(Address of Principal Executive Offices)
(713) 942-6639(281) 918-4100
(Issuer’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $0.01$0.001
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:
Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non-accelerated filer | [ ] | Smaller reporting company | [X] |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X][ ] No [ ][X]
State the aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of the last business day of the Registrant’s most recently completed second fiscal quarter.
The market value of the voting stock held by non-affiliates was $11,274,180$66,969,183 based on 18,790,000171,715,855 shares held by non-affiliates. These computations are based upon the closing bid price of $0.60$0.39 for the common stock of the Company on the OTC Bulletin Board of the Financial Industry Regulatory Authority, Inc. (“FINRA”) on March 30, 2012.29, 2013.
Indicate the number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:
| | Outstanding as of December 14, 201230, 2013 |
Common Capital Voting Stock, $0.001 par value per share | | 235,150,000624,233,676 |
Documents incorporated by reference: None
TABLE OF CONTENTS
PART 1 | |
ITEM 1. Business | 4 |
ITEM 1A. Risk Factors | 10 |
ITEM 2. Properties | 17 |
ITEM 3. Legal Proceedings | 17 |
ITEM 4. Mine Safety Disclosures | 17 |
PART II | |
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 18 |
ITEM 6. Selected Financial Data | 18 |
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk | 21 |
ITEM 8. Financial Statements and Supplementary Data | 22 |
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 37 |
ITEM 9A(T). Controls and Procedures | 37 |
ITEM 9B. Other Information | 37 |
PART III | |
ITEM 10. Directors, Executive Officers and Corporate Governance | 38 |
ITEM 11. Executive Compensation | 40 |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 41 |
ITEM 13. Certain Relationships and Related Transactions, and Director Independence | 42 |
ITEM 14. Principal Accounting Fees and Services | 43 |
PART IV | |
ITEM 15. Exhibits and Financial Statements Schedules | 44 |
Signatures | 45 |
TABLE OF CONTENTS
PART 1 | |
ITEM 1. BUSINESS | 4 |
ITEM 1A. RISK FACTORS | 8 |
ITEM 2. PROPERTIES | 8 |
ITEM 3. LEGAL PROCEEDINGS | 8 |
ITEM 4. MINE SAFETY DISCLOSURES | 8 |
PART II | |
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 9 |
ITEM 6. SELECTED FINANCIAL DATA | 11 |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 11 |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 13 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 14 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 25 |
ITEM 9A(T). CONTROLS AND PROCEDURES | 25 |
ITEM 9B. OTHER INFORMATION | 25 |
PART III | |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE | 26 |
ITEM 11. EXECUTIVE COMPENSATION | 27 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 28 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDANCE | 29 |
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES | 30 |
PART IV | |
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES | 31 |
SIGNATURES | 32 |
PART I
FORWARD LOOKING STATEMENTS
In this Annual Report, references to “GulfSlope Energy,” “GulfSlope, Energy,” the “Company,” “we,” “us,” and “our” refer to “GulfSlope Energy, Inc.,” the Registrant.
This Annual Report contains certain forward-looking statements and for this purpose any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limitingForward-looking statements can be identified by the foregoing, wordsuse of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “will,“goal,” “expect,“estimates,” “believe,“should,” “anticipate,“plans,” “estimate”“targets,” “intends,” “could,” or “continue”“anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy or objectives. Forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are intendedinherently subject to identify forward-looking statements.risks and uncertainties. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the markets in which GulfSlope Energy may participate, competition within GulfSlope Energy’sGulfSlope’s chosen industry, technological advances and failure by us to successfully develop business relationships. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Annual Report on Form 10-K to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Business Development
Historical Business Developments of GulfSlope EnergyGeneral
Since March 2013, we have been singularly focused on identifying high-potential oil-focused prospects. We have licensed 3-D seismic data covering approximately 2.2 million acres and have evaluated these data using advanced interpretation technologies. As result of these analyses, we have identified a number of targeted prospects (to be leased) that we believe may contain economically recoverable hydrocarbon deposits, and we plan to continue to conduct more refined analyses of our targeted lease acquisitions. We have focused our activities in North America. We have given preference to areas where production infrastructure already exists, which we believe will allow for any discoveries to be developed quicker and less expensively, with the goal to reduce economic risk while increasing returns.
Competitive Advantages
Experienced management team. We are led by management and technical teams that have significant experience in finding and developing oil and natural gas. Our team has a track record of discovering and developing multi-billion dollar projects worldwide. Our management team is led by John N. Seitz and Ronald A. Bain, who have over 75 years of combined industry experience exploring for and developing oil and natural gas. Our technical team consists of geoscientists and engineers who have over 150 years of combined industry experience exploring for and developing oil and natural gas. We believe that the strength of our team distinguishes us from many competitive E&P companies.
Advanced seismic image processing. The Company was incorporated undercommercial improvements in 3-D seismic data imaging and the lawsdevelopment of advanced processing algorithms, including pre-stack depth, beam, and reverse time migration, have allowed the industry to better distinguish hydrocarbon traps and identify previously unknown prospects. Specifically, advanced processing techniques improve the definition of the Stateseismic data from a scale of Utah on December 12, 2003, as "Lostwood Professional Services, Inc." On July 21, 2004,time to a scale of depth correctly locating the Company changed its name to "Plan A Promotions, Inc." In June 2011, the Company and certain of its shareholders sold an aggregate of 9,700,000 shares of the Company’s common stock to certain accredited investors. In connection with the sale of the shares, the Company’s then-current officers and directors resigned, and new management was appointed, resultingimages in a change of control. Following the change of control, in April 2012 the Company changed its state of incorporation from the State of Utah to the State of Delaware, and changed its name to GulfSlope Energy, Inc.three dimensions.
The Company's operations during the year ended September 30, 2012, generated no revenue. The Company's general and administrative expenses for the year ended September 30, 2012, were approximately $1.5 million, resulting in an operating loss of approximately $1.5 million, and a net loss of $1.5 million after accounting for interest expense of $60.
The independent auditor's report issued in connectionLong-term relationships with the audited financial statements of the Company for the period ended September 30, 2012, expresses "substantial doubt about its ability to continue as a going concern," due to the Company's status as a development stage company and its lack of significant operations.
Description of Business
The Company was originally involved in the value-added reseller market, specializing in promotional merchandise and apparel, employee recognition and incentive programs, business gifts and marketing expertise. The Company is no longer actively involved in the promotional merchandise industry. We are currently seeking potential assets, property or businesses to acquire, in a business combination, by reorganization, merger or acquisition. We have had no material business operations since approximately December, 2006. industry leading E&P companies. Our plan of operation for the next 12 months is to: (i) consider guidelines of industries in whichmanagement has long-term relationships with multiple E&P companies we believe may have an interest; (ii) adoptinterest in participating with us, either through farm-in or farm-out arrangements of future wells to be drilled. The reputation of our management team should present opportunities for jointly exploiting our targeted lease acquisitions, particularly after we have drilled wells that have proved reserves on leases that we acquire.
Well positioned to acquire lease and prospect acquisition opportunities. As a business plan regarding engagingresult of interpreting our 3-D seismic data, we have identified lease acquisition opportunities that we believe have compelling characteristics in the businessterms of any selected industry;size, geologic characteristics and (iii) to commence operations through funding and/or the acquisition or business combination with a “going concern” engaged in any industry selected. We are unable to predict the time as to when and if we may actually participate in any specific business endeavor, and we will be unable to do so until we determine the particular industry in which we may conduct business operations.
potential for economic returns.
Efficient capital utilization. Our strategy has been to maximize our capital utilization by obtaining and reprocessing 3-D seismic data in areas we believe offer significant opportunities at low entry costs. Substantially all of our capital deployed since March 2013 has been for the licensing of seismic data, expenses related to the salaries of the technical staff who interpret the data, acquisition of the workstation hardware and software used to interpret that data, and the leasing of required office space. We have acquired our 3-D seismic data covering approximately 2.2 million acres on what we believe to be favorable terms.
Technical Strategy
We believe that a major obstacle to identifying potential hydrocarbon accumulations globally has been the inability of seismic technology to accurately image the geologic formations as a result of complex subsurface stratigraphy and structure. Certain subsurface layers can highly distort the seismic ray paths, potentially causing a misinterpretation of the underlying geology. Thus, we believe that the opportunity exists for a technology-driven petroleum exploration company to extensively apply the most advanced seismic technologies possible, with the goal of achieving higher commercial discovery rates for exploratory wells, and their subsequent appraisal and development, potentially having a positive impact on returns on invested capital.
Our technical approach to exploration and development has been to deploy a team of highly experienced technical scientists who have current and extensive understanding of the geology and geophysics of select geologic basins, thereby decreasing the traditional timing and execution risks of advancing up a learning curve. For data purchase and interpretation, our technical staff has prioritized specific geographic areas, with the goal to optimize initial capital outlays.
Modern 3-D seismic datasets with acquisition parameters suitable for improved imaging at various depths are notreadily available in many of these basins, and can be licensed on commercially reasonable terms. Critical to the technical success is the application of the best seismic imaging technology available, in order to optimize delineation of prospective structures and the ability to detect the presence of hydrocarbon-charged reservoirs below many complex geologic features. An example of such a seismic technology is reverse time migration, which we believe to be the most accurate, fastest, and yet affordable, seismic imaging technology for critical depth imaging available today.
Lease and Acquisition Strategy
Our prospect identification and analysis approach is based on a thorough understanding of the geologic trends within our focus areas. The initial exploration program has been focused in areas where lease acquisition opportunities are readily available. We have been focused on acquiring and reprocessing the highest quality seismic data available. We entered into two master 3-D license agreements, together covering approximately 2.2 million acres. We have advanced processing underway on select areas within this licensed seismic area. We plan to expand this coverage and perform further advanced processing, both with currently engaged in any substantive business activity except the search for potential assets, property or businesseslicensed seismic data and seismic data to be acquired. We seek to acquire and we have no current plans to engage in any other activityreprocess the highest resolution data available in the foreseeable future unlesspotential prospect’s direct vicinity. This includes advanced imaging information to further our understanding of a particular reservoir’s characteristics, including both trapping mechanics and untilfluid migration patterns. Reprocessing is accomplished through a series of model building steps that incorporate the geometry of the geology to optimize the final image. The integration of existing geologic understanding and enhanced seismic interpretation by us provides the Company with unique perspectives on existing producing areas and underexplored formations prospective for hydrocarbon production.
We will seek to acquire leasehold title to properties we complete any such acquisition. Inconsider the most attractive. Leasehold acquisition typically occurs from one of three sources: (i) from governments through lease sales, licensing rounds or direct negotiations; (ii) from other oil and gas companies through direct purchases, trades or farm-in arrangements; or (iii) from individuals with direct mineral ownership. Leasehold acquisitions will provide us with title to license areas, specific blocks, or private mineral ownership. Depending on the terms of our present form,lease or license agreement, we are deemedmay be required to pay royalties and rentals on leases for our oil and gas production, if any.
Additional sources of growth opportunities will be considered through farm-in deals and prospect trades, with well established companies that hold active leases in the selected basins. We intend to acquire leases by lease sale, farm-in, or purchase, during the 2014 fiscal year. As is consistent with a prudent and successful exploration approach, we believe that additional seismic acquisition, processing, and/or interpretation may become highly advantageous, in order to more precisely define the most optimal drillable location(s).
Drilling and other Exploratory and Development Strategies
Upon successful acquisition of targeted prospects, our plan is to enter into farm-in and farm-out arrangements with other oil and gas companies with well-established operating capabilities. Our goal in these transactions will be to diversify risk and minimize capital exposure to exploration drilling costs. We expect much of our exploration drilling costs to be a “shell company” seeking to acquire or merge with a business or company. We do not intend to restrictpaid by our searchpartners through these transactions in return for business opportunities to any particular business or industry, and the areas in which we will seek out business opportunities may include all lawful businesses. We recognize that the number of suitable potential business ventures that may be available to us will be extremely limited, and may be restricted to businesses or entities that desire to become a publicly-held company while avoiding what many may deem to be the adverse factors related to an initial public offering (“IPO”) as a method of “going public.” The most prevalent of these factors include the substantial time requirements, legal and accounting costs, the inability to obtain an underwriter who is willing to publicly offer and sell securities on behalf of the particular entity, the lack of or the inability to obtain the required financial statements for such an undertaking, state limitations on the amount of dilution to public investors in comparison to the stockholders of any such entity, along with other conditions or requirements imposed by various federal and state securities laws, rules and regulations and federal and state agencies that implement them.
Amendments to SEC Form 8-K regarding shell companies and transactions with shell companies require the filing of all information about an acquired company that would have been required to have been filed had any such company filed a Form 10 Registration Statement with the SEC, along with required audited, interim and proforma financial statements, within four business days of the closing of any such transaction (Item 5.01(a)(8) of Form 8-K); and the recent amendments to Rule 144 (“Rule 144”) of the Securities Act of 1933, as amended (the “Securities Act”) adopted by the SEC that were effective on February 15, 2008, that limit the resale of most securities of shell companies until 12 months after the filing of such information (the “Form 10 Information”), may eliminate many of the perceived advantages of going public transactions with shell companies. These types of transactions are customarily referred to as “reverse” reorganizations or mergers in which the acquired company’s stockholders become the controlling stockholders in the acquiring company and the acquiring company becomes the successor to the business operations of the acquired company.
Regulations governing shell companies also deny the use of SEC Form S-8 for the registration of securities and limit the use of SEC Form S-8 to a reorganized shell company until the expiration of 60 days from when any such entity is no longer considered to be a shell company. This prohibition could further restrict opportunities for us to acquire companies that may already have stock option plans in place that cover numerous employees. In such instances, there may be no exemption from registration for the issuance of securities in any business combination to these employees, thereby necessitating the filing of a registration statement with the SEC to complete any such reorganization, and incurring the time and expenses that are normally avoided by reverse reorganizations or mergers.
The 2008 amendments to Rule 144 adopted by the SEC codify the SEC’s prior position limiting the tradability of certain securities of shell companies, including those issued by us in any business combination, and further limit the tradability of additional securities of shell companies; these proposals will further restrict the availability of opportunities for us to acquire any business or enterprise that desires to utilize us as a means of going public. See the heading “Rule 144” in Part II, Item 5, for a discussion of the general requirements of Rule 144 and the limitations of Rule 144 with respect to shell companies.
Any of these types of business combination transactions, regardless of the particular prospect, would require us to issue a substantial number of shares of our common stock that could amount to as much as 95% or more of our outstanding voting securities; accordingly, investments in the private enterprise, if available, would be much more favorable than any investment in us.
