| Item 1. | 2 | |||||
| Item 1A. |
4 | |||||
| Item 1B - |
10 | |||||
| Item 2. |
10 | |||||
| Item 3. |
10 | |||||
| Item 4. |
10 | |||||
| 11 | ||||||
| Item 5. |
Market for Registrant’s Common Stock and Related Stockholder Matters |
11 | ||||
| Item 6. |
12 | |||||
| Item 7. |
12 | |||||
| Item 7a. |
15 | |||||
| Item 8. |
15 | |||||
| Item 9. |
Changes In and Disagreements With Accountants on Accounting and Financial Disclosures |
15 | ||||
| Item 9a. |
15 | |||||
| 16 | ||||||
| Item 10. |
16 | |||||
| Item 11. |
17 | |||||
| Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
19 | ||||
| Item 13. |
19 | |||||
| Item 14. |
19 | |||||
| 20 | ||||||
| Item 15. |
20 | |||||
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Forward Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts are forward-looking statements. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” or similar expressions used in this report.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by us in those statements include, among others, the following:
| • | the quality of our properties with regard to, among other things, the existence of reserves in economic quantities; |
| • | uncertainties about the estimates of reserves; |
| • | our ability to increase our production and oil and natural gas income through exploration and development; |
| • | the number of well locations to be drilled and the time frame within which they will be drilled; |
| • | the timing and extent of changes in commodity prices for natural gas and crude oil; |
| • | domestic demand for oil and natural gas; |
| • | drilling and operating risks; |
| • | the availability of equipment, such as drilling rigs and transportation pipelines; |
| • | changes in our drilling plans and related budgets; |
| • | the adequacy of our capital resources and liquidity including, but not limited to, access to additional borrowing capacity; and |
| • | other factors discussed under Item 1A Risk Factors with the heading “Risks Related To Our Business”. |
Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. You are cautioned not to place undue reliance on such statements, which speak only as of the date of this report.
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| ITEM 1. | DESCRIPTION OF BUSINESS |
Company Background
Our company was incorporated in the State of Delaware on April 4, 2001, under the name of “Flagstick Ventures, Inc.” On March 28, 2008, we changed our name to “Signature Exploration and Production Corp.” and became a company focused on the acquisition and development of oil and natural gas properties. We are currently seeking out and negotiating participation agreements, but we have not yet generated revenues or incurred expenses related to the energy operations as of March 31, 2008.
Our common stock is quoted for trading on the OTC Bulletin Board under the symbol SXLP. Our principal executive offices are located at 5401 South Kirkman Road, Suite 310, Orlando, Florida 32819. Our telephone number is (407) 962-9680.
Business Strategy
We intend to build our business through the acquisition of producing oil and natural gas wells, interests and leases. Our strategy is to combine the secure and reliable revenue source of non-operated interest from producing oil wells with the potential of an oil and gas exploration project. We plan to purchase non-operated interests, acquire a development stage exploration property and carry out an exploration program on the acquired property.
Our search for oil and gas leases or interests in leases has been directed towards small and medium-sized oil and natural gas production companies and properties. For our initial acquisitions, we are looking for low risk property interests. We intend to include in our portfolio additional non-operated interests in producing wells as well as an exploration interest in a development stage oil and gas property. As we continue the development of our portfolio of interests, we will be looking for properties and interests that have the following qualities:
| • | at least developmental drilling in proven producing areas; |
| • | significant additional production capacity through developmental drilling, recompletions and workovers; |
| • | further developmental potential; and |
| • | in some cases, ability to assume operatorship or appointment of a known operator with relevant experience in the area. |
Seasonality
The exploration for oil and natural gas reserves depends on access to areas where operations are to be conducted. Seasonal weather variations, including freeze-up and break-up affect access in certain circumstances. Natural gas is used principally as a heating fuel and for power generation. Accordingly, seasonal variations in weather patterns affect the demand for natural gas. Depending on prevailing conditions, the prices received for sales of natural gas are generally higher in winter than summer months, while prices are generally higher in summer than spring and fall months.
Markets
We are currently in the exploration stage and we have not generated revenues. We are not producing oil or gas and we have no customers. The availability of a ready market and the prices obtained for oil and gas produced depend on many factors, including the extent of domestic production and imports of oil and gas, the proximity and capacity of natural gas pipelines and other transportation facilities, fluctuating demand for oil and gas, the marketing of competitive fuels, and the effects of governmental regulation of oil and gas production and sales.
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A ready market exists for domestic oil and gas through existing pipelines and transportation of liquid products. Whether there exists an international market depends upon the existence of international delivery systems and on political and pricing factors.
