Administrative. General and administrative expenses decreased by $35,000 in 2011 due to a decrease in professional fees, travel, and state fees.

Other Expenses. Other expenses increased by $191,000 in 2011 due to a increase in the fair value of convertible notes and warrants of $220,000 and decrease of $29,000 in interest expense on notes payable and interest related to the beneficial conversion feature of convertible notes issued during 2010.

Liquidity and Capital Resources

We had cash balances totaling approximately $4,000 as of June 30, 2011. 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 $-0- and $100,000 for the quarters ended June 30, 2011 and June 30, 2010.

Variables and Trends

We have no operating history with respect to our acquisition and development of oil and gas properties. In the event we are able to obtain the necessary financing to move forward with our business plan, we expect our expenses to increase significantly as we grow our business. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of our future performance and must be considered in light these circumstances.

Critical Accounting Policies

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.

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

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 0.29% to 2.01%, (2) remaining contractual life of 1 to 4.73 years, (3) expected stock price volatility of 406% and (4) expected dividend yield of zero.

Commitments

Except as shown in the following table, as of June 30, 2011, 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 June 30, 2011 are as follows:

Lease settlement liability	$	19,000
Convertible notes from shareholders		447,000
Convertible notes from shareholders, at face value		900,000
Accrued interest		131,000

Total	$	1,497,000

Off Balance Sheet Arrangements

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

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 June 30, 2011.

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 incldue 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, 2011 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.

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 are 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 $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 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 $0.01.

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 are 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 $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.

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 $0.01.

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.

Due to the issuance of convertible debt in August 2010at $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.

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 $0.01.

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.

Due to the issuance of convertible debt in August 2010 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, 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 December 7, 2010. The note holders may convert any portion of the Notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.35. The Notes include an anti-dilution adjustment that may not be adjusted below $0.01.

Simultaneously with the issuance of this Note, the Company issued to each Note holder a 5-year warrant (the "Warrant") to purchase 504,203 shares of common stock of the Company. The Warrant is exercisable at a price equal to $0.50. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.01.

Due to the issuance of convertible debt in August 2010 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.

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.

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 issued at fifty percent (50%) of the closing price on the date of issuance for a total of $10,000.

During fiscal year 2010 the Company issued 80,137 shares of its restricted common stock pursuant to various Consulting Services Agreements. The Company recorded the $89,255 fair value of the shares issued as stock based consulting.

Note Conversions

During the year ended March 31, 2010, the Company converted a total of $21,250 of notes payable and $373 of interest payable from certain Note Holders into common stock of the Company. The Company issued 2,125,000 shares of our common stock to satisfy the principal balances of the notes payable and 37,254 shares of our common stock to satisfy accrued interest of the notes payable. A loss of $177,941 was recognized for the conversion of a $2,000 note during the year ended March 31, 2010.

Item 3. Defaults Upon Senior Securities.

The Company is currently in default on stockholder’s loans totaling $1,217,000 and accrued interest of approximately $131,000. The Company may use the collateral of restricted shares of the Company’s common stock to satisfy these notes. As of June 30, 2011, 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: August 22, 2011	By:	/s/ Alan Gaines
		Name: Alan Gaines
		Title: Chief Executive Officer, Chairman, 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/ Alan Gaines	August 22, 2011
Name: Alan Gaines		(Date)
Title: Chief Executive Officer and Director

By:	/s/ Steven Weldon	August 22, 2011
Name: Steven Weldon		(Date)
Title: Chief Financial Officer and Director

GB SCIENCES INC - FORM 10-Q - August 22, 2011

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