Management intends to consider a number of factors prior to making any decision to participate in any specific business endeavor, none of which may be determinative or provide any assurance of success. These may include, but will not be limited to, as applicable, an analysis of the quality of the particular business or entity’s management and personnel; the anticipated acceptability of any new products or marketing concepts that any such business or company may have; the merits of any such business or company’s technology or intellectual property; the present financial condition, projected growth potential and available technical, financial and managerial resources; working capital, history of operations and future prospects; the nature of present and expected competition; the quality and experience of any such business or company’s management services and the depth of management; the business or the company’s potential for further research, development or exploration; risk factors specifically related to the business’s or company’s operations; the potential for growth, expansion and profit; the perceived public recognition or acceptance of products, or services offered and trademarks and name identification; and numerous other factors that are difficult, if not impossible, to properly or accurately quantify or analyze, let alone describe or identify, without referring to specific objective criteriadelivery of an identified business or company.
prospect on acreage we control. Such arrangements are a commonly accepted industry method of proportionately recouping pre-drill cost outlays for seismic, land, and associated interpretation expenses. We cannot assure you, however, that we will be able to enter into any such arrangements on satisfactory terms. In any drilling, we expect that our retained working interest will be adjusted based upon factors such as geologic risk and well cost.
Early monetization of a discovered asset or a portion of a discovered asset is an option for the Company as a means to fund development or additional exploration projects as an alternative to potential equity or debt offerings. However, if a reasonable value were not received from the market at the discovery stage, then we may elect to retain (subject to lease terms) the discovery asset undeveloped, until a reasonable offer is received in line with our perceived market value, or we may elect to seek development partners on a promoted basis in order to substantially reduce capital development requirements.
We expect that any drilling activities are not likely to commence until calendar year 2015.
Oil and Gas Industry
The oil and gas industry is a complex, multi-disciplinary sector that varies greatly across geographies. As a heavily regulated industry, operating conditions are subject to political regimes and changing legislation. Governments can either induce or deter investment in exploration and production, depending on legal requirements, fiscal and royalty structures and regulation. Beyond political considerations, exploration and production for hydrocarbons is an extremely risky business with multiple failure modes. Exploration and production wells require substantial investment and are long-term projects, sometimes exceeding twenty to thirty years. Regardless of the resultseffort spent on an exploration or production prospect, success is difficult to attain. Even though modern equipment, including seismic equipment and advanced software, has helped geologists find producing structures and map reservoirs, they do not guarantee any outcome. Drilling is the only method to ultimately determine whether a prospect will be productive, and even then, many complications can arise during drilling (e.g., those relating to drilling depths, pressure, porosity, weather conditions, permeability of operationsthe formation and rock hardness) among others.
Typically, there is a significant chance that exploratory wells will result in non-producing holes, leaving investors with the cost of any specific entityseismic data and a dry well which can total millions of dollars. Even if oil or gas is produced from a particular well, there is always the possibility that treatment, at additional cost, may not necessarily be indicativerequired to make production commercially viable. Further, production profiles decline over time. In summary, oil and gas exploration and production is an industry with high risks and high entry barriers, but it is also potentially lucrative.
Oil and gas prices determine the commercial feasibility of whata project. Certain projects may occurbecome feasible with higher prices or, conversely, may falter with lower prices. Volatility in the price of oil, gas and other commodities has increased during the last few years, complicating the assessment of revenue projections. Most governments have enforced strict regulations to uphold high standards of environmental awareness; thus, holding companies to a high degree of responsibility vis-à-vis protecting the environment. Aside from such environmental factors, oil and gas drilling is often conducted near populated areas. For a company to be successful in its drilling endeavors, working relationships with local communities are crucial to promote business strategies and to avoid the repercussions of disputes that might arise over local business operations. At this time, the Company does not have any production or proved oil or gas reserves.
Governmental Regulation
Our future by reason of changing market strategies, plant or product expansion, changes in product emphasis, future management personneloil and changes in innumerable other factors. Further, in the case of a new business venture or one that is in a research and development mode, the risksgas operations will be substantial,subject to various federal, state, and there will be no objective criterialocal governmental regulations. Matters subject to examineregulation include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the effectiveness or the abilitiesspacing of its management or its business objectives. Also, a firm market for its products or services may yet need to be established,wells, pooling of properties, and with no past track record, the profitability of any such business will be unproven and cannot be predicted with any certainty.
Our management will attempt to meet personally with management and key personnel of any entity providing a potential business opportunity for us, visit and inspect material facilities, obtain independent analysis or verification of information provided and gathered, check references of material personnel and conduct other reasonably prudent measures calculated to ensure a reasonably thorough review of any particular business opportunity; however, duetaxation. From time to time, constraintsregulatory agencies have imposed price controls and limitations on production by restricting the rate of managementflow of oil and limited capital, these activitiesgas wells below actual production capacity in order to conserve supplies of oil and gas. The production, handling, storage, transportation, and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal, state, and local laws and regulations relating primarily to the protection of human health and the environment. State and local laws and regulations may be limited.
Weaffect the prices at which royalty owners are paid for their leases by requiring more stringent disclosure and certification requirements, adjusting interest rates for late payments, raising legal and administrative costs and imposing more costly default contractual terms. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the time as to whenultimate cost of compliance with these requirements or their effect on our operations. Although the regulatory burden on the oil and if we may actually participate ingas industry increases our cost of doing business and, consequently, affects our profitability, these burdens generally do not affect us any specific business endeavor or if at all. We anticipate that proposed business ventures will be made available to us through personal contacts of directors, executive officers and principal stockholders, professional advisors, broker dealers in securities, venture capital personnel and others who may present unsolicited proposals. In certain cases, we may agree to pay a finder’s feedifferently or to any greater or lesser extent than they affect others in our industry with similar business models.Environmental laws provide for, among other things, restrictions and prohibitions on spills, releases, or emissions of various substances produced in association with oil and gas operations. The laws also require that wells and facility sites be operated, maintained, abandoned, and reclaimed to the satisfaction of the applicable regulatory authorities. Compliance with such laws can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability, and potentially increased capital expenditures and operating costs. The discharge of oil or gas or other pollutants into the air, soil, or water may give rise to liabilities to governments and third parties and may require us to incur costs to remedy such discharge. No assurance can be given that environmental laws will not result in a curtailment of any future production or a material increase in the costs of production, development, or exploration activities or otherwise compensateadversely affect our financial condition, results of operations, or prospects. We could incur significant liability for damages, clean-up costs, and penalties in the persons who submit a potential business endeavor in which we eventually participate. Such persons may include our directors, executive officers and beneficialevent of discharges into the environment, environmental damage caused by us or previous owners of our securitiesproperty, or their affiliates.
Althoughnon-compliance with environmental laws or regulations. In addition to actions brought by governmental agencies, we currently have no plans to do so, depending on the nature and extent of services rendered, we may compensate members of our management in the future for services that they may perform for us. Because we currently have extremely limited resources, and we are unlikely to have any significant resources until we have determined a businesscould face actions brought by private parties or enterprise to engage in or have completed a business combination, management expects that any such compensation would take the form of an issuance of shares of our common stock to these persons; this would have the effect of further diluting the holdings of our other stockholders. We currently have an employment agreement with James M. Askew, our chief executive officer, pursuant to which Mr. Askew is eligible to receive discretionary bonuses, which may include shares of our common stock or options to acquire shares of our common stock, at the discretioncitizens groups. Any of the board. Except forforegoing could have a material adverse effect on our agreement with Mr. Askew, there are presently no preliminary agreements or understandings between us and members of our management respecting equity based compensation. Any shares issued to members of our management would be required to be resold under an effective registration statement filed with the SEC or could not be publicly sold until 12 months after we file the Form 10 information about the business combination with the SEC as now required by SEC Form 8-K. These provisions could further inhibit our ability to complete any business combination where finders or others who may be subject to these resale limitations refuse to provide us with any introductions or to close any such transactions unless they are paid requested fees in cash rather than our shares or unless we agree to file a registration statement with the SEC that includes any shares that are to be issued to them, at no cost to them. These expenses could limit potential acquisition candidates, especially those in need of cash resources, and could affect the number of shares that our stockholders retain following any such transaction, by reason of the increased expense.financial results.
Substantial fees are also often paid in connection with the completion of all types of business combinations, ranging from a small amount to as much as $400,000 or more. These fees are usually divided among promoters or founders or finders, after deduction of legal, accounting and other related expenses, and it is not unusual for a portion of these fees to be paid to members of management or to principal stockholders as consideration for their agreement to retire a portion of their shares of common stock or as consideration to them to provide an indemnification for all of our prior liabilities. Members of management may also actively negotiate or otherwise consent to the purchase of all or any portion of their shares of common stock as a condition to, or in connection with, a proposed business combination. It is not anticipated that any such opportunity will be afforded to other stockholders or that such other stockholders will be afforded the opportunity to approve or consent to any particular stock buy-out transaction. In the event that any such fees are paid or shares are purchased, these requirements may become a factor in negotiations regarding any business combination with us and, accordingly, may also present a conflict of interest for such individuals. Any of these types of fees that are paid in shares of our common stock will also be subject to the resale limitations embodied in the recent amendments to Rule 144 that prohibit, among other requirements, the public resale of these shares until 12 months after the filing of the Form 10 information with the SEC. We have no present arrangements or understandings respecting any of these types of fees or opportunities.
Competitive Business Conditions and Our Competitive PositionFailure to comply with environmental laws could result in fines or penalties being owed to third parties or governmental entities, the payment of which could have a material adverse effect on our financial condition or results of operations.
On April 22, 2010, the Deepwater Horizon, a semi-submersible deepwater drilling rig operating in the IndustryU.S. Gulf of Mexico, sank after an apparent blowout and Methodsfire resulting in a significant flow of Competitionhydrocarbons from the BP Macondo well. Subsequent to the Deepwater Horizon incident in the Gulf of Mexico in April 2010, the BOEM issued a series of “Notice to Lessees” (“NTLs”) imposing new regulatory requirements and permitting procedures for new wells to be drilled in federal waters of the outer continental shelf (“OCS”). These new regulatory requirements include the following:
| · | the Environmental NTL, which imposes new and more stringent requirements for documenting the environmental impacts potentially associated with the drilling of a new offshore well and significantly increases oil spill response requirements; |
| · | the Compliance and Review NTL, which imposes requirements for operators to secure independent reviews of well design, construction and flow intervention processes and also requires certifications of compliance from senior corporate officers; |
| · | the Drilling Safety Rule, which prescribes tighter cementing and casing practices, imposes standards for the use of drilling fluids to maintain well bore integrity and stiffens oversight requirements relating to blowout preventers and their components, including shear and pipe rams; and |
| · | the Workplace Safety Rule, which requires operators to employ a comprehensive safety and environmental management system (“SEMS”) to reduce human and organizational errors as root causes of work-related accidents and offshore spills and to have their SEMS periodically audited by an independent third party auditor approved by the Bureau of Safety & Environmental Enforcement (“BSEE”). |
Since the adoption of these new regulatory requirements, the BOEM has been taking much longer to review and approve permits for new wells than was common prior to the Deepwater Horizon incident. The new rules also increase the cost of preparing each permit application and will increase the cost of each new well, particularly for wells drilled in deeper waters on the OCS.
The BOEM, BSEE and Office of National Resources Revenue are expected to continue to issue new safety and environmental guidelines or regulations for drilling in the U.S. Gulf of Mexico, and other regulatory agencies could potentially issue new safety and environmental guidelines or regulations in other geographic regions, and may take other steps that could increase the costs of exploration and production, reduce the area of operations and result in permitting delays. We are monitoring legislation and regulatory developments; however, it is difficult to predict the ultimate impact of any new guidelines, regulations or legislation.
Environmental Regulation
The operation of our future oil and gas properties will be subject to numerous federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Applicable U.S. federal environmental laws include, but are not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the Clean Water Act (“CWA”) and the Clean Air Act (“CAA”). These laws and regulations govern environmental cleanup standards, require permits for air, water, underground injection, solid and hazardous waste disposal and set environmental compliance criteria. In addition, state and local laws and regulations set forth specific standards for drilling wells, the maintenance of bonding requirements in order to drill or operate wells, the spacing and location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandoning of wells, and the prevention and cleanup of pollutants and other matters. Typically, operators maintain insurance against costs of clean-up operations, but may not be fully insured against all such risks. Additionally, Congress and federal and state agencies frequently revise the environmental laws and regulations, and any changes that result in delay or more stringent and costly permitting, waste handling, disposal and clean-up requirements for the oil and gas industry could have a significant impact on our operating costs. There can be no assurance that future developments, such as increasingly stringent environmental laws or enforcement thereof, will not cause us to incur material environmental liabilities or costs.
Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal fines and penalties and the imposition of injunctive relief. Accidental releases or spills may occur in the course of the operations of our properties, and we cannot assure you that we will not incur significant costs and liabilities as a result of such releases or spills, including any third-party claims for damage to property, natural resources or persons.
The environmental laws and regulations that could have a material impact on the oil and natural gas exploration and production industry and our business are as follows:
Management believesHazardous Substances and Wastes. CERCLA, also known as the “Superfund law,” imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons that there are literally thousandsconsidered to be responsible for the release of shella “hazardous substance” into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies engaged in endeavors similarthat transported or 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 those engaged injoint 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, and it is not uncommon for neighboring landowners and other third parties to file corresponding common law claims for personal injury and property damage allegedly caused by us; many of these companies have substantial current assetsthe hazardous substances released into the environment.
Waste Discharges. The CWA and cash reserves. Competitors also include thousands of other publicly-held companies whose business operations have proven unsuccessful,analogous state laws impose restrictions and whose only viable business opportunity is that of providing a publicly-held vehicle through which a private entity may have accessstrict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. The CWA and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including jurisdictional wetlands, unless authorized by an appropriately issued permit. Spill prevention, control and countermeasure requirements of federal laws require appropriate containment beams and similar structures to help prevent the contamination of navigable waters by a petroleum hydrocarbon tank spill, rupture or leak. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties as well as other enforcement mechanisms for noncompliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.
Air Emissions. The CAA and associated state laws and regulations restrict the emission of air pollutants from many sources, including oil and gas operations. New facilities may be required to obtain permits before construction can begin, and existing facilities may be required to obtain additional permits and incur capital costs in order to remain in compliance. More stringent regulations governing emissions of toxic air pollutants and greenhouse gases (“GHGs”) have been developed by the EPA and may increase the costs of compliance for some facilities.