Competition
The strength of commodity prices has resulted in significantly increased operating cash flows and has led to increased drilling activity. This industry activity has increased competition for undeveloped lands; skilled personnel; access to drilling rigs, service rigs and other equipment; and access to processing and gathering facilities, all of which may cause drilling and operating costs to increase. Some of our competitors are larger than us and have substantially greater financial and marketing resources. In addition, some of our competitors may be able to secure products and services from vendors on more favorable terms, offer a greater product selection, and adopt more aggressive pricing policies than we can.
Government Regulation
Our operations are or will be subject to various types of regulation at the federal, state and local levels. Such regulation includes requiring permits for the drilling of wells; maintaining bonding requirements in order to drill or operate wells; implementing spill prevention plans; submitting notification and receiving permits relating to the presence, use and release of certain materials incidental to oil and gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface usage and the restoration of properties upon which wells have been drilled, the plugging and abandoning of wells and the transporting of production.
Our operations are or will be also subject to various conservation matters, including the regulation of the size of drilling and of spacing units or proration units, the number of wells which may be drilled in each unit, and the unitization or pooling of oil and gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases, which may make it more difficult to develop oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and gas wells, generally limit the venting or flaring of gas, and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to limit the amounts of oil and gas we may be able to produce from our wells and to limit the number of wells or the locations at which we may be able to drill.
Operations on properties in which we have an interest are subject to extensive federal, state and local environmental laws that regulate the discharge or disposal of materials or substances into the environment and otherwise are intended to protect the environment. Numerous governmental agencies issue rules and regulations to implement and enforce such laws, which are often difficult and costly to comply with and which carry substantial administrative, civil and criminal penalties and in some cases injunctive relief for failure to comply.
Some laws, rules and regulations relating to the protection of the environment may, in certain circumstances, impose “strict liability” for environmental contamination. These laws render a person or company liable for environmental and natural resource damages, cleanup costs and, in the case of oil spills in certain states, consequential damages without regard to negligence or fault. Other laws, rules and regulations may require the rate of oil and gas production to be below the economically optimal rate or may even prohibit exploration or production activities in environmentally sensitive areas. In addition, state laws often require some form of remedial action, such as closure of inactive pits and plugging of abandoned wells, to prevent pollution from former or suspended operations.
Legislation has been proposed in the past and continues to be evaluated in Congress from time to time that would reclassify certain oil and gas exploration and production waste as hazardous waste. If such reclassification is successful, it would make these wastes subject to much more stringent storage, treatment, disposal and clean-up requirements, which could have a significant adverse impact on operating costs. From time to time initiatives to further regulate the disposal of oil and gas wastes are also proposed in certain states and may include initiatives at the county, municipal and local government levels. These various initiatives could have a similar adverse impact on operating costs.
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The regulatory burden of environmental laws and regulations increases our cost and risk of doing business and consequently affects our profitability. The federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, also known as the “Superfund” law, imposes liability, without regard to fault, on certain classes of persons with respect to the release of a “hazardous substance” into the environment. These persons include the current or prior owner or operator of the disposal site or sites where the release occurred and companies that transported, disposed or arranged for the transport or disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources. It is not uncommon for the federal or state government to pursue such claims. The federal Environmental Protection Agency and various state agencies continue to promulgate regulations that limit the disposal and permitting options for certain hazardous and non-hazardous wastes.
It is also not uncommon for neighboring landowners and other third parties to file claims for personal injury or property or natural resource damages allegedly caused by the release of hazardous substances into the environment.
Employees
We have assembled a management team led by our CEO, Scott Allen and CFO Steven Weldon. None of our employees are covered by a collective bargaining agreement, nor have we experienced a strike or other adverse work stoppage due to organized labor.
| ITEM 1A. | RISK FACTORS |
Risks Specific to Our Company
We have limited operating funds, and our ability to continue as a going concern is dependent upon our ability to obtain additional capital to operate the business.
We have experienced net losses since April 4, 2001 (date of inception), which losses have caused an accumulated deficit of approximately $1,686,000 as of March 31, 2008. In addition, we have consumed net cash used in operating activities of approximately $18,000 and $233,000 for the years ended March 31, 2008 and 2007, respectively. We will require additional funds to sustain and expand our current business, and to continue implementing our business plan. Our lack of sufficient financing to implement our business plan, and our expectation to continue operating losses for the foreseeable future raises substantial doubt about our ability to continue as a going concern.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
Our independent registered certified public accounting firm has issued its report, which includes an explanatory paragraph for going concern uncertainty on our financial statements as of March 31, 2008. Our ability to continue as a going concern is heavily dependent upon our ability to obtain additional capital to sustain operations. Currently, we have no commitments to obtain additional capital, and there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
Since we are in the early stage of development and have a limited operating history, it may be difficult for you to assess our business and future prospects.
We were incorporated on April 4, 2001 and engaged primarily in the business of wholesale distribution of golf-related equipment, accessories and apparel until August 2004. In August 2004, we ceased operations in the wholesale golf industry to fully pursue our new direction of opening diabetic treatment centers and orthotics and prosthetics. In February 2008, we ceased operations in the diabetic treatment centers and orthotics and prosthetics business to fully pursue our new direction of exploration and production of oil and
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natural gas. Because of this limited operating history, our prospects are difficult to predict and must be considered in light of the risks, expenses and problems frequently encountered by companies that are in the early stages of development and that operate in new and rapidly changing markets which are discussed in greater detail in this section.
We will need additional capital, the availability of which is uncertain, to fund our business and complete the implementation of our business plan.
We will require additional financing in order to carry out our business plan. Such financing may take the form of the issuance of common or preferred stock or debt securities, or may involve bank financing. There can be no assurance that we will obtain such additional capital on a timely basis, on favorable terms, or at all. If we are unable to generate the required amount of additional capital, our ability to meet our financial obligations and to implement our business plan may be adversely affected.
Our current management does not have experience in managing a public company; this may negatively impact our business operations.
Mr. Scott Allen is currently serving as our CEO. Mr. Allen has not had any previous experience managing a public company. There can be no assurance that we will be able to effectively manage the expansion of our operations, that our systems, procedures, or controls will be adequate to support our operations or that our management team will be able to achieve the rapid execution necessary to fully exploit the market opportunity. Any inability to operate our business, manage our growth, comply with the regulatory requirements of a company subject to regulation by governmental agencies such as the Securities & Exchange Commission could reduce the efficiency of our business operations, thereby causing our operating expenses to increase and our operating margins to decrease.
As we have incurred losses since inception, we are not now, nor will we be in the foreseeable future, in a position to pay dividends on our issued and outstanding stock.
We have never declared or paid cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business.
Our management may be unable to effectively integrate our acquisitions and to manage our growth and we may be unable to fully realize any anticipated benefits of these acquisitions.
Our future results will depend in part on our success in implementing our growth and acquisition strategy. Our ability to implement this strategy will be dependent on our ability to identify, consummate and successfully assimilate acquisitions on economically favorable terms. In addition, acquisitions involve a number of special risks that could adversely effect our operating results, including the diversion of management’s attention, failure to retain key acquired personnel, risks associated with unanticipated events or liabilities, legal, accounting and other expenses associated with acquisitions, some or all of which could increase our operating costs, reduce our revenues and cause a material adverse effect on our business, financial condition and results of operations. We have no preliminary agreements or understandings to acquire or be acquired by a company as of the date of this prospectus.
If we complete future acquisitions, we may dilute existing stockholders by issuing more of our common stock or we may incur expenses related to debt and goodwill, which could reduce our earnings.
We may issue equity securities in future acquisitions that could be dilutive to our shareholders. We also may incur additional debt in future acquisitions. Interest expense on debt incurred to fund our acquisitions may significantly reduce our profitability. While goodwill and other intangible assets with indefinite lives are not amortized to expense under generally accepted accounting principles, we would be required to review all of these assets at regular intervals for impairment and to charge an appropriate amount to expense when we identify impairment. If we identify impairment and are required to write-off a significant portion of our intangible assets at one time, then there could be a material adverse impact on our stock price.
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Risks Specific to Our Industry
We face strong competition from larger oil and gas companies, which could harm our business and ability to operate profitably.
The exploration and production of oil and gas business is highly competitive. Other oil and gas companies will compete with us by bidding for exploration and production licenses and other properties and services that we will need to operate our business in the countries in which we expect to operate. This competition is increasingly intense as prices of oil and natural gas on the commodities markets have risen in recent years. Additionally, other companies engaged in our line of business may compete with us from time to time in obtaining capital from investors.
Oil and gas properties have limited lives and, as a result, we may seek to replace and expand our reserves through the acquisition of new properties. In addition, there is a limited supply of desirable oil and gas lands available in North America where we would consider conducting exploration and/or production activities. The major oil and gas companies are often better positioned to obtain the rights to exploratory acreage for which we may compete.