Oil Pollution Act. The Oil Pollution Act of 1990, as amended (“OPA”) and regulations thereunder impose a variety of requirements on “responsible parties” related to the prevention of oil spills and liability for damages resulting from such spills in United States waters. A “responsible party” includes the owner or operator of an onshore facility, pipeline or vessel, or the lessee or permittee of the area in which an offshore facility is located. OPA assigns liability to each responsible party for oil cleanup costs and a variety of public capital markets viaand private damages. While liability limits apply in some circumstances, a reverse reorganizationparty cannot take advantage of liability limits if the spill was caused by gross negligence or merger. Therewillful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed by OPA. OPA imposes ongoing requirements on a responsible party, including the preparation of oil spill response plans and proof of financial responsibility to cover environmental cleanup and restoration costs that could be incurred in connection with an oil spill.
National Environmental Policy Act. Oil and natural gas exploration and production activities on federal lands are subject to the National Environmental Policy Act (“NEPA”). NEPA requires federal agencies, including the Department of Interior, to evaluate major agency actions having the potential to significantly impact the environment. The process involves the preparation of either an environmental assessment or environmental impact statement depending on whether the specific circumstances surrounding the proposed federal action will have a significant impact on the human environment. The NEPA process involves public input through comments which can alter the nature of a proposed project either by limiting the scope of the project or requiring resource-specific mitigation. NEPA decisions can be appealed through the court system by process participants. This process may result in delaying the permitting and development of projects, increase the costs of permitting and developing some facilities and could result in certain instances in the cancellation of existing leases.
Worker Safety. The Occupational Safety and Health Act (“OSHA”) and comparable state statutes regulate the protection of the health and safety of workers. The OSHA hazard communication standard requires maintenance of information about hazardous materials used or produced in operations and provision of such information to employees. Other OSHA standards regulate specific worker safety aspects of our operations. Failure to comply with OSHA requirements can lead to the imposition of penalties.
Safe Drinking Water Act. The Safe Drinking Water Act and comparable state statutes restrict the disposal, treatment or release of water produced or used during oil and gas development. Subsurface emplacement of fluids (including disposal wells or enhanced oil recovery) is no reasonable waygoverned by federal or state regulatory authorities that, in some cases, includes the state oil and gas regulatory authority or the state’s environmental authority. These regulations may increase the costs of compliance for some facilities.
Offshore Drilling. In 2011, the U.S. Department of Interior issued new rules designed to improve drilling and workplace safety in the U.S. Gulf of Mexico, and various congressional committees began pursuing legislation to regulate drilling activities and increase liability. The Bureau of Ocean Energy Management, BSEE and Office of National Resources Revenue are expected to continue to issue new safety and environmental guidelines or regulations for drilling in the U.S. Gulf of Mexico, and other regulatory agencies could potentially issue new safety and environmental guidelines or regulations in other geographic regions, and may take other steps that could increase the costs of exploration and production, reduce the area of operations and result in permitting delays. We are monitoring legislation and regulatory developments; however, it is difficult to predict our competitive position or thatthe ultimate impact of any other entitynew guidelines, regulations or legislation. A prolonged suspension of drilling activity or permitting delays in these endeavors; however, we, having limited assets,the U.S. Gulf of Mexico and no cash reserves, will no doubt be atnew regulations and increased liability for companies operating in this sector, whether or not caused by a competitive disadvantagenew incident in competing with shell companies that have significant cash resourcesthe region, could adversely affect the business and have recent operating histories when compared with our lackplanned operations of any substantive operations for many years.oil and gas companies.
Effect of Existing or Probable Governmental Regulations on our Business
We are subject to the following regulations of the SEC and applicable securities laws, rules and regulations:
Smaller Reporting Company
Company. We are subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting company.” That designation will relieve us of some of the informational requirements of Regulation S-K applicable to larger companies.
Sarbanes/Oxley Act
Act. We are also subject to the Sarbanes/Oxley Act of 2002. The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management's assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act havehas and will continue to substantially impact our legal and accounting costs.
Exchange Act Reporting Requirements
Requirements. Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in Regulation 14A. Matters submitted to stockholders at special or annual meetings thereof or pursuant to a written consent will require us to provide our stockholders with the information outlined in Schedules 14A or 14C of Regulation 14; preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies of this information are forwarded to our stockholders.
We are also required to file Annual Reports on SEC Form 10-K and Quarterly Reports on SEC Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on SEC Form 8-K.
Competition
We operate in a highly competitive environment for generating and reviewing prospects and acquiring properties. Many of our competitors are major or independent oil and gas companies that possess and employ financial resources that allow them to obtain substantially greater technical and personnel resources than ours. We believe that we may have to compete with other companies when acquiring leases or oil and gas properties. These additional resources can be particularly important in reviewing prospects and purchasing properties. Competitors may be able to evaluate and purchase a greater number of properties and prospects than our financial or personnel resources permit. Competitors may also be able to pay more for prospects than we are able or willing to pay. Further, our competitors may be able to expend greater resources on the existing and changing technologies that we believe will impact attaining success in the industry. If we are unable to compete successfully in these areas in the future, our future growth may be diminished or restricted. Furthermore, these companies may also be better able to withstand the financial pressures of unsuccessful drill attempts, delays, sustained periods of volatility in financial or commodity markets and generally adverse global and industry-wide economic conditions, and may be better able to absorb the burdens resulting from changes in relevant laws and regulations, which would adversely affect our operations.
Employees
We currently have 10 employees. We utilize consultants, as needed, to perform strategic, technical, operational and administrative functions, and as advisors.
NumberHistorical Background
The Company was incorporated under the laws of Total Employeesthe State of Utah on December 12, 2003, as “Lostwood Professional Services, Inc.” On July 21, 2004, the Company changed its name to “Plan A Promotions, Inc.” The Company became an SEC reporting company in 2006, when a registration statement for its common stock was declared effective under the Exchange Act. At that time, the Company was engaged in the business of selling promotional and Numbermarketing merchandise and apparel. Those operations were discontinued later that year, and the Company was not engaged in any active business in the following years. In June 2011, the Company and certain of Full Time Employeesits shareholders sold an aggregate of 9,700,000 shares of the Company’s common stock at a price of $0.01 per share to certain accredited investors, which resulted in a change of control and management. Following the change of control, in April 2012 the Company changed its state of incorporation from the State of Utah to the State of Delaware, and changed its name to GulfSlope Energy, Inc. Prior to March 2013, we had not been engaged in any substantive business activity since 2006.
General
Our chief executive officeraddress is 2500 City West, Suite 800, Houston, Texas 77042 and our sole employee.telephone number is (281) 918-4100. Our web site is currently under construction. You may access and read our SEC filings through the SEC’s web site (http:www.sec.gov). This site contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC.
Risks Related to Our Business and Financial Condition
We have not acquired any oil and gas leases or prospects.
As a smaller reportingresult of our 3-D seismic imaging and reprocessing, we have identified but not yet acquired the leasing or drilling rights to a number of currently available, undrilled prospects which we believe may potentially contain economically recoverable reserves. As we have intentionally not yet pursued the acquisition of any oil and gas leases to date, there can be no assurance that we will be successful in such acquisition. It should be expected that we may face competition in our lease acquisition strategy which could prove to increase the cost of any acquisitions. While we believe that our prospective portfolio of prospects has not been identified and is not being pursued by third-party competitors, there is no assurance of this belief nor that we will be able to fully execute our lease acquisition strategy. The failure to fully execute our lease acquisition strategy may require us to farm-in to existing leases or attempt to form a series of partnerships with other E&P companies to gain access to identified prospects, which could be at a higher cost than anticipated. We cannot assure investors that we will be able to enter into any such partnerships on satisfactory terms, if at all. Any company with which we may partner to conduct exploration drilling activities on prospects that we have identified using our licensed seismic data and ultimately acquire would be required to pay a license fee to the licensor of the data, at the licensor’s then-current rates.
We have no proved reserves and when and if we acquire oil and gas interests, such drilling operations may not yield any oil or gas in commercial quantity or quality.
As we have not yet acquired any oil and gas interests or drilled wells, we have no proved reserves. While we have identified prospects based on available seismic and geological information that indicate the potential presence of oil or gas, to date we do not own the drilling and production rights for these prospects and may never successfully acquire an interest in these prospects. Some of our current prospects may require additional seismic data reprocessing and interpretation. Even when properly used and interpreted, seismic data and visualization techniques are only tools used to assist geoscientists in identifying structures and hydrocarbon indicators and do not enable the interpreter to have certainty as to whether hydrocarbons are, in fact, present in those structures. Even if we acquire the interests, we do not know if any such prospect will contain oil or gas in sufficient quantities or quality to recover drilling and completion costs or to be economically viable. Even if oil or gas is found on our prospects, development, facility construction and transportation costs may prevent such prospects from being economically viable. Accordingly, there is no assurance we will ever report proved reserves in our SEC filings.
Our business plan requires substantial additional capital, which we may be unable to raise on acceptable terms, if at all, in the future, which may in turn limit our ability to execute our business strategy.
We expect our capital outlays and operating expenditures to increase substantially over at least the next several years as we expand our operations. Lease acquisition costs, as well as drilling operations are very expensive, and we will need to raise substantial additional capital, through equity offerings, strategic alliances or debt financing in 2014.
Our future capital requirements will depend on many factors, including:
| · | the number, location, terms and pricing of our anticipated lease acquisitions; |
| · | our financing of the lease acquisitions and associated bonding; |
| · | our ability to enter into partnerships and farm-outs with other oil and gas E&P companies and/or financial investors on satisfactory terms; |
| · | location of any drilling activities, whether onshore or offshore, as well as the depth of any wells to be drilled; |
| · | cost of additional seismic data to license as well as the reprocessing cost; |
| · | the scope, rate of progress and cost of any exploration and production activities; |
| · | oil and natural gas prices; |
| · | our ability to locate and acquire hydrocarbon reserves; |
| · | our ability to produce those oil or natural gas reserves; |
| · | access to oil and gas services and existing pipeline infrastructure; |
| · | the terms and timing of any drilling and other production-related arrangements that we may enter into; |
| · | the cost and timing of governmental approvals and/or concessions |
| · | the cost, number, and access to qualified industry professionals we employ; and |
| · | the effects of competition by larger companies operating in the oil and gas industry. |
We have budgeted capital and other operating expenditures during calendar 2014 of approximately $19.4 million and during calendar 2015 of approximately $10.6 million. These estimates are projections only and will vary depending upon a number of factors, including our ability to acquire our targeted leases, enter into farm-in and farm-out arrangements, and attract partners that are willing to bear some or all of our share of exploration drilling costs on the leases we ultimately acquire.
Future equity financings may be dilutive to our stockholders. Alternative forms of future financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best efforts private equity and debt financings. We do not have any credit or equity facilities available with financial institutions, stockholders or third party investors, and will continue to rely on best efforts financings. There is no assurance that we can raise the capital necessary to fund our business plan. Failure to raise the required capital to fund operations, on favorable terms or at all, will have a material adverse effect on our operations, and will likely cause us to curtail or cease operations.
Our fiscal 2013 audited financial statements contain a going-concern qualification, raising questions as to our continued existence.
We have incurred losses since our inception resulting in an accumulated deficit of approximately $19.1 million at September 30, 2013. Further losses are anticipated as we continue in the exploration stage of our business. As a result, in their audit report contained in this Annual Report, our independent auditors expressed substantial doubt about our ability to continue as a going concern. As of the date of this Annual Report, we believe we have sufficient cash on hand to fund operations through April, 2014, not including any debt repayment. We will require additional funds for the balance of calendar 2014. If we cannot raise these funds, we may be required to cease business operations or alter our business plan.
We are dependent on certain members of our management and technical team.
Investors in our common stock must rely upon the ability, expertise, judgment and discretion of our management and the success of our technical team in identifying and acquiring leasehold interests, as well as discovering and developing any oil and gas reserves. Our performance and success are dependent, in part, upon key members of our management and technical team, and their loss or departure could be detrimental to our future success. In making a decision to invest in our common stock, you must be willing to rely to a significant extent on our management’s discretion and judgment. The loss of any of our management and technical team members could have a material adverse effect on our results of operations and financial condition, as well as on the market price of our common stock. We may not be able to find replacement personnel with comparable skills. If we are unable to attract and retain key personnel, our business may be adversely affected. We do not currently maintain key-man insurance on any member of the management team.
Non-Exclusive Seismic License Agreement.
Our 3-D seismic license agreements are non-exclusive, industry-standard agreements. Accordingly, the licensor of such seismic data has the right to license the same data that we acquired to our competitors, which could adversely affect our acquisition strategy and the execution of our business plan. We are not authorized to assign any of our rights under our license agreements, including a transaction with a potential joint venture partner or acquirer, without complying with the terms of the license agreements and a payment to the licensor (by us or the acquirer in the event of a change of control transaction or our partner in a joint venture transaction). However, our interpretation of this seismic data and the reprocessing and the modeling of certain seismic data utilized to identify and technically support oil and gas prospects, is unique and proprietary to the Company.
We are an exploration stage company with limited operating history, and there can be no assurance that we will be successful in executing our business plan. We may never attain profitability.
We commenced our business activity in March 2013, when we entered into 3-D license agreements covering approximately 2.2 million acres, and have entered into additional 3-D license agreements with seismic companies to acquire additional data and reprocess seismic data. We intend to engage in the drilling, development, and production of oil and natural gas in the future. As we are a relatively new business, we are subject to all the risks and uncertainties which are characteristic of a new business enterprise, including the substantial problems, expenses and other difficulties typically encountered in the course of its business, in addition to normal business risks, as well as those risks that are specific to the oil and gas industry. Investors should evaluate us in light of the delays, expenses, problems and uncertainties frequently encountered by companies developing markets for new products, services and technologies. We may never overcome these obstacles.
We may be unable to access the capital markets to obtain additional capital that we will require to implement our business plan, which would restrict our ability to grow.
Our current capital on hand is insufficient to enable us to fully execute our business strategy beyond April 2014. Because we are an exploration stage company with limited resources, we may not be able to compete in the capital markets with much larger, established companies that have ready access to capital. Our ability to obtain needed financing may be impaired by conditions and instability in the capital markets (both generally and in the oil and gas industry in particular), our status as a new enterprise without a demonstrated operating history, the location of our prospective lease acquisitions and prices of oil and natural gas on the commodities markets (which will impact the amount of financing available to us), and/or the loss of key consultants and management. Further, if oil and/or natural gas prices on the commodities markets decrease, then potential revenues, if any, will decrease, which may increase our requirements for capital. Some of the future contractual arrangements governing our operations may require us to maintain minimum capital (both from a legal and practical perspective), and we may lose our contractual rights if we do not have the required minimum capital. If the amount of capital we can raise is not sufficient, we may be required to providecurtail or cease our operations.