Competitors include larger, foreign owned companies, which, in particular, may have access to greater resources than us, may be more successful in the recruitment and retention of qualified employees and may conduct their own refining and petroleum marketing operations. These factors may give them a competitive advantage. Oil and natural gas exploration and development activities are dependent on the availability of drilling and related equipment, transportation, power and technical support in the particular areas and our access to these facilities may be limited due to high competition. Shortages and/or the unavailability of necessary equipment or other facilities will impair our activities, either by delaying our activities, increasing our costs or otherwise.
We may not be able to develop oil and gas reserves on an economically viable basis, and our reserves and production may decline as a result.
To the extent that we succeed in discovering oil and/or natural gas reserves at our future properties, we are not sure that these reserves will be capable of supporting production levels we project or in sufficient quantities to be commercially viable. These risks are more acute in the early stages of exploration. Our expenditures on exploration may not result in new discoveries of oil or natural gas in commercially viable quantities. It is difficult to project the costs of implementing an exploratory drilling program due to the inherent uncertainties of drilling in unknown formations, the costs associated with encountering various drilling conditions such as over pressured zones, tools lost in the hole, changes in drilling plans and locations as a result of prior exploratory wells or additional seismic data and interpretations thereof.
On a long-term basis, our viability depends on our ability to find or acquire, develop and commercially produce additional oil and gas reserves. If we are not able to explore acquisition or development in new reserves, our current reserves and production will decline over time as the reserves are developed. Our future reserves will depend not only on our ability to develop then-existing properties, but also on our ability to identify and acquire additional suitable producing properties or prospects, to find markets for the oil and natural gas we develop and to effectively distribute oil and natural gas into our markets.
Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment, or recovery of drilling, completion and operating costs unless a commercial viable amount of oil and natural gas is returned. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. If exploration costs exceed our estimates, or if our exploration efforts do not produce results which meet our expectations, our exploration efforts may not be commercially successful, which could adversely impact our ability to generate revenues from our operations.
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We may encounter operating hazards related to oil and gas exploration and production, which may result in substantial losses to our business and your investment.
We are subject to operating hazards normally associated with the exploration and production of oil and gas, including unexpected formations or pressures, premature declines of reservoirs, blowouts, sour gas release, explosions, craterings, pollution, earthquakes, labor disruptions, fires, pipeline ruptures, oil spills, the invasion of water into producing formations and other environmental hazards and risks. The occurrence of any such operating hazards could result in substantial losses to us due to injury or loss of life and damage to or destruction of oil and gas wells, formations, production facilities or other properties, which could result in substantial losses to our business.
Seasonal weather patterns could adversely influence our business and result in a total loss of your investment.
In North America, the amount of oil and gas exploration and production activity is influenced by seasonal weather patterns. In spring, wet weather can make the ground unstable, and result in road closures that restrict the movement of rigs and other heavy equipment, thereby decreasing activity levels. Damage caused by severe weather, natural disasters or other operating hazards could result in substantial losses to us. We are not covered by insurance for any business interruption resulting from such events and, upon the occurrence of a natural disaster; this lack of coverage could harm our financial position and results of operations. We believe that a severe change in weather patterns affecting our current or future properties could lower our business or cause us to go out of business.
Our operations are subject to various litigation risks that could harm our business, impact our profitability and lower the value of your investment in us.
Although we currently are not involved in any litigation matters, the nature of our operations expose us to possible litigation claims in the future. There is risk that any litigation matter could be adversely decided against us, and this could harm our financial condition and results of operations. Such claims could include, but are not limited to, environmental damage and remediation, workers’ compensation, insurance coverage, property rights and easements, maintenance of mining claims and other issues. Litigation is highly costly and the costs associated with defending litigation could also harm our financial condition. Should we get involved in litigation matters, we will be forced to direct our limited resources to defend or prosecute the litigation thereby harming our ability to carry on revenue producing activities.
Our business is subject to environmental legislation and any changes in such legislation could negatively affect our results of operations.
The oil and gas industry is subject to many laws and regulations which govern the protection of the environment, health and safety and the management, transportation and disposal of hazardous substances. These laws and regulations may require removal or remediation of pollutants and may impose civil and criminal penalties for violations. Some of the laws and regulations authorize the recovery of natural resource damages by the government, injunctive relief and the imposition of stop, control, remediation and abandonment orders.
The costs arising from compliance with environmental and natural resource laws and regulations may increase our costs of operations, as well as further restrict our operations. If the costs of such compliance exceeds what we may have budgeted for, our ability to earn revenues will be harmed. Any regulatory changes that impose additional environmental restrictions or requirements on us could adversely affect us through increased operating costs, which could have a material adverse effect on our results of operations.
Any oil and gas we may discover or produce may not be readily marketable at the time of production, delaying our ability to generate meaningful revenue.
Crude oil, natural gas, condensate and other oil and gas products are generally sold to other oil and gas companies, government agencies and other industries. Natural gas associated with oil production is often not marketable due to demand or transportation limitations and is often flared at the producing well site. Pipeline facilities do not exist in certain areas of exploration and, therefore, any actual sales of discovered oil and gas might be delayed for extended periods until such facilities are constructed.
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Production levels cannot be predicted with certainty.
Until a well is drilled and has been in production for a number of months, we will not know what volume of production we can expect to achieve from the well. Even after a well has achieved its full production capacity, we cannot be certain how long the well will continue to produce or the production decline that will occur over the life of the well. Estimates as to production volumes and production life are based on studies of similar wells and, therefore, are speculative and not fully reliable. As a result, our revenue budgets for producing wells may prove to be inaccurate.
Oil and natural gas producers often compete for experienced and competent drilling, completion and facilities installation vendors and production laborers. The unavailability of experienced and competent vendors and laborers may cause development and production delays.
Potential profitability of energy ventures depends upon factors beyond the control of our company
The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for energy sourced are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.
Comprehensive regulation of energy industry
Operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Energy operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. No assurance can be given that environmental standards imposed by federal, provincial, or local authorities will not be changed or that any such changes would not have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which it may elect not to insure against due to prohibitive premium costs and other reasons.
Environmental regulations
In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry. We believe that our operations comply, in all material respects, with all applicable environmental regulations. We intend to acquire and maintain insurance coverage customary to the industry; however, it is not fully insured against all environmental risks. As well, coverage will depend on cost and we have not yet determined that we are in a financial position to acquire insurance.
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Risks associated with drilling
Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.
Drilling and production delays may occur.
In order to generate revenues from the sale of oil and natural gas production from new wells, we must complete significant development activity. Delay in receiving governmental permits, adverse weather, a shortage of labor or parts, and/or dewatering time frames may cause delays. These delays will result in delays in achieving revenues from these new wells.
Risks Related to Our Securities
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
| • | that a broker or dealer approve a person’s account for transactions in penny stocks; and |
| • | the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| • | obtain financial information and investment experience objectives of the person; and |
| • | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
| • | sets forth the basis on which the broker or dealer made the suitability determination; and |
| • | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
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Future sales of shares may adversely impact the value of our stock
We will seek to raise additional capital through the sale of our common stock. Future sales of our common stock could cause the market price of our common stock to decline.
Possible issuance of additional shares may impact the price of our stock
Our Certificate of Incorporation authorizes the issuance of 250,000,000 shares of common stock. Approximately 99% of our authorized common stock remains un-issued. Our Board of Directors has the power to issue any or all of such additional common stock without stockholder approval. Investors should be aware that any stock issuances might result in a reduction of the book value or market price, if any, of the then outstanding common stock. If we were to issue additional common stock, such issuance will reduce proportionate ownership and voting power of the other stockholders. Also, any new issuance of common stock may result in a change of control.
Our share price may be highly volatile.
The market prices of equity securities of small companies have experienced extreme price volatility in recent years not necessarily related to the individual performance of specific companies. Factors such as announcements by us, or our competitors concerning products, technology, governmental regulatory actions, other events affecting healthcare companies generally and general market conditions may have a significant impact on the market price of our shares and could cause it to fluctuate substantially.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None
| ITEM 2. | PROPERTY |
Our executive offices are located at 5401 South Kirkman Road, Suite 310, Orlando, FL 32819.
| ITEM 3. | LEGAL PROCEEDINGS |
We are not a party to any pending legal proceeding or litigation. In addition, none of our property is the subject of a pending legal proceeding. We are not aware of any legal proceedings against the Company or our property contemplated by any governmental authority.
| ITEM 4. | SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS |
On March 10, 2008, through a written consent of the majority of stockholders, we received approval from holders of 58% of our common stock to:
| • | Amend the articles of incorporation of the Corporation for the purpose of changing the name of the Corporation to Signature Exploration and Production Corp. or some similar name available to a corporation in the State of Delaware; |
| • | Amend the articles of incorporation of the Corporation to decrease the number of outstanding shares of the Corporation’s capital stock in the form of a reverse stock-split where-in the Corporation will give (1) one shares of common stock for every (50) fifty share outstanding (the “Stock-Split”); |
| • | Amend the articles of incorporation of the Corporation to increase the authorized capital of the Corporation to Two Hundred Fifty Million (250,000,000) common shares. |
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| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
There is a limited public market for our common shares. Our common shares are quoted for trading on the FINRA OTC Bulletin Board under the symbol “SXLP.OB”. The market for our stock is highly volatile. We cannot assure you that there will be a market in the future for our common stock. OTC Bulletin Board stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange. The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information for over-the-counter equity securities. OTCBB securities are traded by a community of market makers that enter quotes and trade through a sophisticated computer network. Information on the OTCBB can be found at www.otcbb.com.