We have a limited operating history with significant losses and expect losses to continue for the foreseeable future.
We have incurred annual operating losses since our inception. As a result, at September 30, 2013, we had an accumulated deficit of approximately $19.1 million. We had no revenues in 2013 and do not anticipate receiving revenues in fiscal 2014, or in subsequent periods unless we are successful in acquiring leases and discovering economically recoverable oil or gas reserves. We expect that our operating expenses will increase as we develop our projects. We expect continued losses in fiscal year 2014, and thereafter until discoveries are brought online and begin producing oil and gas.
Our lack of diversification increases the risk factors.of an investment in our common stock.
Our business will focus on the oil and gas industry in commercially advantageous offshore and onshore areas of the United States and select international areas. Larger companies have the ability to manage their risk by diversification. However, we lack diversification, in terms of both the nature and geographic scope of our business. As a result, factors affecting our industry, or the regions in which we operate, will likely impact us more acutely than if our business were diversified.
Strategic relationships upon which we rely are subject to change, which may diminish our ability to conduct our operations.
Our ability to successfully bid on and acquire properties, to discover resources, to participate in drilling opportunities and to identify and enter into commercial arrangements with customers and partners, depends on developing and maintaining close working relationships with industry participants and on our ability to select and evaluate suitable properties. Further, we must consummate transactions in a highly competitive environment. These realities are subject to change and may impair our ability to grow.
To develop our business, we will endeavor to use the relationships of our management and to enter into strategic relationships, which may take the form of joint ventures with other private parties or with local government bodies or contractual arrangements with other oil and gas companies, including those that supply equipment and other resources that we will use in our business. We may not be able to establish these strategic relationships, or if established, we may not be able to maintain them. In addition, the dynamics of our relationships with strategic partners may require that we incur expenses or undertake activities we would not otherwise incur or undertake in order to fulfill our obligations to these partners or maintain our relationships. If our strategic relationships are not established or maintained, our business prospects may be limited, which could diminish our ability to conduct our operations.
Competition in obtaining rights to explore and develop oil and gas reserves may impair our business.
The oil and gas industry is extremely competitive. Present levels of competition for oil and gas leases and drilling rights are high worldwide. Other oil and gas companies with greater resources may compete with us by bidding for leases and drilling rights, as well as other properties and services we may need to operate our business. Additionally, other companies may compete with us in obtaining capital from investors. Competitors include larger, established exploration and production companies, which have access to greater financial and other resources than we have currently, and may be more successful in the recruitment and retention of qualified employees and may conduct their own refining and petroleum marketing operations, giving them a competitive advantage. In addition, actual or potential competitors may be strengthened through the acquisition of additional assets and interests. Because of some or all of these factors, we may not be able to compete.
We may not be able to effectively manage our growth, which may harm our profitability.
Our strategy envisions building and expanding our business. If we fail to effectively manage our growth, our financial results will be adversely affected. Growth may place a strain on our management systems and resources. We must continue to refine and expand our business development capabilities, our systems, processes, and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. We cannot assure you that we will be able to:
| · | expand our systems effectively or efficiently or in a timely manner; |
| · | optimally allocate our human resources; or |
| · | identify and hire qualified employees or retain valued employees. |
If we are unable to manage our growth and our operations, our financial results could be adversely affected, which could prevent us from ever attaining profitability.
Any change to government regulation/administrative practices may have a negative impact on our ability to operate and profitability.
The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency impacting any jurisdiction where we might conduct our business activities, including the Bureau of Ocean Energy Management (“BOEM”), may be changed, applied or interpreted in a manner which may fundamentally alter the ability of the Company to conduct business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate profitably.
Additionally, certain bonding and/or insurance may be required in jurisdictions in which we chose to have operations, increasing our costs to operate.
Risks Related to Our Industry in Which We Intend to Compete
Current volatile market conditions and significant fluctuations in energy prices may continue indefinitely, negatively affecting our business prospects and viability.
The oil and gas markets are very volatile, and we cannot predict future oil and natural gas prices. Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control. Any substantial decline in the price of oil and natural gas will likely have a material adverse effect on our planned operations, financial condition and level of expenditures that we may ultimately have to make for the development of any oil and natural gas reserves we may acquire. The prices we receive for any production and the levels of any production and reserves will depend on numerous factors beyond our control. These factors include, but are not limited to, the following:
| · | changes in global supply and demand for oil and natural gas by both refineries and end users; |
| · | the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls; |
| · | the price and volume of imports of foreign oil and natural gas; |
| · | political and economic conditions, including embargoes, in oil-producing countries or affecting other oil-producing activity; |
| · | the level of global oil and gas exploration and production activity; |
| · | the level of global oil and gas inventories; |
| · | technological advances affecting energy consumption; |
| · | domestic and foreign governmental regulations and taxes; |
| · | proximity and capacity of oil and gas pipelines and other transportation facilities; |
| · | the price and availability of competitors’ supplies of oil and gas in captive market areas; |
| · | the introduction, price and availability of alternative forms of fuel to replace or compete with oil and natural gas; |
| · | import and export regulations for LNG and/or refined products derived from oil and gas production from the US; |
| · | speculation in the price of commodities in the commodity futures market; |
| · | the availability of drilling rigs and completion equipment; and |
| · | the overall economic environment. |
Further, oil and natural gas prices do not necessarily fluctuate in direct relationship to each other. As a result, our future financial results will be more sensitive to fluctuations in oil prices. The price of oil has been extremely volatile, and we expect this volatility to continue for the foreseeable future. The slowdown in economic activity caused by the worldwide economic recession has reduced worldwide demand for and impacted energy prices. This may result in lower crude oil and natural gas prices. Crude oil prices declined from record high levels in early July 2008 of over $140 per Bbl to below $45 per Bbl in February 2009 before rebounding to over $97 per Bbl in December 2013. Natural gas prices declined from over $13 per MMBtu in mid-2008 to approximately $4.17 per MMBtu in December 2013. Such a decline could occur again in the future due to global economic conditions. These factors and the volatility of the energy markets make it extremely difficult to predict future oil and natural gas price movements with any certainty.
Exploration for oil and natural gas is risky and may not be commercially successful, impairing our ability to generate revenues.
Oil and natural gas exploration involves a high degree of risk. These risks are more acute in the early stages of exploration. We may not discover 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 and tools lost in the hole, and changes in drilling plans, locations as a result of prior exploratory wells or additional seismic data and interpretations thereof, and final commercial terms negotiated with partners. Developing exploratory oil and gas properties requires significant capital expenditures and involves a high degree of financial risk. The budgeted costs of drilling, completing, and operating exploratory wells are often exceeded and can increase significantly when drilling costs rise. Drilling may be unsuccessful for many reasons, including title problems, weather, cost overruns, equipment shortages, and mechanical difficulties. There is no assurance that we will successfully complete any wells or if successful, that the wells would be economically successful. Moreover, the successful drilling or completion of any oil or gas well does not ensure a profit on investment. Exploratory wells bear a much greater risk of loss than development wells. We cannot assure you that our exploration, exploitation and development activities will result in profitable operations, the result of which will materially adversely affect our business.
Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on the Company.
Oil and gas operations are subject to national 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. Oil and gas operations are also subject to national and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Environmental standards imposed by national or local authorities may be changed and any such changes may 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 we may elect not to insure against due to prohibitive premium costs and other reasons. We have not been required to spend any amounts on compliance with environmental regulations, as we have no oil and gas properties to date. However, we may be required to expend substantial sums in the future and this may affect our ability to develop, expand or maintain our operations.
We may be dependent upon third party operators of any oil and gas properties we may acquire.
Third parties may act as the operators of our oil and gas wells and control the drilling and operating activities to be conducted on our properties, if and when such assets are acquired. Therefore, we may have limited control over certain decisions related to activities on our properties relating to the timing, costs, procedure, and location of drilling or production activities, which could affect the Company’s results.
We may not be able to develop oil and gas reserves on an economically-viable basis.
To the extent that we succeed in discovering oil and/or natural gas reserves, we cannot assure that these reserves will be capable of production levels we project or in sufficient quantities to be commercially viable. On a long-term basis, our viability depends on our ability to find, develop and commercially produce oil and gas reserves, assuming we acquire leases or drilling rights. Our future reserves, if any, 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 our production into 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. 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. These conditions include delays in obtaining governmental approvals or consents, shut-downs of wells resulting from extreme weather conditions, problems in storage and distribution and adverse geological and mechanical conditions. While we will endeavor to effectively manage these conditions, we cannot be assured of doing so optimally, and we will not be able to eliminate them completely in any case. Therefore, these conditions could adversely impact our operations.
A shortage of drilling rigs and other equipment and geophysical service crews could hamper our ability to exploit any oil and gas resources we may acquire.
Because of increased global oil and gas exploration activities, competition for available drilling rigs and related services and equipment has increased significantly, and we believe that these rigs and related items may become more expensive and harder to obtain once we begin our drilling operations. We may not be able to procure the necessary drilling rigs and related services and equipment or the cost of such items may be prohibitive. Our ability to comply with future license obligations or otherwise generate revenues from the production of operating oil and gas wells could be hampered as a result of this, and our business could suffer.
Environmental risks may adversely affect our business.
All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of international conventions and federal, provincial and municipal laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures, and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner we expect may result in stricter standards and enforcement, larger fines and liability, prevention of the right to operate or participate in leasing, and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to foreign governments and third parties and may require us to incur costs to remedy such discharge. The application of environmental laws to our business may cause us to curtail our production or increase the costs of our production, development or exploration activities.
Any insurance that we may acquire will likely be inadequate to cover liabilities we may incur.
Our involvement in the exploration for, and development of, oil and natural gas properties may result in our becoming subject to liability for pollution, blow-outs, property damage, personal injury or other hazards. Although we intend to obtain insurance in accordance with industry standards to address such risks, such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. In addition, such risks may not, in all circumstances be insurable or, in certain circumstances, we may choose not to obtain insurance to protect against specific risks due to the high premiums associated with such insurance or for other reasons. The payment of such uninsured liabilities would reduce the funds available to us. If we suffer a significant event that is not fully insured or if the insurer of such event is not solvent or denies coverage, we could be required to divert funds from capital investment or other uses towards covering our liability for such events.
Risks Related to our Common Stock
There is not now, and there may never be, an active market for our common stock.
Shares of our common stock have historically been thinly traded, currently there is no market for our common stock, and no market for our common stock may develop in the future. As a result, our stock price as quoted by the OTCBB or OTCQB may not reflect an actual or perceived value. Moreover, several days may pass before any shares are traded; meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including, but not limited to:
| · | we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume; and |
| · | stock analysts, stock brokers and institutional investors may be risk-averse and reluctant to follow a company such as ours that faces substantial doubt about its ability to continue as a going concern or to purchase or recommend the purchase of our shares until such time as we become more viable. |
As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of our common stock. Accordingly, investors must assume they may have to bear the economic risk of an investment in our common stock for an indefinite period of time, and may lose their entire investment. There can be no assurance that a more active market for our common stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our common stock and would likely have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.
We cannot assure that our common stock will become liquid or that it will be listed on a national securities exchange.
Until our common stock is listed on a national securities exchange such as the NASDAQ Capital Market or the NYSE, we expect our common stock to remain eligible for quotation on the OTCBB and OTCQB. If we fail to meet the criteria set forth in SEC regulations, various requirements govern the conduct of broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.
We may issue preferred stock.
Our Certificate of Incorporation authorizes the issuance of up to 50 million shares of “blank check” preferred stock with designations, rights and preferences determined from time to time by the Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although we have no present intention to issue any shares of its authorized preferred stock, there can be no assurance that we will not do so in the future.
Future sales of our common stock could lower our stock price.
We will likely sell additional shares of common stock to fund working capital obligations in future periods. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock. Moreover, sales of our common stock by existing shareholders could also depress the price of our common stock.
Our common stock is subject to the “penny stock” rules of the SEC, which makes transactions in our common stock cumbersome and may reduce the value of an investment in the stock.
The SEC 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 and 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 SEC 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 common stock and cause a decline in the market value of 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.
The price of our common stock will remain volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
| · | actual or anticipated variations in our operating results including but not limited to leasing, drilling, and discovery of oil and gas; |
| · | announcements of developments by us, our strategic partners or our competitors; |
| · | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
| · | adoption of new accounting standards affecting our Company’s industry; |
| · | additions or departures of key personnel; |
| · | sales of our common stock or other securities in the open market; |
| · | our ability to acquire seismic data and other intellectual property on commercially reasonable terms and to defend such intellectual property from third party claims; |
| · | other events or factors, many of which are beyond our control. |
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of companies’ securities, securities class action litigation has often been initiated against those companies. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.
We do not anticipate paying any dividends on our common stock.
Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment in the Company.
Our Company has no assets, property or business. See Part I, Item 1. Because the Company has had no business, its activities have been limited to keeping itself in good standing in the StateWe lease 6,111square feet of Delaware. These activities have consumed an insignificant amount of management’s time.office space at our corporate headquarters at 2500 CityWest, Suite 800, Houston, Texas 77042 on market terms through July 31, 2015. We own office equipment, office furniture, and computer equipment.
ITEM 3. LEGAL PROCEEDINGS
None.From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. No legal proceedings, government actions, administrative actions, investigations or claims are currently pending against us or involve the Company.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company shares are tradedOur common stock is quoted on the OTC Bulletin BoardOTCBB and the OTCQB under the symbol “GSPE.” Shares of our common stock have historically been thinly traded, and currently there is “GSPE”.no active trading market for our common stock. As a result, our stock price as quoted by the OTCBB or OTCQB may not reflect an actual or perceived value. The Company shares have been quoted onfollowing table sets forth the OTC Bulletin Board since December 20, 2006.