For the periods indicated, the following table sets forth the high and low per share intra-day sales prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
| Fiscal Year 2008 |
High ($) | Low ($) | ||||
| Fourth Quarter |
$ | 1.00 | $ | 0.15 | ||
| Third Quarter |
$ | 2.00 | $ | 0.10 | ||
| Second Quarter |
$ | 2.00 | $ | 1.05 | ||
| First Quarter |
$ | 2.50 | $ | 0.75 | ||
| Fiscal Year 2007 |
||||||
| Fourth Quarter |
$ | 2.00 | $ | 1.00 | ||
| Third Quarter |
$ | 3.50 | $ | 1.50 | ||
| Second Quarter |
$ | 4.00 | $ | 2.00 | ||
| First Quarter |
$ | 5.50 | $ | 1.50 | ||
Dividends and Dividend Policy
We have never declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business and for general corporate purposes. We cannot assure you that we will pay dividends in the future. Our future dividend policy is within the discretion of our Board of Directors and will depend upon various factors, including our results of operations, financial condition, capital requirements and investment opportunities.
Recent Sales of Unregistered Securities
On November 21, 2005, we entered into a stock purchase agreement with a group of investors. This agreement allows the investors to purchase a minimum of 150,000 and a maximum of 375,000 shares of our common stock at a purchase price of $2.00 per a share. These shares are deemed restricted securities as defined in Rule 144 of the Securities Act of 1933. The investors must invest a minimum of $300,000 in order to receive shares. As of March 31, 2008 the investors have invested a total of $300,000 and we issued 150,000 shares on April 12, 2006. The proceeds from the sale were used for working capital.
Equity Compensation Plan Information
The 2007 Amended Stock Option Plan was adopted by the Board of Directors on February 6, 2008. Under this plan, a maximum of 8,000,000 shares of our common stock, par value $0.0001, were authorized for issue. The vesting and terms of all of the options are determined by the Board of Directors and may vary by optionee; however, the term may be no longer than 10 years from the date of grant. No options have been granted under this plan as of March 31, 2008.
On August 11, 2005, the Board of Directors adopted the Diabetic Treatment Centers of America, Inc. 2005 Restricted Stock Plan (the “2005” Plan”) and it was approved on August 11, 2005 by our stockholders at the 2005 Annual Meeting. The terms of the 2005 Plan provide for grants of restricted stock awards.
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Under the 2005 Plan, the total number of shares of restricted common stock that may be subject to the granting of Awards during the term of the 2005 Plan shall be equal to 5,000,000 shares. Shares with respect to which awards previously granted that are forfeited, cancelled or terminated are returned to the plan and may be reissued. A grant of 4,000 shares was made to a director and 2,000 shares to an employee. The director forfeited 1,400 shares on April 21, 2006 when he resigned and the employee forfeited 200 shares on May 31, 2006 when he was terminated.
| ITEM 6. | SELECTED FINANCIAL DATA |
N/A
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AS A RESULTS OF OPERATION |
The following discussion of our plan of operation, financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed in this Annual Report.
Overview
Signature Exploration and Production Corp. is a Delaware corporation incorporated on April 4, 2001 for the purpose of acquiring the wholesale golf equipment and accessories business previously conducted by our president, Jeff Arthur Jones, as a sole proprietorship under the name “A and Z Golf.” We acquired the business from Mr. Jones, through our wholly owned subsidiary, A & Z Golf Corp., on June 5, 2001, in exchange for 200,000 shares of our common stock.
Until August 2004, through our wholly-owned subsidiary, A & Z Golf Corp., we engaged primarily in the business of wholesale distribution of golf-related equipment, accessories and apparel. Our goal was to grow our wholesale customer base through client solicitation efforts and expanded product offerings. Our strategy was to benefit from our management’s experience and relationships in the golf industry to grow our business as a wholesaler by expanding our supplier base and adding customers. Due to our low volume of purchases, it was difficult to improve our cost of sales.
Due to our inability to expand our wholesale golf operations, on July 1, 2004, the Board of Directors approved changing our name from Flagstick Ventures, Inc. to Diabetic Treatment Centers of America, Inc. to reflect our new business direction of owning and operating diabetic treatment centers. On August 4, 2004, we ceased operating in the wholesale golf industry to fully pursue our new direction of owning and operating diabetic treatment centers.