Set forth below are theapproximate high and low bid prices for our common stock for each quarter of 2012the last two fiscal years and 2011 as reported by the OTCBB. All prices listed hereininterim periods. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissionscommission and may not represent actual transactions.
| | High Bid | | | Low Bid | |
| | | | | | |
July 1, 2013 through September 30, 2013 | | $ | 0.66 | | | $ | 0.42 | |
April 1, 2013 through June 30, 2013 | | $ | 0.55 | | | $ | 0.39 | |
January 1, 2013 through March 31, 2013 | | $ | 0.41 | | | $ | 0.20 | |
October 1, 2012 through December 31, 2012 | | $ | 0.41 | | | $ | 0.30 | |
Period | | High Bid | | | Low Bid | |
| | | | | | |
July 1, 2012 through September 30, 2012 | | $ | 0.40 | | | $ | 0.40 | |
April 1, 2012 through June 30, 2012 | | $ | 1.20 | | | $ | 0.20 | |
January 1, 2012 through March 31, 2012 | | $ | 0.60 | | | $ | 0.60 | |
October 1, 2011 through December 31, 2011 | | $ | 1.05 | | | $ | 0.60 | |
Period | | High Bid | | | Low Bid | |
| | | | | | |
| | | | | | |
July 1, 2011 through September 30, 2011 | | $ | 1.00 | | | $ | 0.85 | |
April 1, 2011 through June 30, 2011 | | $ | 1.11 | | | $ | 0.55 | |
January 1, 2011 through March 31, 2011 | | $ | 1.10 | | | $ | 0.30 | |
October 1, 2010 through December 31, 2010 | | $ | 0.30 | | | $ | 0.30 | |
Rule 144
The following is a summary of the current requirements of Rule 144:
| Affiliate or Person Selling on Behalf of an Affiliate | Non-Affiliate (and has not been an Affiliate During the Prior Three Months) |
Restricted Securities of Reporting Issuers | During six-month holding period – no resales under Rule 144 Permitted.
After Six-month holding period – may resell in accordance with all Rule 144 requirements including:
· Current public information,
· Volume limitations,
· Manner of sale requirements for equity securities, and
· Filing of Form 144.
| During six- month holding period – no resales under Rule 144 permitted.
After six-month holding period but before one year – unlimited public resales under Rule 144 except that the current public information requirement still applies.
After one-year holding period – unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements.
|
Restricted Securities of Non-Reporting Issuers | During one-year holding period – no resales under Rule 144 permitted.
After one-year holding period – may resell in accordance with all Rule 144 requirements including:
· Current public information,
· Volume limitations,
· Manner of sale requirements for equity securities, and
· Filing of Form 144.
| During one-year holding period – no resales under Rule 144 permitted.
After one-year holding period – unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements.
|
Shell Companies
The following is an excerpt from Rule 144(i) regarding resales of securities of shell companies:
“(i) Unavailability to securities of issuers with no or nominal operations and no or nominal non-cash assets.
(1) This section is not available for the resale of securities initially issued by an issuer defined below:
(i) | An issuer, other than a business combination related shell company, as defined in §230.405, or an asset-backed issuer, as defined in Item 1101(b) of Regulation AB (§229.1101(b) of this chapter), that has: |
(A) | No or nominal operations; and |
(2) | Assets consisting solely of cash and cash equivalents; or |
(3) | Assets consisting of any amount of cash and cash equivalents and nominal other assets; or |
(ii) | An issuer that has been at any time previously an issuer described in paragraph (i)(1)(i). |
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(2) Notwithstanding paragraph (i)(1), if the issuer of the securities previously had been an issuer described in paragraph (i)(1)(i) but has ceased to be an issuer described in paragraph (i)(1)(i); is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act; has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports (§249.308 of this chapter); and has filed current “Form 10 information” with the SEC reflecting its status as an entity that is no longer an issuer described in paragraph (i)(1)(i), then those securities may be sold subject to the requirements of this section after 12 months have elapsed from the date that the issuer filed “Form 10 information” with the SEC.Holders
(3) The term “Form 10 information” means the information that is required by Form 10 or Form 20-F (§249.220f of this chapter), as applicable to the issuer of the securities, to register under the Exchange Act each class of securities being sold under this rule. The issuer may provide the “Form 10 information” in any filing of the issuer with the SEC. The “Form 10 information” is deemed filed when the initial filing is made with the SEC.”
Securities of a shell company cannot be publicly sold under Rule 144 in the absence of compliance with this subparagraph.
Section 4(1) of the Securities Act
Since we are a shell company as defined in subparagraph (i) of Rule 144, our shares of common stock that were issued while or after we became a shell company cannot be publicly resold under Rule 144 until we comply with the requirements outlined above under the heading “Shell Companies.” Until those requirements have been satisfied, any resales of our shares of common stock must be made in compliance with the provisions of the exemption from registration under the Securities Act provided in Section 4(1) thereof, applicable to persons other than “an issuer, underwriter or a dealer.” That will require that such shares of common stock be sold in “routine trading transactions,” which would include compliance with substantially all of the requirements of Rule 144, including the availability of “current public information” about us as required by subparagraph (c) (1) or (c)(2) of Rule 144, regardless of the Rule’s availability; and such resales may be limited to our non-affiliates. It has been the position of the SEC that the Section 4(1) exemption is not available for the resale of any securities of an issuer that is or was a shell company, by directors, executive officers, promoters or founders or their transferees. See NASD Regulation, Inc., CCH Federal Securities Law Reporter, 1990-2000 Decisions, Paragraph No. 77,681, the so-called “Worm-Wulff Letter.” The current position of the SEC that is contained in Securities Act Release No. 33-8899, effective February 15, 2008, and that codified the position of the SEC set forth in the Worm-Wulff Letter and revised Rule 144 as outlined above, is that Rule 144 now defines what resales can be made under Section 4(1) of the Securities Act, and with limited exceptions, which are set forth in footnote 172 of that Release, shares of shell companies must be sold in compliance with Rule 144(i) that is quoted above.
Holders
The number of record holders of the Company’s common stock, as of December 14, 2012,30, 2013, is approximately 130.187.
Dividends
The Company has not declared any dividends with respect to its common stock and does not intend to declare any dividends in the foreseeable future. The future dividend policy of the Company cannot be ascertained with any certainty. There are no material restrictions limiting or that are likely to limit, the Company’s ability to pay cash dividends on its common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
None; not applicable.other than an option to purchase two million shares of common stock granted to an executive officer in October 2013.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
We have sold noAll sales of unregistered securities duringthat occurred in the period covered byfourth quarter and up to the date of this Annual Report other than ashave been previously reported in our Quarterly Reports on Form 10-Q or in a Current Report on Form 8-K.reported.
Use of Proceeds of Registered Securities
We have no proceeds from the sale of registered securities.
ITEM 6. SELECTED FINANCIAL DATA
Not required for smaller reporting companies.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” above for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared on the accrual basis of accounting, whereby revenues are recognized when earned, and expenses are recognized when incurred. You should read this management's discussion and analysis togetherof our financial condition and results of operations in conjunction with suchour historical financial statements andincluded elsewhere in this Annual Report. In addition to the notes thereto.impact of the matters discussed in "Risk Factors," our future results could differ materially from our historical results due to a variety of factors, many of which are out of our control.
Prior to March 2013, we had not been engaged in any substantive business activity since 2006. In March 2013, we entered into two ordinary course license agreements, and we expect to enter into additional ordinary course license agreements with seismic companies to acquire and reprocess additional seismic data.
During February and March 2013, we raised $470,000 through the sale of 47,000,000 shares of common stock. The shares were subsequently issued in April 2013.
On October 30, 2013, the Company concluded a private placement of its common stock at a price of $0.12 per share, raising an aggregate of $9,712,441 through the sale of 68,496,107 shares of common stock for cash proceeds of $8,219,533 and the issuance of 12,440,903 shares of common stock upon conversion of $1,492,908 of outstanding indebtedness.
The Company has incurred accumulated losses for the period from inception to September 30, 2013 of approximately $19.1 million. Further losses are anticipated in developing its business. As a result, the Company’s auditors have expressed substantial doubt about its ability to continue as a going concern. As of September 30, 2013, the Company had $310,199 of unrestricted cash on hand. The Company estimates that it will need to raise a minimum of $19.4 million to meet its obligations and planned expenditures during calendar year 2014. The Company plans to finance the Company through best-efforts equity and/or debt financings. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Significant Accounting Policies
The Company uses the full cost method of accounting for oil and gas exploration and development activities. Under the full cost method of accounting, all costs associated with the exploration for and development of oil and gas reserves are capitalized on a country-by-country basis into a single cost center (“full cost pool”). Such costs include land acquisition costs, geological and geophysical (“G&G”) expenses, carrying charges on non-producing properties, costs of drilling both productive and non-productive wells and overhead charges directly related to acquisition, exploration and development activities.
The costs of unproved properties and related capitalized costs (such as G&G costs) are withheld from the depletion base until such time as they are either developed or abandoned. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion and full cost ceiling calculations. Further, capitalized G&G costs that are directly associated with unevaluated properties not yet owned by the Company are included in the depletion base. As of September 30, 2013, the Company had no proved reserves, nor any unevaluated properties. As a result, the geological and geophysical costs are included in the amortization base as incurred and, per Rule 4-10, are subject to the ceiling limitation test, resulting in immediate impairment.
Companies that use the full cost method of accounting for oil and natural gas exploration and development activities are required to perform a ceiling test calculation each quarter. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10. The ceiling test is performed quarterly, on a country-by-country basis, utilizing the average of prices in effect on the first day of the month for the preceding twelve month period. The ceiling limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved crude oil and natural gas reserves discounted at 10% plus the lower of cost or market value of unproved properties less any associated tax effects. If such capitalized costs exceed the ceiling, the Company will record a write-down to the extent of such excess as a non-cash charge to earnings. Any such write-down will reduce earnings in the period of occurrence and results in a lower depreciation, depletion and amortization rate in future periods. A write-down may not be reversed in future periods even though higher oil and natural gas prices may subsequently increase the ceiling.
In accordance with one of our seismic data licensing agreements, certain funds have been placed in an escrow account for the purpose of making a future installment payment and are restricted from use in our operations. Those funds have been classified as restricted cash and the restricted cash at September 30, 2013 was $2.5 million.
Property and equipment are carried at cost. We assess the carrying value of our property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Factors Affecting Comparability of Future Results
Success in Acquiring Oil and Gas Leases or Prospects. As a result of our 3-D seismic imaging and reprocessing, we have identified but not yet acquired the leasing or drilling rights to a number of currently available, undrilled prospects which we believe may potentially contain economically recoverable reserves. It should be expected that we may face competition in our lease acquisition strategy which could prove to increase the cost of any acquisitions. While we believe that our prospective portfolio of prospects has not been identified and is not being pursued by third-party competitors, there is no assurance of this belief nor that we will be able to fully execute our lease acquisition strategy.
OverviewWe have no proved reserves. As we have not yet acquired any oil and gas interests or drilled wells, we have no proved reserves. While we have identified prospects based on available seismic and geological information that indicate the potential presence of oil or gas, to date we do not own the drilling and production rights for these prospects and may never successfully acquire an interest in these prospects. Some of our current prospects may require additional seismic data reprocessing and interpretation. Even when properly used and interpreted, seismic data and visualization techniques are only tools used to assist geoscientists in identifying structures and hydrocarbon indicators and do not enable the interpreter to have certainty as to whether hydrocarbons are, in fact, present in those structures. Even if we acquire the interests, we do not know if any such prospect will contain oil or gas in sufficient quantities or quality to recover drilling and completion costs or to be economically viable.
Other than maintaining its good corporate standing in its state of incorporation and seeking the acquisition of assets, properties or businesses that may benefit the Company and its stockholders, the Company has had no material business operationsSuccess in the three most recent calendar years.Discovery and Development of Reserves. Because we have no operating history in the production of oil and gas, our future results of operations and financial condition will be directly affected by our ability to discover and develop reserves through our drilling activities.
Oil and Gas Revenue. We have not yet commenced oil and gas production. If and when we do commence production, we expect to generate revenue from such production. No oil and gas revenue is reflected in our historical financial statements.
General and Administrative Expenses. We expect that our general and administrative expenses will increase in future periods.
Demand and Price. The demand for oil and gas is susceptible to volatility related to, among other factors, the level of global economic activity and may also fluctuate depending on the performance of specific industries. We expect that a decrease in economic activity, in the United States and elsewhere, would adversely affect demand for any oil and gas we may produce. Since we have not generated revenues, these key factors will only affect us if and when we produce and sell hydrocarbons.
Results of Operations for the Twelve Months Ended September 30, 2013 compared to September 30, 2012
We had no operations during the twelve month period ended September 30, 2012, nor do we have operations as of the date of this filing. We had no sales during the twelve month periods ended September 30, 20122013 and September 30, 2011.2012. Geological and geophysical costs were approximately $15.1 million for the twelve months ended September 30, 2013, as the Company launched exploration activities in March 2013. There were no geological and geophysical costs for the twelve months ended September 30, 2012. General and administrative expenses were approximately $2.2 million for the twelve months ended September 30, 2013, compared to $1.5 million for the twelve months ended September 30, 2012, compared to $57,355 for the twelve months ended September 30, 2011.2012. The increase in general and administrative expenses of approximately $1.4$0.7 million for the twelve months ended September 30, 20122013 compared to the twelve months ended September 30, 20112012 was primarily attributed to:to an increase in consulting fees, legal/accounting and professional fees, and office expenses.
| · | approximately $0.7 million in consulting fees (primarily paid in the form of stock issued to third parties) incurred in 2012, |
| · | $0.7 million in salaries expense (primarily attributed to compensation to the current Chief Executive Officer composed of $500,000 value in common stock, a $100,000 cash sign on bonus, and $100,000 in total cash salary payments for four months of employment) incurred in 2012, and |
| · | approximately $0.1 million in legal professional fees in relation to our Company’s reorganization in 2012. |
We had a net loss of approximately $17.5 million for the twelve months ended September 30, 2013, compared to a net loss of $1.5 million for the twelve months ended September 30, 2012, compared to a net loss of $60,830 for the twelve months ended September 30, 2011, period.2012. The increase in net loss of approximately $1.5$16.0 million was primarily attributable to the aforementioned $15.1 million in impairment of oil and natural gas properties, and a $0.7 million increase in general and administrative expenses.expenses, as well as an approximate $0.1 million increase in interest expense due to increased related party debt in 2013.
The basic loss per share for the twelve months ended September 30, 2012,2013 was $0.02,$.04, compared to a net loss per share of $0.02$.02 for the twelve months ended September 30, 2011.2012.
The Company’s fiscal 2012For the twelve months ended September 30, 2013 we used approximately $1.4 million of net cash decreasefrom operating activities, compared with $0.5 million of net cash used in operating activities for the twelve months ended September 30, 2012. This differential is primarily due to its operatingthe approximate $16.0 million higher net loss wasfor the twelve months ended September 30, 2013 partially offset by approximately $0.5 million, with the remaining portion of the operating loss being attributed to approximately $1$15.1 million in non-cash expense related toG&G costs recorded as an impairment of oil and natural gas properties. For the issuancetwelve months ended September 30, 2013 we had approximately $6.5 million of stocknet cash from investing activities, compared with no net cash from investing activities for services. The portion of the operating loss related to cash disbursements was offset by an increase in cash associated with the Company raising capital. During the twelve months ended September 30, 2012, primarily due to exploration costs incurred in 2013, as well as the Company sold 78,500,000 sharespurchase of computers, office equipment, and office furniture during fiscal 2013. For the twelve months ended September 30, 2013 we recognized $7.7 million of net cash from financing activities, compared with $0.8 of net cash from financing activities for the twelve months ended September 30, 2012. This differential is due to proceeds from common stock for $785,000 cash.sales and loans of approximately $10.2 million, offset by restricted cash of $2.5 million that is required to be held in a segregated account pursuant to one of our seismic contracts.
As of September 30, 2013, the Company’s unrestricted cash balance was $310,199, compared to an unrestricted cash balance of $423,009 as of September 30, 2012. The Company’s fiscal 2013 unrestricted cash decrease of approximately $0.1 million was primarily due to its net cash from operating activities of ($1.4) million and an approximate ($6.5) million increase in capitalized exploration costs partially offset by $7.7 million of total funds received from the sale of stock and related party loans.
At September 30, 2013, the Company’s assets primarily consisted of approximately $0.3 million unrestricted cash, $2.5 million restricted cash, and $0.1 million net fixed assets. At September 30, 2012, the Company’s only assets consist of $423,009were $0.4 million unrestricted cash and $329,373 in$0.3 million prepaid expenses. At
Liquidity and Capital Resources
As of September 30, 2011,2013, we had $310,199 of cash on hand, excluding $2,500,317 of restricted cash in an escrow account earmarked for a future payment associated with seismic data. In October 2013, the Company’s only assets composedCompany sold 42,952,774 shares of $87,505 cash. Seecommon stock for cash proceeds of $5,154,333 and issued 2,440,903 shares of common stock upon conversion of $292,908 of outstanding indebtedness. As of September 30, 2013, we owed our chief executive officer $5.3 million, bearing interest at the Financial Statements and Supplementary Data, Item 8rate of this Annual Report.5% per annum, convertible into shares of common stock at a conversion price of $0.12 per share.
As of the date hereof, we believe that we have sufficient cash on hand to fund operations through March 31, 2014, assuming we do not repay outstanding indebtedness owed to our chief executive officer. We have limited workingbudgeted capital expenditures and currently have no meansother operating expenses during calendar 2014 of earning income.
Planapproximately $19.4 million and during calendar 2015 of Operation
approximately $10.6 million. These estimates are projections only and will vary depending upon a number of factors, including our ability to acquire our targeted leases, enter into farm-in and farm-out arrangements, and attract partners that are willing to bear some or all of our portion of the costs of conducting exploration drilling activities on the leases we ultimately acquire. Additionally, depending upon the execution of our business plan, we may determine to acquire additional leasehold interests and fund the acquisition of additional seismic data and seismic processing, which expenditures will be funded through future equity offerings, debt or a combination of both.
During calendar 2014, expenditures of approximately $7.9 million are expected to cover salaries, workstation software and hardware, consulting and professional services, and required working capital needs. Seismic data license payments, seismic processing and leasehold acquisition comprise the next 12 months, our foreseeable cash requirements will primarily relateremainder of the approximate budget total of $19.4 million.
During calendar 2015, expenditures of approximately $8.6 million are expected to 1) maintaining our good standing;cover salaries, workstation software & hardware, consulting and professional services, and working capital needs. Seismic data license payments, seismic processing and leasehold acquisition comprise the paymentremainder of the approximate budget total of $10.6 million. Successful lease acquisitions in calendar 2014 would likely cause significantly higher operating and capital costs in calendar 2015.
The proposed expenditures for the calendar years 2014 and 2015 are subject to change based on the execution of our SEC reporting filing expenses, including associated legal and accounting fees; costs incident to reviewing or investigatingbusiness plan, any potential business venture, 2) compensationcompetition for leasehold interests and our ability to obtain additional funding. This represents our current best estimate of our sole officer and a third party consultant, and 3) maintaining our good standing as a corporation in our state of organization. However, ifcapital needs through December 31, 2015. We currently do not anticipate that any drilling activity will commence on any leases we may acquire assets or launch operations, we mayuntil 2015.
We will need to raise additional capital.
funds to cover planned 2014 and 2015 expenditures, as well as any additional expenditures that we may encounter in those years. Future equity financings may be dilutive to our stockholders, and the termsstockholders. Alternative forms of future equity financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best efforts private equity and debt andfinancings. We do not have any credit or equity financing. The Company has no other sources of financingfacilities available with financial institutions, stockholders or third party investors, and will continue to rely on best efforts equity, equity equivalent, or debt financings and borrowings from related parties. There are no additional commitments from or assurances that we will be able to obtain additional capital on terms favorable to the Company or at all. Failurefinancings. The failure to raise additionalsufficient capital on favorable terms or at all, will likelycould cause us to curtail or cease operations. Our auditors have issued a going concern opinion for our financial statements due to their substantial doubt about our ability to continue as a going concern.
Liquidity and Capital Resources
At of September 30, 2012, the Company has current assets of $752,382, current liabilities of $62,914, resulting in a working capital surplus of $689,469. We currently have no sources of revenue or credit facilities upon which we can draw to fund operations. We will require a minimum of $700,000 to fund operations during fiscal year 2013, comprised of the following: (i) 420,000 to fund obligations under existing employment and consulting agreements and (ii) and $280,000 for general working capital purposes based on our current burn rate. This will require that we raise a minimum of 500,000 during fiscal year 2013 to fund these expenses.
The Company has no sources of revenue and will continue to rely on best efforts equity, equity equivalent or debt financings and borrowings from shareholders to fund operations. Future equity financings may be dilutive to our stockholders, and the terms of future equity financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets (if any) and will rank senior to our common stock. There can be no assurance that we will be able to raise additional capital on terms favorable to the Company or at all. Failure to raise additional capital, on favorable terms or at all, will have a material adverse effect on our operations, and will likely cause us to curtail or cease operations. [Our auditors have issued a going concern opinion for our financial statements due to their substantial doubt about our ability to continue as a going concern.]
Off-Balance Sheet Arrangements
We had no Off-Balance Sheetoff-balance sheet arrangements of any kind for the year ended September 30, 2012.2013.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GulfSlope Energy, Inc.
[A DevelopmentAn Exploration Stage Company]
TABLE OF CONTENTS
| Page |
Report of Independent Registered Public Accounting Firm | 1523 |
Balance Sheets - September 30, 20122013 and 20112012 | 1624 |
Statements of Operations for the Years Ended September 30, 20122013 and 20112012 and for the period from inception [December 12, 2003] through September 30, 20122013 | 1725 |
Statement of Stockholders’ Equity for the period from inception [December 12, 2003] through September 30, 20122013 | 1826 - 27 |
Statements of Cash Flows for the Years Ended September 30, 20122013 and 20112012 and for the period from inception [December 12, 2003] through September 30, 20122013 | 1928 |
Notes to the Financial Statements | 2029 - 2436 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
GulfSlope Energy, Inc. [a development[an exploration stage company]
We have audited the accompanying balance sheets of GulfSlope Energy, Inc. [a development[an exploration stage company] as of September 30, 20122013 and 2011,2012, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years ended September 30, 20122013 and 2011,2012, and for the period from inception [December 12, 2003] through September 30, 2012.2013. These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GulfSlope Energy, Inc. [a development[an exploration stage company] as of September 30, 20122013 and 2011,2012, and the results of its operations and cash flows for the years ended September 30, 20122013 and 2011,2012, and for the period from inception through September 30, 2012,2013, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has established no significantincurred accumulated losses and negative cash flows from operations or revenue sources duringfrom the period fromof inception through September 30, 2012.2013. These issues raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
/s/ Mantyla McReynolds, LLC
Mantyla McReynolds, LLC
Salt Lake City, Utah
December 31, 201230, 2013
GulfSlope Energy, Inc. [fka Plan A Promotions, Inc.] (A DevelopmentAn Exploration Stage Company)
BALANCE SHEETS
September 30, 20122013 and 20112012
| | September 30, | | | September 30, | |
| | 2012 | | 2011 | | | 2013 | | 2012 | |
Assets | | | | | | | | | | |
Current Assets | | | | | | | | | | |
Cash | | $ | 423,009 | | $ | 87,505 | | | $ | 310,199 | | $ | 423,009 | |
Restricted Cash | | | 2,500,317 | | - | |
Prepaid Expenses | | | 329,373 | | | - | | | | 5,514 | | | 329,373 | |
Total Current Assets | | | 752,382 | | | 87,505 | | | | 2,816,030 | | | 752,382 | |
Property, Plant, and Equipment (net) | | | 70,188 | | - | |
Other Non-Current Assets | | | | 18,760 | | | | |
Total Assets | | $ | 752,382 | | $ | 87,505 | | | $ | 2,904,978 | | $ | 752,382 | |
| | | | | | | | | | |
Liabilities and Stockholders' Equity | | | | | | |
Liabilities and Stockholders' Equity (Deficit) | | | | | | |
Current Liabilities | | | | | | | | | | |
Accounts Payable | | $ | 31,731 | | $ | 543 | | | $ | 156,439 | | $ | 31,731 | |
Accrued Liabilities | | - | | 100 | | |
Related-Party Payable | | | 31,183 | | | 1,619 | | |
Related Party Payable | | | 490,101 | | 31,183 | |
Accrued Interest | | | 94,986 | | | |
Accrued Expenses and Other Payables | | | 3,093,065 | | 62,914 | |
Loans from Related Parties | | | | 5,500,000 | | | - | |
Total Current Liabilities | | | 62,914 | | | 2,262 | | | | 9,334,591 | | | 62,914 | |
Accrued Expenses and Other Payables, Net of Current Portion | | | 3,003,065 | | - | |
Total Liabilities | | 62,914 | | 2,262 | | | 12,337,656 | | 62,914 | |
Stockholders' Equity | | | | | | |
Stockholders' Equity (Deficit) | | | | | | |
Preferred Stock; par value ($0.001); | | - | | - | | | - | | - | |
Authorized 50,000,000 shares | | | | | | | | | | |
none issued or outstanding | | | | | | | | | | |
Common Stock; par value ($0.001); | | | | | | | | | | |
Authorized 750,000,000 shares; issued | | | | | | | | | | |
and outstanding 235,150,000 and 10,000,000, respectively | | 235,150 | | 100,000 | | |
Stock Subscription Receivable | | - | | (6,500 | ) | |
Additional Paid in Capital – Shares to be issued | | - | | 116,500 | | |
and outstanding 577,210,000 and 235,150,000, as of September 30, 2013 and 2012, respectively | | | 577,210 | | 235,150 | |
Additional Paid-in Capital | | 2,151,610 | | 35,260 | | | 9,139,917 | | 2,151,610 | |
Deficit Accumulated during the development stage | | | (1,697,292 | ) | | | (160,017 | ) | |
Total Stockholders' Equity | | | 689,468 | | | 85,243 | | |
Total Liabilities and Stockholders' Equity | | $ | 752,382 | | $ | 87,505 | | |
Deficit accumulated during the exploration stage | | | | (19,149,805 | ) | | | (1,697,292 | ) |
Total Stockholders' Equity (Deficit) | | | | (9,432,678) | | | 689,468 | |
Total Liabilities and Stockholders' Equity (Deficit) | | | $ | 2,904,978 | | $ | 752,382 | |
See accompanying notes to financial statements
GulfSlope Energy, Inc. [fka Plan A Promotions, Inc.]