On October 7, 2004, we entered into an Agreement with Diabetes Medical Development Corporation, d/b/a DiabMed, to secure the exclusive rights to market and sell certain technologies and products used to treat diabetes in Murray, Utah. As of June 2006, DiabMed has not provided a licensing agreement with terms that are acceptable to us, and therefore, we have been unable to finalize this agreement. We do not anticipate being able to reach an agreement and have no further plans of pursuing these rights.
We acquired Microvas Therapy technology in May 2005. The therapy is delivered with a machine with emitter pads that directs powerful electronic waveforms though a patient’s limb or body to stimulate neuromuscular contractions. This therapy increases the blood flow through the treatment area increasing blood oxygen, helping move antibiotics to wounds and induces involuntary exercise of muscles. This therapy can be used to treat diabetic neuropathy, hypoxia, foot ulcers and a variety of other medical disorders. We stopped treatments in April 2006.
On May 12, 2006 we entered into a joint venture with Personal Performance Medical Corporation called American Medical Management Technologies to manage and develop the operations of Personal Performance Medical Corporation (d/b/a/ Fit-Well), a Utah based Corporation. Fit-Well offers full service prosthetic and orthotic care and manufacturing, DME and soft goods sales.
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In February 2008, the Company elected to discontinue the operations of its diabetic treatment and its orthotic and prosthetic joint venture, due to the inability to attract investments into these types of businesses. We intend to build our business through the acquisition of producing oil and natural gas wells, interests and leases.
Based upon the current level of revenues and the cash position, we will need to raise additional capital prior to the end of the second quarter of 2008 in order to fund current operations. These factors raise substantial doubt about our ability to continue as a going concern. We are pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financing. We are in discussions with our existing stockholders to provide additional funding in exchange for notes or equity. In order to finance existing operations and pay current liabilities over the next twelve months, we will need to raise $285,000 of capital. However, there can be no assurance that the requisite financing will be consummated in the necessary time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans or worst case cease operations. No assurance can be given that we will be able to operate profitably on a consistent basis, or at all, in the future.
Plan of Operation
We intend to build our business through the acquisition of producing oil and natural gas wells, interests and leases. Our strategy is to combine the secure and reliable revenue source of non-operated interest from producing oil wells with the potential of an oil and gas exploration project. We plan to purchase non-operated interests, acquire a development stage exploration property and carry out an exploration program on the acquired property.
The Company continues to operate with very limited capital. Since our inception in 2001, we have been unable to locate a consistent source of additional financing for use in our operational or expansion plans. The Company is currently attempting to raise sufficient funds to purchase leases of oil and gas properties. We can give no assurances that the Company will be able to purchase any leases. Each oil and gas property in which we obtain an interest in will have an operator who will be responsible for marketing production.
Cash Requirements
We estimate that we will require an additional $285,000 to fund our currently anticipated requirements for ongoing operations for our existing business for the next twelve-month period. We expect to pay $50,000 for professional fees and expense related to being a public company, $40,000 for expenses related to general operations and $20,000 for a rent settlement. We will also need approximately $175,000 to repay $163,000 of notes payable and the related interest of approximately $12,000.
Results of Operations
Comparison of the fiscal year ended March 31, 2008 and March 31, 2007.
CONSOLIDATED FINANCIAL INFORMATION
| 2008 | 2007 | |||||||
| General and administrative |
$ | 150,000 | $ | 450,000 | ||||
| Other expense |
30,000 | 6,000 | ||||||
| Gain/(loss) from discontinued operations |
85,000 | (102,000 | ) | |||||
| Net loss |
$ | (95,000 | ) | $ | (558,000 | ) | ||
General and Administrative. General and administrative expenses decreased by $300,000 in 2008. This decrease can be attributed to the decrease in costs associated with professional and consulting fees of approximately $300,000. In May 2006, we entered into a one year agreement with Scott Allen, our Chief Executive Officer, to assist in business development and expansion. Mr. Allen was compensated with 5,000,000 shares of restricted common stock valued at $350,000 which is being charged to general and administrative expenses ratably over the term of the agreement. Approximately $40,000 and $310,000 has been included in consulting fees the years ended March 31, 2008 and 2007, respectively.
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Other Expenses. Other expenses increased by $24,000 in 2008 due to addition accrued interest on notes payable of $5,000 and $19,000 relating to interest in the beneficial conversion feature of convertible debt.
Gain/(loss) From Discontinued Operations. We discontinued our diabetic treatment segment and our orthotics and prosthetics joint venture in 2008. This resulted in a loss from discontinued operations of $16,000 for our diabetic treatment segment and $86,000 for our orthotics and prosthetics segment for 2007 and a gain of $85,000 from our orthotics and prosthetics segment on 2008.