(A DevelopmentAn Exploration Stage Company)
STATEMENTS OF OPERATIONS
For the years ended September 30, 20122013 and 20112012 and for the
period from Inception [December 12, 2003] through September 30, 20122013
| | | | | | Since Inception | | | | | | | Since Inception | |
| | | | | | [December 12, | | | | | | | [December 12, | |
| | For the Year Ended | | For the Year Ended | | 2003] through | | | For the Year Ended | | For the Year Ended | | 2003] through | |
| | September 30, 2012 | | September 30, 2011 | | September 30, 2012 | | | September 30, 2013 | | September 30, 2012 | | September 30, 2013 | |
| | | | | | | | | | | | | | |
Revenues | | $ | - | | $ | - | | $ | 9,694 | | | $ | - | | $ | - | | $ | 9,694 | |
Revenues from Related Parties | | | - | | | - | | | 2,346 | | | | - | | | - | | | 2,346 | |
Total Revenue | | | - | | | - | | | 12,040 | | | | - | | | - | | | 12,040 | |
Cost of Sales | | - | | - | | 8,394 | | | - | | - | | 8,394 | |
Cost of Sales to Related Parties | | | - | | | - | | | 2,101 | | | | - | | | - | | | 2,101 | |
Total Cost of Sales | | | - | | | - | | | 10,495 | | | | - | | | - | | | 10,495 | |
Gross Profit | | - | | - | | 1,545 | | | - | | - | | 1,545 | |
Impairment of Oil and Natural Gas Properties | | | 15,120,574 | | - | | 15,120,574 | |
General & Administrative Expenses | | | 1,537,215 | | | 57,355 | | | 1,682,523 | | | | 2,237,269 | | | 1,537,215 | | | 3,919,792 | |
Net Loss from Operations | | (1,537,215 | ) | | (57,355 | ) | | (1,680,978 | ) | | (17,357,843 | ) | | (1,537,215 | ) | | (19,038,821 | ) |
Other Income/(Expenses): | | | | | | | | | | | | | | |
Interest Income | | | 316 | | | | 316 | |
Interest Expense | | | (60 | ) | | | (3,375 | ) | | | (15,514 | ) | | | (94,986 | ) | | | (60 | ) | | | (110,500 | ) |
Net Loss Before Income Taxes | | (1,537,275 | ) | | (60,730 | ) | | (1,696,492 | ) | | (17,452,513 | ) | | (1,537,275 | ) | | (19,149,005 | ) |
Provision for Income Taxes | | - | | (100 | ) | | (800 | ) | | - | | - | | | (800 | ) |
Net Loss | | $ | (1,537,275 | ) | | $ | (60,830 | ) | | $ | (1,697,292 | ) | | $ | (17,452,513 | ) | | $ | (1,537,275 | ) | | $ | (19,149,805 | ) |
Loss Per Share - Basic and Diluted | | $ | (0.02 | ) | | $ | (0.02 | ) | | $ | (0.16 | ) | | $ | (0.04 | ) | | $ | (0.02 | ) | | | | |
Weighted Average Shares Outstanding - Basic and Diluted | | | 83,487,568 | | | 3,610,959 | | | 10,819,549 | | | | 394,016,867 | | | 83,487,568 | | | | |
See accompanying notes to financial statements
GulfSlope Energy, Inc. [fka Plan A Promotions, Inc.] (A DevelopmentAn Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS’ EQUITY / (DEFICIT)
For the period from Inception [December 12, 2003]
through September 30, 20122013
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Common | | | Additional Paid-in | | | Common Shares To | | | Additional Paid-in Capital Common Shares | | | Subscription | | | Accumulated | | | Stockholders | |
| | Shares | | | Amount | | | Capital | | | Be Issued | | | To Be Issued | | | Receivable | | | Deficit | | | Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 12, 2003 (Inception) | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Common stock issued for cash | | | 1,200,000 | | | | 1,200 | | | | 33,537 | | | | - | | | | - | | | | - | | | | - | | | | 34,737 | |
Property contributed by shareholder | | | - | | | | - | | | | 1,500 | | | | | | | | | | | | | | | | - | | | | 1,500 | |
Net loss from inception on December 12, 2003 | | | | | | | | | | | | | | | | | | | | - | |
through September 30, 2004 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,400 | ) | | | (3,400 | ) |
Balance, September 30, 2004 | | | 1,200,000 | | | | 1,200 | | | | 35,037 | | | | - | | | | - | | | | - | | | | (3,400 | ) | | | 32,837 | |
Net loss for the year ended September 30, 2005 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (11,324 | ) | | | (11,324 | ) |
Balance, September 30, 2005 | | | 1,200,000 | | | | 1,200 | | | | 35,037 | | | | - | | | | - | | | | - | | | | (14,724 | ) | | | 21,513 | |
Net loss for the year ended September 30, 2006 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (21,682 | ) | | | (21,682 | ) |
Balance, September 30, 2006 | | | 1,200,000 | | | | 1,200 | | | | 35,037 | | | | - | | | | - | | | | - | | | | (36,406 | ) | | | (169 | ) |
Net loss for the year ended September 30, 2007 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (18,256 | ) | | | (18,256 | ) |
Balance, September 30, 2007 | | | 1,200,000 | | | | 1,200 | | | | 35,037 | | | | - | | | | - | | | | - | | | | (54,662 | ) | | | (18,425 | ) |
Net loss for the year ended September 30, 2008 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (21,674 | ) | | | (21,674 | ) |
Balance, September 30, 2008 | | | 1,200,000 | | | | 1,200 | | | | 35,037 | | | | - | | | | - | | | | - | | | | (76,336 | ) | | | (40,099 | ) |
Net loss for the year ended September 30, 2009 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (11,289 | ) | | | (11,289 | ) |
Balance, September 30, 2009 | | | 1,200,000 | | | | 1,200 | | | | 35,037 | | | | - | | | | - | | | | - | | | | (87,625 | ) | | | (51,388 | ) |
Net loss for the year ended September 30, 2010 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (11,562 | ) | | | (11,562 | ) |
Balance, September 30, 2010 | | | 1,200,000 | | | | 1,200 | | | | 35,037 | | | | - | | | | - | | | | - | | | | (99,187 | ) | | | (62,950 | ) |
Related party debt forgiveness | | | - | | | | - | | | | 11,023 | | | | - | | | | - | | | | - | | | | - | | | | 11,023 | |
Common stock issued for cash | | | 8,800,000 | | | | 8,800 | | | | 79,200 | | | | - | | | | - | | | | - | | | | - | | | | 88,000 | |
Additional paid in capital – shares to be issued | | | - | | | | - | | | | - | | | | 11,000,000 | | | | 110,000 | | | | - | | | | - | | | | 110,000 | |
Common stock to be issued | | | - | | | | - | | | | - | | | | 650,000 | | | | 6,500 | | | | (6,500 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Common | | | | | | Additional Paid-in Capital Common Shares | | Subscription | | | Accumulated | | | |
| Shares | | Amount | | Capital | | Be Issued | | To Be Issued | | Receivable | | | Deficit | | Equity | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance, December 12, 2003 (Inception) | | | - | | $ | - | | | $ | - | | $ | - | | $ | - | | $ | - | | | $ | - | | | $ | - | |
Common stock issued for cash | | | 1,200,000 | | | 1,200 | | | | 33,537 | | | - | | | - | | | - | | | | - | | | | 34,737 | |
Property contributed by shareholder | | | - | | | - | | | | 1,500 | | | | | | | | | | | | | - | | | | 1,500 | |
Net loss from inception on December 12, 2003 | | | | | | | | | | | | | | | | | - | |
through September 30, 2004 | | | - | | | - | | | | - | | | - | | | - | | | - | | | | (3,400 | ) | | | (3,400 | ) |
Balance, September 30, 2004 | | | 1,200,000 | | | 1,200 | | | | 35,037 | | | - | | | - | | | - | | | | (3,400 | ) | | | 32,837 | |
Net loss for the year ended September 30, 2005 | | | - | | | - | | | | - | | | - | | | - | | | - | | | | (11,324 | ) | | | (11,324 | ) |
Balance, September 30, 2005 | | | 1,200,000 | | | 1,200 | | | | 35,037 | | | - | | | - | | | - | | | | (14,724 | ) | | | 21,513 | |
Net loss for the year ended September 30, 2006 | | | - | | | - | | | | - | | | - | | | - | | | - | | | | (21,682 | ) | | | (21,682 | ) |
Balance, September 30, 2006 | | | 1,200,000 | | | 1,200 | | | | 35,037 | | | - | | | - | | | - | | | | (36,406 | ) | | | (169 | ) |
Net loss for the year ended September 30, 2007 | | | - | | | - | | | | - | | | - | | | - | | | - | | | | (18,256 | ) | | | (18,256 | ) |
Balance, September 30, 2007 | | | 1,200,000 | | | 1,200 | | | | 35,037 | | | - | | | - | | | - | | | | (54,662 | ) | | | (18,425 | ) |
Net loss for the year ended September 30, 2008 | | | - | | | - | | | | - | | | - | | | - | | | - | | | | (21,674 | ) | | | (21,674 | ) |
Balance, September 30, 2008 | | | 1,200,000 | | | 1,200 | | | | 35,037 | | | - | | | - | | | - | | | | (76,336 | ) | | | (40,099 | ) |
Net loss for the year ended September 30, 2009 | | | - | | | - | | | | - | | | - | | | - | | | - | | | | (11,289 | ) | | | (11,289 | ) |
Balance, September 30, 2009 | | | 1,200,000 | | | 1,200 | | | | 35,037 | | | - | | | - | | | - | | | | (87,625 | ) | | | (51,388 | ) |
Net loss for the year ended September 30, 2010 | | | - | | | - | | | | - | | | - | | | - | | | - | | | | (11,562 | ) | | | (11,562 | ) |
Balance, September 30, 2010 | | | 1,200,000 | | | 1,200 | | | | 35,037 | | | - | | | - | | | - | | | | (99,187 | ) | | | (62,950 | ) |
Related party debt forgiveness | | | - | | | - | | | | 11,023 | | | - | | | - | | | - | | | | - | | | | 11,023 | |
Common stock issued for cash | | | 8,800,000 | | | 8,800 | | | | 79,200 | | | - | | | - | | | - | | | | - | | | | 88,000 | |
Additional paid in capital – shares to be issued | | | - | | | - | | | | - | | | 11,000,000 | | | 110,000 | | | - | | | | - | | | | 110,000 | |
Common stock to be issued | | | - | | | - | | | | - | | | 650,000 | | | 6,500 | | | (6,500 | ) | | | - | | | | - | |
Net loss for the year ended September 30, 2011 | | | - | | | - | | | | - | | | - | | | - | | | - | | | | (60,830 | ) | | | (60,830 | ) |
Balance, September 30, 2011 | | | 10,000,000 | | $ | 10,000 | | | $ | 125,260 | | | 11,650,000 | | $ | 116,500 | | $ | (6,500 | ) | | $ | (160,017 | ) | | $ | 85,243 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Shares issued from common shares to be issued | | | 11,650,000 | | | 11,650 | | | | 104,850 | | | (11,650,000 | ) | | (116,500 | ) | | 6,500 | | | | | | | | 6,500 | |
Common stock issued for cash | | | 78,500,000 | | | 78,500 | | | | 706,500 | | | | | | | | | | | | | | | | | 785,000 | |
Shares issued for services | | | 135,000,000 | | | 135,000 | | | | 1,215,000 | | | | | | | | | | | | | | | | | 1,350,000 | |
Net loss for the twelve months ended Sept 30, 2012 | | | - | | | - | | | | - | | | - | | | - | | | - | | | | (1,537,275 | ) | | | (1,537,275 | ) |
Balance, Sept 30, 2012 | | | 235,150,000 | | $ | 235,150 | | | $ | 2,151,610 | | | - | | $ | - | | $ | - | | | $ | (1,697,292 | ) | | $ | 689,468 | |
26
Net loss for the year ended September 30, 2011 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (60,830 | ) | | | (60,830 | ) |
Balance, September 30, 2011 | | | 10,000,000 | | | $ | 10,000 | | | $ | 125,260 | | | $ | 11,650,000 | | | $ | 116,500 | | | $ | (6,500 | ) | | $ | (160,017 | ) | | $ | 85,243 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Shares issued from common shares to be issued | | | 11,650,000 | | | | 11,650 | | | | 104,850 | | | | (11,650,000 | ) | | | (116,500 | ) | | | 6,500 | | | | | | | | 6,500 | |
Common stock issued for cash | | | 78,500,000 | | | | 78,500 | | | | 706,500 | | | | | | | | | | | | | | | | | | | | 785,000 | |
Shares issued for services | | | 135,000,000 | | | | 135,000 | | | | 1,215,000 | | | | | | | | | | | | | | | | | | | | 1,350,000 | |
Net loss for the twelve months ended September 30, 2012 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,537,275 | | | | (1,537,275 | ) |
Balance, September 30, 2012 | | | 235,150,000 | | | $ | 235,150 | | | $ | 2,151,610 | | | | - | | | $ | - | | | $ | - | | | $ | (1,697,292 | ) | | $ | 689,468 | |
Common stock issued for technology license | | | 243,516,666 | | | $ | 243,517 | | | $ | 2,191,650 | | | | | | | | | | | | | | | | | | | $ | 2,435,167 | |
Shares issued for services | | | 16,000,000 | | | | 16,000 | | | | 144,000 | | | | | | | | | | | | | | | | | | | | 160,000 | |
Shares issued for cash | | | 72,543,334 | | | | 72,543 | | | | 3,462,657 | | | | | | | | | | | | | | | | | | | | 3,535,200 | |
Shares issued to settle debt with related party | | | 10,000,000 | | | | 10,000 | | | | 1,190,000 | | | | | | | | | | | | | | | | | | | | 1,200,000 | |
Net loss for the twelve months ended September 30, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | (17,452,513 | ) | | | (17,452,513 | ) |
Balance September 30, 2013 | | | 577,210,000 | | | $ | 577,210 | | | $ | 9,139,917 | | | | | | | $ | | | | $ | | | | $ | (19,149,805 | ) | | $ | (9,432,678 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to financial statements
GulfSlope Energy, Inc. [fka Plan A Promotions, Inc.]
(A DevelopmentAn Exploration Stage Company)
STATEMENTS OF CASH FLOWS
For the years ended September 30, 20122013 and 20112012 and for the
period from Inception [December 12, 2003] through September 30, 20122013
| | | | | | | | Since Inception | |
| | | | | | | | [December 12, | |
| | For the Year Ended | | | For the Year Ended | | | 2003] through | |
| | September 30, 2013 | | | September 30, 2012 | | | September 30, 2013 | |
OPERATING ACTIVITIES | | | | | | | | | |
Net Loss | | $ | (17,452,513 | ) | | $ | (1,537,275 | ) | | $ | (19,149,805 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | | | | | | |
From Operating Activities: | | | | | | | | | | | | |
Impairment of Oil and Natural Gas Properties | | | 15,120,574 | | | | - | | | | 15,120,574 | |
Depreciation | | | 7,217 | | | | - | | | | 16,123 | |
Stock issued for services | | | 160,000 | | | | 1,350,000 | | | | 1,510,000 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
(Increase)/Decrease in Prepaid Expenses | | | 323,859 | | | | (329,373 | ) | | | (5,514) | |
(Increase) in Other Assets | | | (18,760 | ) | | | - | | | | (18,760 | ) |
Increase/(Decrease) in Accounts Payable | | | 15,250 | | | | 31,189 | | | | 46,981 | |
Increase/(Decrease) in Related Party Payable | | | 322,418 | | | | 29,563 | | | | 364,624 | |
Increase/(Decrease) in Accrued Interest | | | 94,986 | | | | - | | | | 94,986 | |
Increase/(Decrease) in Accrued Liabilities | | | 45,000 | | | | (100 | ) | | | 45,000 | |
Net Cash From Operating Activities | | | (1,381,969 | ) | | | (455,996 | ) | | | (1,975,791 | ) |
| | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | |
Exploration Costs | | | (6,388,319 | ) | | | - | | | | (6,388,319 | ) |
Purchase of equipment | | | (77,405 | ) | | | - | | | | (84,811 | ) |
Net Cash From Investing Activities | | | (6,465,724 | ) | | | - | | | | (6,473,130 | ) |
| | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | |
Restricted Cash | | | (2,500,317 | ) | | | - | | | | (2,500,317 | ) |
Proceeds for stock issuance | | | 3,535,200 | | | | 791,500 | | | | 4,559,437 | |
Proceeds for loan from shareholders | | | 6,700,000 | | | | - | | | | 6,741,769 | |
Payment on loans from shareholders | | | - | | | | - | | | | (41,769 | ) |
Net Cash From Financing Activities | | | 7,734,883 | | | | 791,500 | | | | 8,759,120 | |
| | | | | | | | | | | | |
Net Increase/(Decrease) in cash | | | (112,810 | ) | | | 335,504 | | | | 310,199 | |
Beginning Cash Balance | | | 423,009 | | | | 87,505 | | | | - | |
Ending Cash Balance | | $ | 310,199 | | | $ | 423,009 | | | $ | 310,199 | |
| | | | | | | | | | | | |
Supplemental Schedule of Cash Flow Activities | | | | | | | | | | | | |
Cash paid for income taxes | | $ | 125 | | | $ | - | | | $ | 925 | |
Cash paid for interest | | $ | - | | | $ | 60 | | | $ | 11,356 | |
Related party debt forgiveness | | $ | - | | | $ | - | | | $ | 11,023 | |
Property contributed by shareholder | | $ | - | | | $ | - | | | $ | 1,500 | |
Stock issued for prepaid expenses | | $ | - | | | $ | 550,000 | | | $ | 550,000 | |
| | | | | | | | | | | | |
Shares issued upon conversion of note payable | | | 1,200,000 | | | | | | | | 1,200,000 | |
Purchase of Developmental Capital Expenditures | | | | | | | | | | | | |
Through Issuance of Common Stock | | | 2,435,167 | | | | | | | | 2,435,167 | |
Included in Accrued Expenses | | | 6,051,130 | | | | | | | | 6,051,130 | |
Included in Accounts Payable | | | 109,458 | | | | | | | | 109,458 | |
Included in Related Party Payable | | | 136,500 | | | | | | | | 136,500 | |
| | | | | | | | | | | | |
| | | | | | | | Since Inception | |
| | | | | | | | [December 12, | |
| | For the Year Ended | | | For the Year Ended | | | 2003] through | |
| | September 30, 2012 | | | September 30, 2011 | | | September 30, 2012 | |
| | | | | | | | | |
Net Loss | | $ | (1,537,275 | ) | | $ | (60,830 | ) | | $ | (1,697,292 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | | | | | | |
From Operating Activities: | | | | | | | | | | | | |
Depreciation | | | - | | | | - | | | | 8,906 | |
Stock issued for services | | | 1,350,000 | | | | - | | | | 1,350,000 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
(Increase)/Decrease in Prepaid Expenses | | | (329,373) | | | | - | | | | (329,373) | |
Increase/(Decrease) in Accounts Payable/Accrued Liabilities | | | 31,089 | | | | (7,115 | ) | | | 31,732 | |
Increase/(Decrease) in Accrued Interest/Related Party Payable | | | 29,563 | | | | (6,472 | ) | | | 42,205 | |
Net Cash From Operating Activities | | | (455,996 | ) | | | (74,417 | ) | | | (593,822 | ) |
Cash From Investing Activities | | | | | | | | | | | | |
Purchase of equipment | | | - | | | | - | | | | (7,406 | ) |
Net Cash From Investing Activities | | | - | | | | - | | | | (7,406 | ) |
Cash From Financing Activities | | | | | | | | | | | | |
Proceeds for stock issuance | | | 791,500 | | | | 88,000 | | | | 914,237 | |
Proceeds for stock not issued | | | - | | | | 110,000 | | | | 110,000 | |
Loan from shareholders | | | - | | | | 5,691 | | | | 41,769 | |
Payment on loans from shareholders | | | - | | | | (41,769 | ) | | | (41,769 | ) |
Net Cash From Financing Activities | | | 791,500 | | | | 161,922 | | | | 1,024,237 | |
Net Increase/(Decrease) in cash | | | 335,504 | | | | 87,505 | | | | 423,009 | |
Beginning Cash Balance | | | 87,505 | | | | - | | | | - | |
Ending Cash Balance | | $ | 423,009 | | | $ | 87,505 | | | $ | 423,009 | |
Supplemental Schedule of Cash Flow Activities | | | | | | | | | | | | |
Cash paid for income taxes | | $ | - | | | $ | 100 | | | $ | 800 | |
Cash paid for interest | | $ | 60 | | | $ | 11,296 | | | $ | 11,356 | |
Related party debt forgiveness | | $ | - | | | $ | 11,023 | | | $ | 11,023 | |
Property contributed by shareholder | | $ | - | | | $ | - | | | $ | 1,500 | |
Stock issued for prepaid expenses | | $ | 550,000 | | | $ | - | | | $ | 550,000 | |
See accompanying notes to financial statements
GulfSlope Energy, Inc. [fka Plan A Promotions, Inc.] (A Development Stage Company)
Notes to the Financial Statements
September 30, 2013 & 2012
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GulfSlope Energy, Inc. (the “Company”) was founded December 12, 2003 as Lostwood Professional Services, Inc. and was organized to engage in the business of producing and selling promotional merchandise. The Company was incorporated under the laws of the State of Utah. The Company is no longer actively involved in the promotional merchandise industry. We are currently seeking potential assets, property or businessesThe Company, now a Delaware corporation, is an independent energy company intent upon engaging in the acquisition, exploration, exploitation, development and production of crude oil and natural gas properties. To this end, the Company entered the exploration stage on March 22, 2013 when it executed a master license agreement with a seismic company to acquire,license certain seismic data for the purposes of engaging in a business combination, by reorganization, merger or acquisition.the exploration of oil and natural gas.
(b) Cash and Cash Equivalents
The Company considers highly liquid investments with insignificant interest rate risk and original maturities to the Company of three months or less to be cash equivalents. Cash equivalents consist primarily of interest-bearing bank accounts and money market funds. The Company’s cash positions represent assets held in checking accounts. These assets are generally available on a daily or weekly basis and are highly liquid in nature.
(c) Restricted Cash
In accordance with a seismic data licensing agreement, certain funds have been placed in an escrow account for the purpose of making an installment payment in the future and are restricted from use in operations. Refer to Note 8. Those funds have been classified as restricted cash.
(d) Full Cost Method
The Company uses the full cost method of accounting for oil and gas exploration and development activities. Under the full cost method of accounting, all costs associated with the exploration for and development of oil and gas reserves are capitalized on a country-by-country basis into a single cost center (“full cost pool”). Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling both productive and non-productive wells and overhead charges directly related to acquisition, exploration and development activities.
The costs of unproved properties and related capitalized costs (such as G&G costs) are withheld from the depletion base until such time as they are either developed or abandoned. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion and full cost ceiling calculations. Further, capitalized G&G costs that are directly associated with unevaluated properties not yet owned by the Company are included in the depletion base. As of September 30, 2013, the Company had no proved reserves, nor any unevaluated properties. As a result, the geological and geophysical costs are included in the amortization base as incurred and, per Rule 4-10, are subject ceiling limitation test, resulting in immediate impairment.
Companies that use the full cost method of accounting for oil and natural gas exploration and development activities are required to perform a ceiling test calculation each quarter. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10. The ceiling test is performed quarterly, on a country-by-country basis, utilizing the average of prices in effect on the first day of the month for the preceding twelve month period. The ceiling limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved crude oil and natural gas reserves discounted at 10% plus the lower of cost or market value of unproved properties less any associated tax effects. If such capitalized costs exceed the ceiling, the Company will record a write-down to the extent of such excess as a non-cash charge to earnings. Any such write-down will reduce earnings in the period of occurrence and results in a lower depreciation, depletion and amortization (“DD&A”) rate in future periods. A write-down may not be reversed in future periods even though higher oil and natural gas prices may subsequently increase the ceiling.
(e) Capitalized Interest
Interest is capitalized on the cost of unevaluated gas and oil properties that are excluded from amortization and actively being evaluated, if any.
(e) Property and Equipment
Property and equipment are carried at cost and include expenditures for new equipment and those expenditures that substantially increase the productive lives of existing equipment and leasehold improvements. Maintenance and repair costs are expensed as incurred. Property and equipment are depreciated on a straight-line basis over the assets’ estimated useful lives. Fully depreciated property and equipment still in use are not eliminated from the accounts.
The Company assesses the carrying value of its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing estimated undiscounted cash flows expected to be generated from such assets to their net book value. If net book value exceeds estimated cash flows, the asset is written down to its fair value, determined by the estimated discounted cash flows from such asset. When an asset is retired or sold, its cost and related accumulated depreciation and amortization are removed from the accounts. The difference between the net book value of the asset and proceeds on disposition is recorded as a gain or loss.
(f) Income Taxes
The Company applies the provisions of FASB Accounting Standard Codification (ASC) 740 Income Taxes. The StatementThis standard requires an asset and liability approach for financial accounting and reporting for income taxes, and the recognition of deferred tax assets and liabilities for the temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance is provided if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
(c)(g) Net Loss Per Common Share
Loss per common share is based on the weighted-average number of common shares outstanding. Diluted lossBasic earnings per share (“EPS”) is computed usingby dividing net income (loss) (the numerator) by the weighted average number of common shares plus dilutiveoutstanding for the period (denominator). Diluted EPS is computed by dividing net income (loss) by the weighted average number of common share equivalentsshares and potential common shares outstanding (if dilutive) during the periodeach period. Potential common shares include stock options, warrants, and restricted stock. The number of potential common shares outstanding relating to stock options, warrants, and restricted stock is computed using the treasury stock method.
As the Company has incurred losses for the years ended September 30, 2013 and 2012, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. As of September 30, 2011 the Company had 11,650,0002013 and 2012, there were 45,833,333 and 0 potentially dilutive shares, waiting to be issued. These shares, subsequently issued in 2012, were not included in the computation of diluted loss per share for the twelve months ended September 30, 2011, as their effect would have been anti-dilutive, thereby decreasing loss per common share. The Company had no common stock equivalents outstanding as of September 30, 2012.respectively.
(d)(h) Statement of Cash Flows
For purposes of the Statements of Cash Flows, the Company considers cash on deposit in the bank to be cash. The Company had $423,009$310,199 unrestricted cash as of September 30, 2012.2013. The Company had $87,505$423,009 unrestricted cash as of September 30, 2011.2012.
(e)(i) Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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.
(f)(j) Impact of New Accounting Standards
The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its financial statements.
NOTE 2 - LIQUIDITY/GOING CONCERN
The Company’s plan of operationCompany has incurred accumulated losses and negative cash flows from operations for the next twelve months is to: (i) consider guidelinesperiod from inception to September 30, 2013 of industries$19,149,805. Further losses are anticipated in which we maydeveloping its business. As a result, the Company’s auditors have an interest; (ii) adopt a business plan regarding engaging in the business of any selected industry; and (iii) commence such operations through funding and/or the acquisition of a “going concern” engaged in any industry selected. However, the Company has only $752,382 in assets, and has not established operations, and has accumulated losses since inception. These factors raiseexpressed substantial doubt about the Company’sits ability to continue as a going concern. As of September 30, 2013, the Company had $310,199 of unrestricted cash on hand. The Company estimates that it will need to raise a minimum of $500,000$19.4 million to meet its obligations and planned expenditures during fiscalcalendar year 20132014. The Company plans to finance the Company through equity and/or debt financings. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 – EXPLORATION COSTS
On March 20, 2013, the Company entered into an assignment and assumption agreement (the “Assignment Agreement”) with third parties pursuant to which the Company was assigned the exclusive right to license certain seismic data. On March 22, 2013, the Company executed a master license agreement with this seismic company. In consideration for the assignment and other transactions contemplated by the Assignment Agreement, the Company agreed to issue to the assignor parties an aggregate of 243,516,666 shares of the Company’s common stock. The common stock was valued at $2,435,167 and the shares were subsequently issued in April 2013. These expenses were included in accrued expenses as of March 31, 2013.
In March 2013, the Company licensed certain seismic data from a seismic company. The seismic data license fee totaled $6,135,500.
In March 2013, the Company licensed certain seismic data from a different seismic company pursuant to another ordinary business course agreement. The seismic data purchase totaled $4,012,260.
During May 2013, the Company incurred $90,000 in costs to participate in a geophysical research program with a public institution.
During May through September 2013, the Company incurred $1,674,376 in costs associated with technological infrastructure and third party hosting services to maintain and interpret the aforementioned seismic data.
During May through September 2013, the Company incurred $773,271 in consulting fees and salaries and benefits associated with full-time employed geoscientists analyzing the aforementioned seismic data.
The Company properly capitalized these G&G costs and included them in the depletion base because the Company did not yet own the specific unevaluated properties these costs related to. Therefore, these G&G costs were subject to the ceiling limitation test, resulting in immediate impairment for accounting purposes.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of September 30, 2013 and September 30, 2012:
| | | | | | |
| | September 30, | |
| | 2013 | | | 2012 | |
| | | | | | |
Office equipment and computers | | $ | 57,071 | | | $ | - | |
Furniture and fixtures | | | 16,280 | | | | - | |
Leasehold improvements | | | 4,054 | | | | - | |
| | | | | | | | |
Total | | | 77,405 | | | | - | |
Less: accumulated depreciation | | | (7,217 | ) | | | - | |
| | | | | | | | |
Net property and equipment | | $ | 70,188 | | | $ | - | |
Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which were as follows:
| |
| Life |
Office equipment and computers | 3 years |
Furniture and fixtures | 5 years |
Leasehold improvements | 5 years |
Depreciation expense was $7,217 and $0 for the years ended September 30, 2013 and 2012, respectively.
The provision for income taxes consists of the following as of September 30, 20122013 and 2011:2012:
| | | September 30, | |
| | 9/30/2012 | | 9/30/2011 | | | 2013 | | 2012 | |
FEDERAL | | | | | | | | | | |
Current | | $ | 0 | | $ | 0 | | | $ | - | | $ | - | |
Deferred | | 0 | | 0 | | | - | | - | |
STATE | | | | | | | | | | |
Current | | 0 | | 100 | | | - | | 100 | |
Deferred | | | 0 | | | 0 | | | | - | | | - | |
TOTAL PROVISION | | $ | 0 | | $ | 100 | | | $ | - | | $ | 100 | |
Deferred income tax assets and liabilities at September 30, 20122013 and 20112012 consist of the following temporary differences:
| | | September 30, | |
| | 9/30/2012 | | 9/30/2011 | | | 2013 | | 2012 | |
DEFERRED TAX ASSETS | | | | | | | | | | |
Current | | $ | 0 | | $ | 0 | | | $ | - | | $ | - | |
Noncurrent | | | | | | | | | | |
Net operating losses | | 336,029 | | 28,923 | | | 1,166,327 | | 336,029 | |
Related party interest | | 0 | | 0 | | |
Exploration costs | | | 1,701,065 | | - | |
Differences in book/tax depreciation | | | 0 | | | 0 | | | | 0 | | | 0 | |
Total noncurrent | | $ | 336,029 | | $ | 28,923 | | | $ | 2,867,392 | | $ | 336,029 | |
Valuation Allowance | | | (336,029 | ) | | | (28,923 | ) | | | | ) | | | (336,029 | ) |
NET DEFERRED TAX ASSET | | | 0 | | | 0 | | | | - | | | - | |
DEFERRED TAX LIABILITIES | | | 0 | | | 0 | | | | - | | | - | |
NET DEFERRED TAXES | | $ | 0 | | $ | 0 | | | $ | - | | $ | - | |