Net Loss. Net loss decreased by $463,000 as a result of our lower professional and consulting fees and the discontinued operation of our diabetic treatment and orthotics and prosthetics segments.
Liquidity and Capital Resources
We had cash balances totaling approximately $800 as of March 31, 2008. Historically, our principal source of funds has been cash generated from financing activities.
Cash flow from operations. We have been unable to generate either significant liquidity or cash flow to fund our current operations. We anticipate that cash flows from operations will be insufficient to fund our business operations for the next twelve-month period.
Cash flows from investing activities. Net cash provided by investing activities for the year ended March 31, 2007 was from the sale of office equipment of approximately $600.
Cash flows from financing activities. Net cash provided by financing activities was generated from secured promissory notes that total $102,500 and $60,500 for the years ended March 31, 2008 and 2007. Net cash used in financing activities relating to discontinued operation totaled $157,300 for the year ended March 31, 2008 and net cash provided by discontinued operation of $138,000 as of March 31, 2007.
Variables and Trends
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 of our limited operating history.
Critical Accounting Policies
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available to us. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results can be found on page F-6, Note 3 of the audited financial statements.
Commitments
Except as shown in the following table, as of March 31, 2008, we did not have any material capital commitments, other than funding our operating losses and repaying outstanding debt. It is anticipated that any capital commitments that may occur will be financed principally through borrowings from shareholders (although such additional financing has not been arranged). However, there can be no assurance that additional capital resources and financings will be available to us on a timely basis, or if available, on acceptable terms.
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Future payments due on our contractual obligations as of March 31, 2008 are as follows:
| Lease settlement liability |
$ | 19,000 | |
| Loans from stockholders |
159,000 | ||
| Other loans |
4,000 | ||
| Accrued interest |
12,000 | ||
| Total |
$ | 194,000 | |
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.
Stock-Based Compensation
Please see page F-6, Note 3 of the audited financial statements.
Recent Accounting Pronouncements
Please see page F-6, Note 3 of the audited financial statements.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
N/A
| ITEM 8. | FINANCIAL STATEMENTS |
The financial statements required to be filed hereunder are set forth on pages F-1 through F-15 and are incorporated herein by this reference.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
On November 1, 2007, we were notified by Tedder, James, Worden & Associates, P.A. in a letter dated October 31, 2007, that they had been recently acquired and therefore would be resigning as the independent registered auditor for the Company. Cross, Fernandez, Riley, LLP was appointed as the Company’s new auditor on November 5, 2007. The audit reports of Tedder, James, Worden & Associates, P.A. on our consolidated financial statements as of and for the years ended March 31, 2007 and March 31, 2006 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles; however, the report contained a modification paragraph that expressed substantial doubt about our ability to continue as a going concern.
On May 29, 2008, Cross, Fernandez and Riley, LLP, was dismissed by the Board of Directors as our auditors. The dismissal was recommended and approved by the board of directors on May 28, 2008. The Registrant does not have an audit or similar committee. The decision to engage Mark Bailey & Company, Ltd. was approved by the board of directors on May 29, 2008.
Other than these changes, there were no other changes in or disagreements with our accountants on accounting and financial disclosure during the last two fiscal years.
| ITEM 9A. | CONTROLS AND PROCEDURES |
(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of March 31, 2008. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and
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procedures were not effective as a result of a material weakness in internal controls as of March 31, 2008 in ensuring that information that is required to be disclosed by us in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.
Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). Even an effective system of internal control over financial reporting, no matter how well designed, has inherent limitations, including the possibility of human error, circumvention or overriding of controls and, therefore, can provide only reasonable assurance with respect to reliable financial reporting. Furthermore, the effectiveness of a system of internal control over financial reporting in future periods can change as conditions change.
(b) Changes in internal control over financial reporting. Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2008. We have determined that a material weakness in our internal control over the reporting of interest expense relating to beneficial conversion features of convertible notes existed. The control deficiency resulted from the lack of effective detective and monitoring controls within internal control over financial reporting over these accounts. In addition, as previously disclosed, the Company only has two employees and therefore, an adequate segregation of duties is difficult. Solely as a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of March 31, 2008. We have taken and will take the following actions to enhance our internal controls: retain additional specialized staff in the preparation of annual and interim financial statements and implement a system of segregation of duties in the processing of transactions within the recording cycle. Other than with respect to the identification of this weakness in internal control procedures, there was no change in our internal control over financial reporting during the quarter and year ended March 31, 2008 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The Company’s management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakd