UNITED STATES Washington, D.C. 20549 | ||||
FORM S-1 REGISTRATION STATEMENT | ||||
GULFSLOPE ENERGY, INC. (Exact name of registrant as specified in its charter) | ||||
| Delaware (State or other jurisdiction of incorporation or organization) | 1311 (Primary Standard Industrial Classification Code Number) | 16-1689008 | ||
1331 Lamar St., Suite 1665 | ||||
John N. Seitz | ||||
With copy to:
William T. Heller IV, Esq.
As soon as practicable after this Registration Statement becomes effective
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filed”filed,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company ☒ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to Be Registered | Amount Being Registered | Proposed Maximum Offering Price Per Share | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee |
| Common Stock, par value $0.001 | 156,000,000 | $0.04(1) | $6,240,000 | $756.29 |
| Common Stock, par value $0.001 | 50,000,000 | $0.04(2) | $2,000,000 | $242.40 |
| TOTAL(3) | 206,000,000 | $0.04 | $8,240,000 | $998.69 |
Title of Each Class of Securities to Be Registered | Amount Being Registered | Proposed Maximum Offering Price Per Share(1) | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee |
| Common Stock, par value $0.001 | 63,240,335 | $1.16 | $73,358,788 | $9,449 |
TOTAL(2) | 63,240,335 | $1.16 | $73,358,788 | $9,449 |
| (1) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(c) promulgated under the Securities Act of 1933, except for the shares issuable upon exercise of warrants, which is pursuant to Rule 457(g). |
| (2) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(g) for the shares issuable upon exercise of warrants. |
| (3) | Pursuant to Rule 416 under the Securities Act of 1933, the Registrant is also registering such additional indeterminate number of shares as may become necessary to adjust the number of shares as a result of a stock split, stock dividend or similar adjustment of its outstanding common stock. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be amended. The selling security holders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
Prospectus dated March 19, 2014
GULFSLOPE ENERGY, INC.
206,000,000 Shares of Common Stock
This prospectus relates to the sale of up to 63,240,335206,000,000 shares of our common stock which may be resold from time to time by the selling security holders identified in this prospectus. The selling security holders acquired the shares of common stock offered by this prospectus in a private placement which first closed in October 2013.June 2019. We are registering the offer and sale of the shares of common stock to satisfy registration rights we have granted. See “Selling Security Holders” beginning on page 18[●] in this prospectus for a complete description of the selling security holders.
The selling security holders will receive all proceeds from the sale of our common stock, and therefore we will not receive any of the proceeds from their sale of shares of our common stock. The shares which may be resold by the selling security holders constituted approximately 10% of our issued and outstanding common stock on the date of this prospectus.
The market for the common stock is limited, sporadic and volatile. The selling security holders are offering these shares of common stock. The selling security holders may sell all or a portion of these shares from time to time in market transactions through any market on which our common stock is then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. The selling security holders will receive all proceeds from the sale of the common stock. For additional information on the methods of sale, you should refer to the section entitled “Plan of Distribution.”
Our common stock is listed for quotationquoted on both the OTC Bulletin Board (“OTCBB”) and the OTCQB quotation systems under the symbol “GSPE.” The last bid price of our common stock on March 11, 2014______, 2019 was $1.10$[●] per share.
This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss of your investment. You should read this prospectus in its entirety and carefully consider the risk factors beginning on page 7[●] of this prospectus and the financial data and related notes incorporated by reference before deciding to invest in the shares.
We are an “emerging growth company” under applicable Securities and Exchange Commission rules and will beare eligible for reduced public company reporting requirements. See “Summary—We areImplications of being an Emerging Growth Company.”
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus _______, 2014
TABLE OF CONTENTS
| SUMMARY | 1 |
| RISK FACTORS | 7 |
| SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS | |
| 17 | |
| 18 | |
| DETERMINATION OF OFFERING PRICE | 18 |
| SELLING SECURITY HOLDERS | 18 |
| PLAN OF DISTRIBUTION | |
| DESCRIPTION OF OUR CAPITAL STOCK | |
| 22 | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
| MARKET PRICE INFORMATION AND DIVIDEND POLICY | 35 |
| MANAGEMENT, DIRECTORS AND SIGNIFICANT EMPLOYEES | 36 |
| PRINCIPAL STOCKHOLDERS | 41 |
| DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES | 42 |
| EXPERTS | 42 |
| LEGAL MATTERS | 42 |
| WHERE YOU CAN FIND MORE INFORMATION | 42 |
| F-1 |
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any jurisdiction where the offer or sale of these securities is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. This prospectus will be updated as required by law.
-i-
This summary highlights selected information about GulfSlope and this offering. This summary is not complete and does not contain all of the information that may be important to you. You should read carefully the entire prospectus, including “Risk Factors”“Risk Factors” and the other information contained or incorporated by reference in this prospectus before making an investment decision. Unless otherwise indicated or the context otherwise requires “we,” “us,” “our,” “GulfSlope”, or “Company” refer to GulfSlope Energy, Inc.
The Company
GulfSlope Energy, Inc. is an independent crude oil and natural gas exploration and production company whose interests are concentrated in the United States Gulf of Mexico federal waters. We are a technically driven company and we have been singularly focused on identifying high-potential oil-focused prospects. We haveuse our licensed 3-D seismic data covering approximately 2.2 million acres of three-dimensional (3-D) seismic data to identify, evaluate, and areacquire assets with attractive economic profiles. GulfSlope Energy commenced commercial operations in the process of evaluating these data using advanced interpretation technologies. AsMarch 2013. GulfSlope Energy was originally organized as a result of these analyses, we have identifiedUtah corporation in 2004 and became 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. Delaware corporation in 2012.
We have focused our activitiesoperations in North America. We have given preference to areas where production infrastructure already exists, whichthe Gulf of Mexico because we believe will allow for any discoveries to be developed quickerthis area provides us with favorable geologic and less expensively, with the goal to reduce economic risk while increasing returns.
Competitive Advantages
Experienced management. Our management has 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 havehas over 75200 years of combined industry experience exploring, fordiscovering, and developing oil and natural gas. OurWe successfully deployed a technical team consists of geoscientists and engineers who havewith over 150 years of combined industry experience exploring for and developing oil and natural gas.gas in the development and execution of our technical strategy. We believe that the strengthapplication of our team distinguishesadvanced geophysical techniques on a specific geographic area with unique geologic features such as conventional reservoirs whose trapping configurations have been obscured by overlying salt layers provides us from manywith a competitive E&P companies.advantage.
Advanced seismic image processing. The commercialCommercial improvements in 3-D seismic data imaging and the development 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 seismic data from a scale of time to a scale of depth, thus correctly locating the images in three dimensions. Our technical team has significant experience utilizing advanced seismic image processing techniques in our core area, and applies the industry’s most advanced noise reduction technology to generate clearer images.
Long-term relationships with industryIndustry leading E&P companies. Our management has long-term relationships with multiple E&P companies weposition in our core area.We have licensed 2.2 million acres of 3D seismic data which covers over 440 OCS Federal lease blocks on the highly prolific Louisiana outer shelf, offshore Gulf of Mexico. We believe may have an interest in participating with us, either through farm-in or farm-out arrangements of future wells to be drilled. The reputationthe proprietary and state-of-the-art reprocessing 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.
Key Management
John N. Seitz.Mr. Seitz has served as the Company’s chief executive officer chief financial officer,and chairman of the board and director since May 2013. He31, 2013, and served as a consultant to the Company from March 2013 through May 2013. He is a founder and vice chairman ofPrior to joining the board of Endeavour International Corporation (NYSE: END), a public company listed on the NYSE and on the London Stock Exchange, which is engaged in oil and gas exploration and production in the U.K. North Sea and in the domestic U.S. market. From 2003 until 2006, Mr. Seitz served as co-chief executive officer of Endeavour. From 1977 to 2003,Company, Mr. Seitz held positions of increasing responsibility at Anadarko Petroleum Corporation (NYSE: APC), serving most recently as a director and as president and chief executive officer.officer until 2003. Mr. Seitz also serves on the board of managers of Constellation Energy Partners LLC (NYSE ARCA: CEP), a company focused on the acquisition, development and exploitation of oil and natural gas properties and related midstream assets, and on the board of directors of Gulf United Energy, Inc. (OTCQB: GLFE) and ION Geophysical Corporation (NYSE: IO), a leading technology-focusedtechnology focused seismic solutions company. Mr. Seitz is a Certified Professional Geological Scientist from the American Institute of Professional Geologists and a licensed professional geoscientist with the State of Texas. Mr. Seitz also serves as a trustee for the American Geological Institute Foundation. In 2000, the Houston Geological Society honored Mr. Seitz as a “Legend in Wildcatting,” and he is a member of the All American Wildcatters. Mr. Seitz holds a Bachelor of Science degree in Geology from the University of Pittsburgh, a Master of Science degree in Geology from Rensselaer Polytechnic Institute, and has completed the Advanced Management Program at the Wharton School.
Ronald A. Bain. Dr. Ronald A. BainJohn H. Malanga. Mr. Malanga has served as chief financial officer since July 2014 and is responsible for leading the financial function of the organization, overseeing strategic planning and analysis, accounting and reporting, treasury, tax, audit and risk management. From 2005 to 2014, Mr. Malanga worked as a senior investment banker with the energy firms of Weisser, Johnson & Co. and Sanders Morris Harris Inc. Mr. Malanga began his investment banking career with Jefferies & Co. Over his career, he has participated in capital markets, mergers and acquisitions, and financial advisory transactions with particular emphasis on providing strategic and financial advice to emerging growth companies. Mr. Malanga holds a Bachelor of Science in Economics from Texas A&M University and a Master in Business Administration with a concentration in finance from Rice University.
Dwight M. Moore. Mr. Moore has served as vice president and secretary of the Company since May 2013, and most recently served as vice president- corporate development for ION Geophysical Corporation (NYSE: IO) from 2008 to 2013. From 2006-07, Mr. Moore was manager of offshore business development at Murphy Oil Corporation (NYSE: MUR). From 1987 to 2003, Mr. Moore held positions at Anadarko Petroleum (NYSE: APC) and from 1978 to 1987, at Diamond Shamrock/Maxus Energy (NYSE: YPF). Mr. Moore has served as president of the Houston Geological Society, as treasurer of the American Association of Petroleum Geologists (AAPG), and recently served as the chairman of the AAPG Investment Committee. Mr. Moore is also a licensed professional geoscientist with the State of Texas, an AAPG Certified Petroleum Geologist, and holds two bachelor degrees with Honors, in Geology and Business Administration-Finance and Economics from Southern Methodist University and its Cox School of Business.
Charles G. Hughes. Mr. Hughes has served as vice president land since April 2014. Mr. Hughes’ executive responsibilities include all land and industry partner related matters. He formerly served as general manager – land and business development for Marubeni Oil & Gas (USA), Inc. from 2007 to 2014. From 1980 to 2007, Mr. Hughes served in roles of increasing responsibility both onshore and offshore in the Gulf of Mexico at Anadarko Petroleum Corporation. Mr. Hughes is a member and former Chairman of the OCS Advisory Board, a member of the Association of Professional Landmen, the Houston Association of Professional Landmen and the Professional Landmen’s Association of New Orleans. Mr. Hughes received his Bachelor of Business Administration in Petroleum Land Management from the University of Texas.
Richard S. Langdon.Richard S. Langdon has served as a director of the Company since March 2014. Mr. Langdon is currently the executive vice president and chief financial officer of Altamont Energy, Inc., a newly formed privately held exploration and production company. Mr. Langdon served as the president, chief executive officer and outside director of Badlands Energy, Inc. and its predecessor entity, Gasco Energy, Inc. since May 2013 and Debtor-in Possession since August 2017. Prior to assuming the President and CEO role, Mr. Langdon had served as a Gasco Energy Inc. outside board member since 2003. Mr. Langdon serves as a member of the board of managers of Sanchez Midstream Partners, LP, and is a member of its Audit, Nominating and Corporate Governance and Conflicts Committees. Mr. Langdon was the president and chief executive officer of KMD Operating Company, LLC (“KMD Operating”), and its predecessor entity, Matris Exploration Company LP (“Matris Exploration”), both privately held exploration and production companies, from July 2004 through December 2015. Mr. Langdon was executive vice president and chief operating officer of KMD Operating, from August 2009, until the merger of Matris Exploration into KMD Operating in November 2011. From 1997 until 2002, Mr. Langdon served as executive vice president and chief financial officer of EEX Corporation, a publicly traded exploration and production company that merged with Newfield Exploration Company in 2002. Prior to that, he held various positions with the Pennzoil Companies from 1991 to 1996, including executive vice president - International Marketing - Pennzoil Products Company; senior vice president - Business Development - Pennzoil Company and senior vice president - Commercial & Control - Pennzoil Exploration & Production Company. Mr. Langdon graduated from the University of Texas at Austin with a Bachelor of Science degree in Mechanical Engineering in 1972 and a Masters of Business Administration in 1974.
Paul L. Morris. Mr. Morris has served as a director of the Company since MayMarch 2014. Mr. Morris founded Elk River Resources, LLC in August 2013 to explore and develop oil and gas potential in the oil-producing regions of the southwest United States. Mr. Morris has served as a consultantchairman and chief executive officer of Elk River Resources since inception. Prior to the CompanyElk River Resources, Mr. Morris served as president and chief executive officer from March1988 to September 2013 through May 2013,of Wagner & Brown, Ltd., an independent oil and is the principal of ConRon Consulting, Inc., servinggas company headquartered in a consulting capacity as corporate advisor to several domestic and internationalMidland, Texas. With Wagner & Brown, Mr. Morris oversaw all company operations, including exploration and production companies. From 2004 through 2008, Dr. Bain was corporate exploration advisoractivities, in eight states as well as in France, England and viceAustralia. Mr. Morris also oversaw affiliates involved in natural gas gathering and marketing, crude oil purchasing and reselling, pipeline development, construction and operation, and compressed natural gas (CNG) design, fabrication and operations. Mr. Morris served as president of geosciencesBanner Energy from 1981 until 1988. Mr. Morris graduated from the University of Endeavour International Corporation. From 1983 through 2001, Dr. Bain held numerous management positionsCincinnati with a Bachelor of Science degree in technology and exploration,Mechanical Engineering in both domestic and international exploration, at Anadarko Petroleum Corporation.
Implications of being an Emerging Growth Company
As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
| Only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure. |
| Reduced disclosure about our executive compensation arrangements. |
| Not having to obtain non-binding advisory votes on executive compensation or golden parachute arrangements. |
| Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. |
As an “emerging growth company” under the JOBS Act, we are permitted to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. However, we are electinghave elected not to take advantage of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates, or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have taken advantage of these reduced reporting burdens in this prospectus, and the information that we provide may be different than what you might get from other public companies in which you hold stock.
Recent Developments
Drilling of Canoe and Tau Prospects
We are currently the operator of two wells drilled in the Gulf of Mexico. We commenced drilling operations at the Canoe prospect in August 2018 and drilling was completed later that month. The well was drilled to a total of 5,765 feet measured depth (5,700 feet true vertical depth) and no problems were encountered while drilling. Based on Logging-While-Drilling and Isotube analysis of hydrocarbon samples, oil sands were encountered in the northwest center of the block. A full integration of the well information and seismic data is being performed for further evaluation of the shallow potential of the wellbore and the block, and to define commerciality of these oil pays. The well was temporarily abandoned and multiple open-hole plugs were set across several intervals. The well is equipped with a mud-line suspension system for possible future re-entry. A deeper subsalt prospect on the Canoe lease block, for which the block was originally leased, is not yet drill-ready and is pending further seismic enhancement.
The second well, Tau prospect, is located approximately six miles northeast of the Mahogany Field, discovered in 1993. The Mahogany Field is recognized as the first commercial discovery below allocthonous salt in the Gulf of Mexico. The Tau Prospect is defined by mapping of 3D seismic reprocessed by RTM methods. Drilling operations on the Tau subsalt prospect commenced in September 2018. The wellbore is designed to test multiple Miocene horizons trapped against a well-defined salt flank, including equivalent reservoir sands discovered and developed at the nearby Mahogany Field. The surface location for Tau is located in 305 feet of water. In January 2019, the Tau well experienced an underground control of well event and as a result, we filed an insurance claim with its insurance underwriters for a net amount of approximately $10.8 million for 100% working interest. The insurance claim was subsequently approved, and approximately $8 million was received in April and May 2019. On May 13, 2019, we announced the Tau well was drilled to a measured depth of 15,254 feet, as compared to the originally permitted 29,857 foot measured depth. Producible hydrocarbon zones were not established to the current depth, but hydrocarbon shows were encountered. Complex geomechanical conditions required two by-pass wellbores, one sidetrack wellbore, and eight casing strings to reach the current depth. We were unable to continue drilling due to equipment limitations and contractual obligations related to the drilling rig for another operator. Due to these factors, we elected to temporarily abandon this well in a manner that would allow for re-entry at a later time. We are currently evaluating various options related to future operations in this wellbore and testing of the deeper Tau prospect.
Term Loan
On March 10, 2014,1, 2019, we entered into a Term Loan Agreement by and among GulfSlope, as borrower, and Delek, as lender. In the Term Loan Agreement, Delek agreed to provide us with multiple draw term loans in an aggregate stated principal amount of up to $11.0 million (the “Term Loan Facility” and the loans thereunder, the “Loans”). The maturity date of the Term Loan Facility is six months following the closing date of the Term Loan Agreement. Until such maturity date, the Loans under the Term Loan Agreement shall bear interest at a rate per annum equal to 5.0%, payable in arrears on the maturity date. If an event of default occurs, all Loans under the Term Loan Agreement shall bear interest at a rate equal to 7.0%, payable on demand. In connection with the Term Loan Agreement, the Company entered into: (i) a Subordination Agreement (the “Subordination Agreement”) by and among GulfSlope, as borrower, John N. Seitz, as subordinated lender (the “Subordinated Lender”), and Delek, as senior lender; (ii) a Security Agreement (the “Security Agreement”) among GulfSlope, as debtor, and Delek, as lender; and (iii) warrants to purchase 238,095,238 shares of Common Stock, at an exercise price of $0.042 per share issued to Delek GOM. We may elect, at our option, to prepay borrowings outstanding under the Term Loan Agreement in multiples of $100,000 and not less than $500,000 without premium or penalty. We are required to prepay the Loans with any net cash proceeds resulting from an asset sale, receipt of insurance proceeds from certain casualty events, proceeds from equity issuances or incurrence of indebtedness other than the Loans (subject to a $500,000 carve-out to be applied toward our general corporate purposes) or receipt of any cash proceeds from any payments, refunds, rebates or other similar payments and amounts under the joint operating agreement. Amounts outstanding under the Term Loan Agreement are secured by a security interest in substantially all of our properties and assets. We had borrowed a total of $11.0 million under the Term Loan Facility and issued to Delek GOM warrants to purchase 261,904,762 shares of Common Stock; and Delek GOM exercised warrants for 238,095,238 shares of Common Stock through a Loan Reduction Exercise, thereby leaving $1 million of outstanding obligations to Delek GOM. In connection with the Term Loan, we entered into a farm out letterregistration rights agreement with Texas South Energy, Inc.Delek pursuant to which we have agreed to register the shares of Common Stock issued to them for public resale upon request.
Issuance of Convertible Debentures
On June 21, 2019, we entered into a Securities Purchase Agreement (“Texas South”), relating to five prospects (the “Prospects”SPA”) located within 2.2 million acres of 3D seismic licensed and interpreted by the Company. The Company intends to acquire oil & gas leases covering these Prospects, as well as additional leases.with a qualified institutional buyer (“Buyer”). Under the terms of the farm-out letter agreement, Texas SouthSPA, we will acquireissue and sell to Buyer up to a 20% working interest inan aggregate of $3,000,000 of convertible debentures (“Convertible Debentures”), which shall be convertible (as converted, the Prospects for up to $10 million payable in full by April 11, 2014,“Conversion Shares”) into shares of Common Stock, of which $2.5 million has been paid to date. Texas South has also agreed to pay its proportionate share$2,100,000 were purchased upon the signing of the net rental costs relatedSPA (the “First Closing”), $400,000 shall be purchased upon the filing of a registration statement with the SEC registering the resale of the Conversion Shares by the Buyers, and $500,000 shall be purchased on or about the date the registration statement has first been declared effective by the SEC (collectively, the “Offering”). The Convertible Debenture bears an annual interest rate equal to 8% and a maturity date of June 21, 2020, which may be extended at the Prospects. Theoption of Buyer. At maturity, the Company is obligated to refundpay the holder an amount in cash representing all or aoutstanding principal and accrued and unpaid interest. Subject to the terms of the Convertible Debenture, at any time the Holder is entitled to convert any portion of the $10 million if it is unsuccessful in obtaining some or alloutstanding and unpaid principal and accrued interest into fully paid and nonassessable shares of Common Stock of the leases comprisingCompany. The number of shares of Common Stock issuable upon conversion is determined by dividing the Prospectsamount to be converted by the lesser of (x) $0.05 per share or (y) 80% of the lowest daily VWAP price (as reported by Bloomberg, LP) for the ten (10) consecutive trading days immediately preceding the date of determination. At the First Closing, the Company also issued to Buyer warrants to purchase an aggregate of 50.0 million shares of Common Stock at an exercise price of $0.04 per share. The warrants expire on the fifth (5th) anniversary after issuance.
In connection with the issuance of the Convertible Debenture and unablewarrants, we entered into registration rights agreement pursuant to substitute prospectswhich we have, among other things, agreed to file a registration statement with the SEC within thirty days of similar value as mutually agreed upon. The Company will be the operatorSPA registering for public resale the shares of recordCommon Stock underlying the Convertible Debenture and haswarrants.
Risk Factors
Investing in our common stock involves risks that include the right to negotiatespeculative nature of oil and natural gas exploration, competition, volatile oil and natural gas prices and other material factors. You should read carefully the section of this prospectus entitled “Risk Factors” beginning on page 8 for an explanation of these risks before investing in our common stock. In particular, the following considerations may offset our competitive strengths or have a negative effect on our strategy or operating activities, which could cause a decrease in the price of our common stock and a loss of all future joint operating agreements related to the potential leases, including the Prospects.
| ● | Our business is difficult to evaluate because of our limited operating history; |
| ● | Failure to enter into leases with BOEM on our prospects; |
| ● | Failure to enter into strategic partnerships, joint operating agreements and farm out agreements needed to exploit our prospects; |
| ● | Failure to raise sufficient capital needed to implement our business plan; |
| ● | Difficulties managing the growth of our business may adversely affect our financial condition and results of operations; |
| ● | Failure to develop our prospects; |
| ● | Our exploration and development operations require substantial capital that we may be unable to obtain, which could lead to a loss of properties and a decline in our reserves; |
| ● | Our future success depends on our ability to find, develop or acquire oil and natural gas reserves; |
| ● | The volatility of oil and natural gas prices due to factors beyond our control greatly affects our profitability; |
| ● | Our prospects are all in the Gulf of Mexico, making us vulnerable to risks associated with a concentration of operations in a single geographic area; and |
| ● | Our operations are subject to various governmental regulations which require compliance that can be burdensome and expensive; |
Corporate Information
Our address is 2500 City West,1331 Lamar St., Suite 800,1665, Houston, Texas 7704277010, and our telephone number is (281) 918-4100. Our web site is currently under construction.can be accessed at www.gulfslope.com. The contents of our website do not form a part of, and are not incorporated by reference in, this prospectus or any Offering Statement that we have filed with the SEC. You may access and read our SEC filings through the SEC’s web site (http:www.sec.gov). This site(www.sec.gov), which contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC.
About This Offering
| Common stock offered by selling security holders | A total of up to |
Shares outstanding prior to the offering | |
Shares to be outstanding after the offering | |
| Use of proceeds | The selling security holders will receive all of the proceeds from the sale of shares of our common stock. We will not receive any proceeds from the sale of the common stock. |
Risk Factors | The securities offered hereby involve a high degree of risk. See “Risk Factors.” |
| Stock symbol | GSPE |
Investing in our common stock involves a high degree of risk. You should carefully consider each of the following risks, together with all other information set forth in this prospectus, including the consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Data
As of and for the Years Ended September 30, | As of and for the Quarters Ended December 31, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Statement of Operations Data: | ||||||||||||||||
| Revenue | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||
| Net Loss | (17,357,843 | ) | (1,537,215 | ) | (2,148,857 | ) | (396,376 | ) | ||||||||
| Net Loss per Share | (0.04 | ) | (0.02 | ) | (0.00 | ) | (0.00 | ) | ||||||||
Balance Sheet Data: | ||||||||||||||||
| Total Assets | 2,904,978 | 752,382 | 6,290,482 | 327,799 | ||||||||||||
| Total Current Liabilities | 9,334,591 | 62,914 | 9,200,239 | 34,707 | ||||||||||||
| Accrued Expenses and Other | -- | -- | 3,003,065 | -- | ||||||||||||
| Payables, Net of Current Portion | 3,003,065 | -- | -- | -- | ||||||||||||
| Total Stockholders’ Equity (Deficit) | $ | (9,432,678 | ) | $ | 689,468 | $ | (5,912,822 | ) | $ | 293,092 | ||||||
Risks Related to Our Business and Financial Condition
Our business plan requires substantial additional capital through the Offering, 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 have planned operating expenditures through June 2020, of approximately $10.0 million, which includes $6.0 million for drilling related capital expenditures, $1.5 million of other operations related expenditures to include but not limited to bonus payments for new leases and lease rentals to the BOEM and seismic reprocessing costs, and $2.5 million in general and administrative expenses. We will need to raise additional capital in 2019 and may be required to enter into debt and equity financing arrangements and joint ventures. There is no assurance that we will be able to raise the capital necessary to fund our business plan and our operations through June 2020. Failure to raise the required capital to fund our 2019 operations, on favorable terms or at all, will have a material adverse effect on us, and will likely cause us to curtail operations or suspend our 2019 business plan.
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 asand drilling operations are very expensive, and if we are to expand our operations after 2019 we will need to raise substantial additional capital through additional 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. |
To the extent we are able to use cash on hand and payments received and to be received from Texas South pursuant to the March 2014 farm-out letter agreement to fund operationsraise capital through May 2014 (excluding debt repayment). We have budgeted capital and other operating expenditures during calendar 2014 of approximately $19.4 million and during calendar 2015 of approximately $32 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.
Our fiscal 2013 audited financial statements containexpress substantial doubt about our ability to continue as a going-concern qualification,going concern, raising questions as to our continued existence.
We have incurred losses since our inception resulting in an accumulated deficit of approximately $21.3$48.4 million at DecemberMarch 31, 2013.2019, and we have a net capital deficiency. Further losses are anticipated as we continue in the exploration stage ofto develop our business. As a result, in their audit report contained in this prospectus, our independent auditors expressed substantial doubt about our ability toTo continue as a going concern. Asconcern, we estimate that we will need approximately $10 million to meet our obligations and planned operating expenditures through June 2020. The $10 million is comprised primarily of capital project expenditures as well as general and administrative expenses. It does not include any amounts due under outstanding debt obligations, which amounted to $10.9 million of current principal and interest as of March 31, 2019. We plan to finance our operations through equity and/or debt financings, and strategic alliances. There are no assurances that financing will be available with acceptable terms, if at all. If we are not successful in obtaining financing, our operations would need to be curtailed or ceased or the Company would need to sell assets or consider alternative plans up to and including restructuring.
If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
We are required to comply with certain provisions of Section 404 of the dateSarbanes-Oxley Act of this prospectus,2002 (“Sarbanes-Oxley Act”). Section 404 requires that we believedocument and test our internal control over financial reporting and issue management’s assessment of our internal control over financial reporting. In our annual report for the year ended September 30, 2018, we identified and disclosed material weaknesses related to the failure to record interest on an interest bearing payable and failure to accurately value a fair value financial instrument issued in settlement of a liability. These errors are a result of insufficient control activities related to the review and monitoring of Company contracts to ensure the proper accounting for such contracts. In an attempt to remediate the material weaknesses, we have sufficient cashmade significant advancements to our processes and internal controls surrounding non-routine and complex arrangements to strengthen our financial reporting processes.
If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, the accuracy and timeliness of the filing of our annual and quarterly reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on handthe trading price of our Common Stock.
We have no proved reserves and areas that we decide to fund operations through May 2014,drill may not including any debt repayment. yield oil and natural gas in commercial quantities or quality, or at all.
We have no proved reserves. We have identified prospects based on available seismic and geological information that indicates the potential presence of oil and natural gas. However, the areas we decide to drill may not yield oil and natural gas in commercial quantities or quality, or at all. Most of our current prospects are in various stages of evaluation that will require substantial additional funds forseismic data reprocessing and interpretation. Even when properly used and interpreted, 3-D seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the balanceinterpreter to know whether hydrocarbons are, in fact, present in those structures. We have drilled two wells, one of calendar 2014.which is currently being evaluated. Accordingly, we do not know if our prospects will contain oil and natural gas in sufficient quantities or quality to recover drilling and completion costs or to be economically viable. Even if oil and natural gas is found on our prospects in commercial quantities, construction costs of pipelines and other transportation costs may prevent such prospects from being economically viable. If we cannot raise these funds, we mayone or more of our prospects do not prove to be required to cease business operations or altersuccessful, our business, plan.
We are substantially 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 business prospects, 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 life insurance on any member of the management team.
The seismic data we use are subject to non-exclusive license arrangements and may be licensed to our chief executive officer.
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 theimportantly, reprocessing and the modeling of certain seismic data utilized to identify and technically support oil and gas prospects, is unique and proprietary to us.
We are an oil and natural gas 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 we expect to enterhave entered into additional 3-D license agreements with seismic companies to acquire additional data and reprocess that seismic data. WeWhile we intend to engage in the drilling, development, and production of oil and natural gas in the future.future, we currently have no reserves or production. 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 and to be received by Texas South is insufficient to enable us to fully execute our business strategy beyond May 2014.September 2019. Because we are an exploration stagea 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 acquisitionsleases 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 continue to 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 curtail 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 DecemberMarch 31, 2013,2019, we had an accumulated deficit of approximately $21.3$48.4 million. We had no revenues in 20132018 and do not anticipate receivinggenerating revenues in fiscal 2014,2019, 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 2014,2019, and thereafter until future discoveries are brought online and we begin producing oil and gas.
The terms of the definitive documents governing the Term Loan Facility may restrict our operations, particularly our ability to respond to changes or take certain actions. If we are unable to repay the Term Loan Facility as it becomes due, we may be unable to continue as a going concern.
On March 1, 2019, we entered into a Term Loan Agreement by and among GulfSlope, as borrower, and Delek, as lender. In the Term Loan Agreement, Delek agreed to provide us with multiple draw term loans in an aggregate stated principal amount of up to $11.0 million (the “Term Loan Facility” and the loans thereunder, the “Loans”). Borrowings under the Term Loan Facility mature in six months and bear interest at the rate of 5.0% and are secured by the assets of the Company. As of the date of this prospectus there is $1.0 million outstanding under the Term Loan Facility and no additional amounts available to be borrowed.
The definitive documents governing the Term Loan Facility contain a number of restrictive covenants that impose operating and financial restrictions on us and limit our ability to engage in acts that may be in our long-term best interest, including restrictions on the ability to: incur indebtedness, grant liens, undergo certain fundamental changes, dispose of assets, make investments, enter into transactions with affiliates, and make certain restricted payments, in each case subject to limitations and exceptions to be set forth in the definitive documentation for the Term Loan Facility. The definitive documentation governing the Term Loan Facility also contains customary events of default that include, among other things, certain payment defaults, covenant defaults, cross-defaults to other indebtedness, change of control defaults, judgment defaults, and bankruptcy and insolvency defaults. Such events of default may allow the creditor to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies which could have a material adverse effect on our business, operations and financial results. Furthermore, if we are unable to repay the amounts due and payable under the definitive documentation governing our Term Loan Facility, the lender could proceed against the collateral granted to them to secure that indebtedness which could force us into bankruptcy or liquidation. In the event our lender accelerated the repayment of the borrowings, we may not have sufficient assets to repay that indebtedness. Any acceleration of amounts due under the Term Loan Facility would likely have a material adverse effect on us and would threaten our ability to continue as a going concern. As a result of these restrictions, we may be limited in how we conduct business; unable to continue our business operations; unable to raise additional debt or equity financing to operate during general economic or business downturns; or unable to compete effectively or to take advantage of new business opportunities.
Our lack of diversification increases the risk 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.States. 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 future profitability.
We are currently not profitable however, our strategy envisions building and expanding our business.business in order to become profitable. 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 profitabilityprofitability.
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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”),BOEM and EPA, 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.
Risks Related to Our Industry
An extended decline in Which We Intend to Compete
The commercial viability of our projects is highly dependent on the price of oil and natural gas. Prices also affect our ability to borrow money or raise additional capital. We will need to obtain additional financing to fund our activities. Our ability to do so may be adversely affected by an extended decline in oil prices. If we are unable to obtain such financing when needed, on commercially reasonable terms, we may be required to cease our operations, which could have a materially adverse impact on the market price of our stock. An extended decline in oil prices may 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 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 inIn addition, 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 future production and the levels of any future 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; |
| weather conditions; |
| government policies to discourage use of fuels that emit GHGs and encourage use of alternative energy; |
| ● | 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 |
| 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 byFor example, during the worldwide economic recession has reduced worldwide demand for and impacted energy prices. This may result in lower crude oil and natural gas prices. Crudeperiod from January 1, 2014 to December 31, 2018, NYMEX West Texas Intermediate oil prices declinedranged from recorda high levels in early July 2008 of over $140$107.95 per Bblbbl to below $45a low of $26.19 per Bbl in February 2009 before rebounding to over $97 per Bbl in December 2013. Naturalbbl. Average daily prices for NYMEX Henry Hub gas prices declinedranged from over $13a high of $8.15 per MMBtu in mid-2008 to approximately $4.17a low of $1.49 per MMBtu during the same period. This near term volatility may affect future prices in December 2013. Such a decline could occur again in the future due to global economic conditions. These factors2019 and thebeyond. The volatility of the energy markets makemakes 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 (which may lead to blowouts, fires, and explosions) 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, adverse weather conditions (which may be more frequent as climate changes), cost overruns, equipment shortages, mechanical difficulties, and mechanical difficulties.environmental hazards (including spills and toxic gas releases). 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 natural gas operations are subject to comprehensive regulation and taxation, which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on the Company.
Oil and natural gas operations are subject to national, state, and local laws and taxes relating to the protection of the environment, including laws regulating removal of natural resources from the ground, spill response capabilities, and the discharge of materials into the environment. Oil and natural gas operations are also subject to national, state, and local laws and regulations, which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Environmental standards imposed by national, state 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 notare unlikely to insure against fully due to prohibitive premium costs and other reasons. WeTo date, 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,regulations; however, we may be required to expend substantial sums in the future as we develop projects, and this may affect our ability to develop,begin, maintain, or expand or maintain our operations.
We may be dependent upon third party operators of any oil and natural gas properties we may acquire.
Third parties may act as the operators of our oil and natural gas wells and control the drilling and operating activities to be conducted on our properties, if and when such assets are acquired and drilled. This exposes our business success to the technical and financial resources of our partners, which could limit our growth.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.
Our leases or drilling rights, which may be lostterminated if we are unable to make future lease payments or if we do not drill in a timely manner.
The failure to acquiretimely affect all lease related payments could cause the leases orto be terminated by the BOEM. Net lease rental obligations on our existing prospects are expected to be approximately $0.5 million in fiscal year 2019. Our leases have a five-year primary term, expiring in 2020, 2022 and 2023. Each lease may be extended by drilling rights ina well capable of producing hydrocarbons and submitting a Plan of Production approved by the near future. We anticipateregulatory authorities. In addition, the terms of theseour leases or drilling rights will require a wellmay be drilled on the property within a period of multipleextended for an additional three years, to be started on the lease date. Ifprovided a well is spud targeting hydrocarbons with a true vertical depth in excess of 25,000 feet within the primary term of the lease. In addition, the terms of our leases may also be extended by the granting of a Subsalt Lease Term Extension, should we elect to apply and qualify for said extension on any lease(s). If we are not drilledsuccessful in raising additional capital, we may be unable to successfully exploit our properties, and we may lose the rights to develop these properties upon the expiration of our leases. If not successful in securing extensions, those leases will be subject to the competitive bid process in the stated period, the leases or drilling rights will expire resulting intwice a loss of assets for the company.
We may not be able to develop oil and natural gas reserves on an economically-viableeconomically 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 the market.
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.
We may not be able to obtain drilling rigs and other equipment and geophysical service crews could hamper our abilitynecessary to exploit any oil and natural gas resources we may acquire.
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 natural 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 conventionsfederal, state and federal, provincial and municipallocal 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 natural gas operations.operations, including products, byproducts, and wastes. The legislation also requires that wells and facility siteslocation be sited, 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 notand so will be sufficientunlikely 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.
We are subject to cyber security risks. A cyber incident could occur and result in information theft, data corruption, operational disruption or financial loss.
The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain exploration, development, production, processing and distribution activities. For example, we depend on digital technologies to interpret seismic data, conduct reservoir modeling and record financial and other data. Our industry is highly reliant upon digitalfaces various security threats, including cyber-security threats. Cyber-security attacks in particular are increasing and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, software, hardware, and remote communications, whichother electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. Although to date we have not experienced any material losses related to cyber-security attacks, we may suffer such losses in the future. Moreover, the various procedures and controls we use to monitor and protect against these threats and to mitigate our exposure to such threats may not be stolen by hackers or cyber thieves causing our datasufficient in preventing security threats from materializing. If any of these events were to be corrupted or unknowingly modified. Theft may also result in lossmaterialize, they could lead to losses of intellectual property that could be valuableand other sensitive information essential to our competitors.
Risks Related to our Common Stock
There is not now, and there may never be, an activea limited trading market for our shares. You may not be able to sell your shares if you need money.
Our common stock.
| 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 may issue preferred stockstock..
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 pursuant to Rule 144 (which will be available for substantially all of our shareholders commencing on May 15, 2014) could also depress the price of our common stock. As our current executive officers and directors own a substantial amountFor instance, we have issued instruments that are convertible into or exercisable for 335 million shares of our common stock, a decision by one of them to sell could adversely affectCommon Stock, which may have conversion or exercise rights that are at prices lower than the trading price of our common stock.
Our issuance of additional shares of Common Stock, or options or warrants to purchase those shares, would dilute your proportionate ownership and voting rights.
We are authorized to issue up to 1,550,000,000 shares of capital stock, comprising 1,500,000,000 shares of Common Stock, par value $0.001 per share, and 50,000,000 shares of preferred stock, par value $0.001 per share (“Preferred Stock��). We have issued and outstanding, as of March 31, 2019, 1,089,433,510 shares of Common Stock and 0 shares of Preferred Stock, plus another approximately 335 million shares may be issued by us if all of the securities we have issued that are exercisable for, or convertible into, shares of Common Stock are exercised or converted. Our board of directors (the “Board”) may generally issue shares of Common Stock, Preferred Stock or options or warrants to purchase those shares without further approval by our shareholders, based upon such factors as the Board may deem relevant at that time. See “Description of Capital Stock.” It is likely that we will be required to issue a large amount of additional securities to raise capital to further our development. It is also likely that we will issue a large amount of additional securities to directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our stock plans. We cannot assure you that we will not issue additional shares of Common Stock, Preferred Stock, or options or warrants to purchase those shares, under circumstances we may deem appropriate at the time.
Our common stock is subject to the “penny stock” rules of the SEC and FINRA, 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.
In addition to the “penny stock” rules promulgated by the SEC, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer when recommending the investment to that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit investors’ ability to buy and sell our stock and have an adverse effect on the market for our shares.
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; |
| the price 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; |
| the |
| ● | litigation; and |
| 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 certificate of incorporation could make a merger, tender offer, or proxy contest difficult.
Our shareholders have approved an amendment and restatement of our common stock less attractivecertificate of incorporation to investors.
Any of the executive compensation relatedrisk factors discussed herein could have a significant material adverse effect on our business, results of operations, financial condition, or liquidity. Readers of this prospectus should not consider any descriptions of these risk factors to be a complete set of all potential risks that could affect GulfSlope. These factors should be carefully considered together with the other information that would be requiredcontained in this prospectus if we were not an emerging growth company. In addition, for so long as we are an emerging growth company, we will not be required to:
growth company. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more; (ii) 5 years from the effective date of this Prospectus; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. We will be deemed a large accelerated filer on the first day of the fiscal year after the market value of our common equity held by non-affiliates exceeds $700 million, measured on March 31. We are currently evaluating and monitoring developments with respect to these new rules and we cannot assure you that we will be able to enjoy part or all of the benefits from the JOBS Act. We cannot predict whether investors will find our common stock less attractive to the extent we rely on the exemptions available to emerging growth companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Included in this prospectus are “forward-looking” statements, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Important factors that could cause our actual results, performance or achievements to differ from these forward-looking statements include the factors described in the “Risk Factors” section and elsewhere in this prospectus.
All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.
The selling security holders are selling shares of common stock covered by this prospectus for their own account. We will not receive any of the proceeds from the resale of these shares.
DETERMINATION OF OFFERING PRICE
We are not selling any of the common stock that we are registering. The common stock will be sold by the selling security holders as detailed in this prospectus. Such selling security holders may sell the common stock at the market price as of the date of sale or a price negotiated in a private sale. Our common stock is listed for quotation on both the OTCBB and the OTCQB quotation systems under the symbol “GSPE.”
The following table details the name of each selling stockholder, the number of shares owned by that selling stockholder, and the number of shares that may be offered by each selling stockholder for resale under this prospectus. The selling security holders may sell up to 63,240,335206,000,000 shares of our common stock from time to time in one or more offerings under this prospectus. Because eachthe selling stockholder may offer all, some or none of the shares it holds, and because, based upon information provided to us, there are currently no agreements, arrangements, or understandings with respect to the sale of any of the shares, no definitive estimate as to the number of shares that will be held by eachthe selling stockholder after the offering can be provided. The selling shareholder has informed us that it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. Furthermore, unless otherwise indicated below, the selling shareholder is not an affiliates of broker-dealers. The following table has been prepared on the assumption that all shares offered under this prospectus will be sold to parties unaffiliated with the selling security holders.
| Name of Selling Stockholder | Number of Shares of Common Stock Owned Prior to the Offering(1) | Shares of Common Stock Included in Prospectus | Number of Shares of Common Stock Owned After the Offering(2) | Percentage of Ownership After Completion of Offering (2)(3) | ||||
Boswell Investments, LLC(4) | 2,083,333 | 2,083,333 | - | - | ||||
| Brian Hoppes | 834,167 | 834,167 | - | - | ||||
| Charles Scott Shepherd | 583,334 | 583,334 | - | - | ||||
C. Gardonrod Holdings Ltd. (5) | 100,000 | 100,000 | - | - | ||||
| Cheri Pedersen | 5,250,000(6) | 150,000(7) | 5,000,000 | * | ||||
| Claude McQuarrie, III | 4,166,668(8) | 2,500,000(9) | - | - | ||||
| Clive Brookes | 6,833,333(10) | 833,333(11) | 6,000,000 | * | ||||
Cross Cap Energy QP, LP(12) | 3,481,200 | 3,481,200 | ||||||
Cross Cap Energy, LP(13) | 1,518,800 | 1,518,800 | - | - | ||||
| David and Kathryn Dellosso | 250,000 | 250,000 | - | - | ||||
| Devinder Bhatia | 208,333 | 208,333 | - | - | ||||
| Douglas Wyatt | 4,200,000 | 4,200,000 | - | - | ||||
| Erin McQuarrie | 833,334 | 833,334 | - | - | ||||
| Forrest Edwin Harrell | 8,000,000 | 8,000,000 | - | - | ||||
| Gretchen and John-Mark Stephenson | 125,000 | 125,000 | - | - | ||||
| Heath D. and Katherine A. Hoppes | 418,000 | 418,000 | - | - | ||||
| James Ryan and Hillary Johnson | 833,333 | 833,333 | - | - | ||||
| James Speakman | 300,000 | 300,000 | - | - | ||||
| John Burke | 900,000 | 900,000 | - | - | ||||
John H. and Jodi F. Malanga(14) | 166,667 | 166,667 | - | - | ||||
| Kyle and Kristin Hoppes | 833,333 | 833,333 | - | - | ||||
Law Offices of Cecil W. Bain, P.C. 401K Profit-Sharing Plan (15) | 210,000 | 210,000 | - | - | ||||
| Lisa D. & Michael W. Stewart | 1,666,667 | 1,666,667 | - | - | ||||
| Michael Eldon and Colleen Bray | 833,333 | 833,333 | - | - | ||||
Moriyama Enterprises Inc.(16) | 500,000 | 500,000 | - | - | ||||
| Morris, Paul L. | 1,666,667 | 1,666,667 | - | - | ||||
| Nanci Leanne Anderson | 499,833 | 499,833 | - | - | ||||
| Nancy Quinn | 1,000,000 | 1,000,000 | - | - | ||||
| Nathaniel and Sara Harris | 170,000 | 170,000 | - | - | ||||
Newton O. and Lynn A. Duncan(17) | 1,666,667 | 1,666,667 | - | - | ||||
| Price, Richard A. | 1,000,000 | 1,000,000 | - | - | ||||
Quinn Oil Company, Ltd.(18) | 1,000,000 | 1,000,000 | - | - | ||||
| Rich Langdon | 416,667 | 416,667 | - | - | ||||
| Richard H. Bachmann | 2,000,000 | 2,000,000 | - | - | ||||
Richard J. Heaney (19) | 1,166,667 | 416,667 | 750,000 | * | ||||
| Richard P. and Susan L. Crist, | 208,333 | 208,333 | - | - | ||||
| Ryan McQuarrie | 833,334 | 833,334 | - | - | ||||
| Saad Kettani | 1,000,000 | 1,000,000 | - | - | ||||
| Salvatore Rametta | 500,000 | 500,000 | - | - | ||||
Sauder Treasury Holdings Ltd.(20) | 16,666,667 | 16,666,667 | - | - | ||||
Terry and Theresa Stellman (21) | 1,750,000 | 1,000,000 | 750,000 | * | ||||
The William Robert Sinclair Revocable Trust(22) | 833,333 | 833,333 | - | - |
| Name of Selling Stockholder | Number of Shares of Common Stock Owned Prior to the Offering(1) | Shares of Common Stock Included in Prospectus | Number of Shares of Common Stock Owned After the Offering(2) | Percentage Ownership |
| YA II PN, Ltd. | 54,504,155 | 206,000,000 | 0 | 0% |
| (1) | The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes |
| (2) | Assumes the sale of all shares of common stock registered pursuant to this prospectus, although the selling security holders are under no obligations known to us to sell any shares of common stock at this time. |
| (3) | This percentage is based upon |
The selling security holders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling security holders may use any one or more of the following methods when selling shares:
| ordinary brokerage transactions and transactions in which the broker-dealer solicits investors; |
| block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| an exchange distribution in accordance with the rules of the applicable exchange; |
| privately negotiated transactions; |
| to cover short sales made after the date that this Registration Statement is declared effective by the Commission; |
| broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share; |
| a combination of any such methods of sale; and |
| any other method permitted pursuant to applicable law. |
The selling security holders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling security holders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling security holders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
The selling security holders may from time to time pledge or grant a security interest in some or all of the Shares owned by them, if permitted by applicable laws and regulations, and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus.
Each selling shareholder has informed us that he, she or it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. Certain of the selling shareholders are affiliates of broker-dealers. Each such selling shareholder has represented to us that it acquired the securities to be resold pursuant to this prospectus in the ordinary course of its business and, at the time of the acquisition, such selling shareholder had no agreements or understandings, directly or indirectly, with any person to distribute the securities. Upon the Company being notified in writing by a Selling Stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such Selling Stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon the Company being notified in writing by a Selling Stockholder that a donee or pledge intends to sell more than 500 shares of common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.
The selling security holders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling security holders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of Securities will be paid by the Selling Stockholder and/or the purchasers. Each Selling Stockholder has represented and warranted to the Company that it acquired the securities subject to this registration statement in the ordinary course of such Selling Stockholder’s business and, at the time of its purchase of such securities such Selling Stockholder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.
The Company has advised each Selling Stockholder that it may not use shares registered on this Registration Statement to cover short sales of common stock made prior to the date on which this Registration Statement shall have been declared effective by the Commission. If a Selling Stockholder uses this prospectus for any sale of the common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The selling security holders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such selling security holders in connection with resales of their respective shares under this Registration Statement.
The Company is required to pay all fees and expenses incident to the registration of the shares, but the Company will not receive any proceeds from the sale of the common stock. The Company has agreed to indemnify the selling security holders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. If the selling security holders use this prospectus for any sale of the common stock, they will be subject to the prospectus delivery requirements of the Securities Act.
We are authorized to issue 750,000,000up to 1,550,000,000 shares of commoncapital stock, comprising 1,500,000,000 shares of Common Stock, par value $0.001 of which 624,224,010 shares are issuedper share, and outstanding as of March 11, 2014. We are also authorized to issue 50 million50,000,000 shares of preferred stock, par value $0.001 noneper share (“Preferred Stock”).
Common Stock
As of which have beenJuly 19, 2019, there are 1,092,266,844 shares of our Common Stock issued asand outstanding.
Voting
Each holder of March 11, 2014.
Dividends
Holders of preferred stock, the holders of common stockour Common Stock are entitled to receive dividends when, as and if declared by our board of directors,the Board out of funds legally available. available for payment, subject to the rights of holders, if any, of our preferred stock. Any decision to pay dividends on our Common Stock will be at the discretion of the Board. The Board may or may not determine to declare dividends in the future. See “Dividend Policy.” The Board’s determination to issue dividends will depend upon our profitability and financial condition, and other factors that the Board deems relevant.
Liquidation Rights
In the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company,our company, the holders of common stock areour Common Stock will be entitled to share ratably on the basis of the number of shares held in allany of the assets remaining available for distribution to them after payment or provision forwe have paid in full all liabilitiesof our debts and any preferential liquidation rightsafter the holders of anyall outstanding preferred stock, then outstanding.
Preferred Stock
As of the date of this Prospectus, there are no shares of our common stock are available for future issuance without stockholder approval. These additional shares may be used for a variety of corporate purposes, including future offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock may enable our Board to issue shares of stock to persons friendly to existing management, which may deter or frustrate a takeover of the Company.
The Board is expressly authorized from time to time to designate and issue preferred stock in one or more series. Our boardseries of directors may also designate the rights,Preferred Stock, to issue the Preferred Stock as Preferred Stock of any such series, and in connection with the designation of each such series to fix by resolution or resolutions providing for the issue of shares thereof the voting and other powers, if any, and the designations, preferences and privileges of eachrelative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof to the fullest extent now or hereafter permitted by Delaware law. All series of preferred stock, anyPreferred Stock shall rank equally and be identical in all respects except as set forth in the Board’s resolutions providing for the issue of such stock.
Limitations on Liability and Indemnification of Officers and Directors
Delaware law authorizes corporations to limit or all of which may be greater than the rights of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until the board of directors determines the specific rights of the holders of the preferred stock. However, these effects might include:
The limitation of liability and indemnification provisions in our articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the Company’s Certificateeffect of Incorporationreducing the likelihood of derivative litigation against directors and officers, even though such an action, if such director or officer was, is, becomes or is threatenedsuccessful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to be made a party to or witness or other participantthe extent that, in a claim by reasonclass action or direct suit, we pay the costs of (or arising in part out of) the director or officer’s service as a director, officer, partner, employee, trustee, agent or fiduciary of the Company or any of its subsidiaries or the director or officer’s service at the request of the Company in any such capacity with any other enterprise. The Indemnification Agreement also provides for, among other things, the advancement of expenses relatingsettlement and damage awards against directors and officers pursuant to the indemnification obligations, subject to reimbursementprovisions in the event the individualour articles of incorporation and bylaws.
There is not entitled to indemnification under applicable law and the Certificatecurrently no pending litigation or proceeding involving any of Incorporation.
Registration Rights
In connection with the Company’s private placement during 2013,sale of convertible debentures in June 2019, we granted registration rights to purchasers of 63,240,335up to 156,000,000 shares of common stock. Under the registration rights agreements as amended, that we entered into with such purchasers, we are obligated to file a resale registration statement with the SEC to register under the Securities Act the resale of these 63,240,335156,000,000 shares as soon as practicable and to obtain effectiveness of such registration statement as soon as practicable. The registration statement of which this prospectus is a part is being filed in accordance with our obligations under this registration rights agreement.
The Company will be required to use its reasonable best efforts to keep the registration statement, or registration statements, continuously effective until all of the shares covered thereby have been publicly sold, or until all such shares may be sold without restriction. We have agreed to indemnify the selling holders of these shares against, or in certain circumstances to contribute to, certain liabilities incurred by them in connection with the offering and sale of the shares pursuant to such registration statement, including liabilities under the Securities Act. We have agreed to pay all costs and expenses incurred by us (as well as up to $5,000 of legal fees of counsel representing the selling security holders) in complying with these registration rights obligations, except that each selling holder will be responsible for any underwriters’ or brokers’ discounts, fees or commissions payable in connection with the sale of such holder’s shares.
Convertible Note and Option
Pursuant to the fiscal year ended September 30, 2013, Mr. Seitz loanedterms of the SPA, at the Issuance Date, the Company an aggregate of $6.5 million, due on demand, bearing interest at an annual rate of 5%, and convertible into Company common stock atsold to Buyer a conversion price of $0.12 per share. On May 31, 2013, Mr. Seitz converted $1.2 million of this debt into 10 million shares of Company common stock. As of September 30, 2013, the Company owed Mr. Seitz aConvertible Debenture. The principal amount of $5.3 million plus accruedthe Convertible Debenture is $2,100,000 (as reduced pursuant to redemption, conversion or otherwise, the “Principal”), it has an annual interest rate equal to 8% (the interest paid on the outstanding Principal at the applicable interest rate, the “Interest”) and a maturity date of $94,319.
Subject to the terms of the Company, a ten-year optionConvertible Debenture, at any time after the Issuance Date, the Holder is entitled to purchase 2,000,000convert at the Conversion Rate (as defined below) any portion of the outstanding and unpaid Principal and accrued Interest (the “Conversion Amount”) into fully paid and nonassessable shares of our common stock at an exercise priceCommon Stock. The number of $0.12shares of Common Stock issuable upon conversion of any Conversion Amount is determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”). The “Conversion Price” is the lesser of (x) $0.05 per share and vesting 50% in October 2014 and 50% in October 2015, if he is still employedor (y) 80% of the lowest daily VWAP price (as reported by The Company on such dates.
Transfer Agent
The transfer agent and registrar for our common stockCommon Stock is Standard VStock Transfer, LLC. They are located at 18 Lafayette Place, Woodmere, NY 11598.
General
GulfSlope Energy, Inc. is an independent crude oil and Transfer Company, Inc.natural gas exploration and production company whose address is 12528 South 1840 East, Draper, UT 84020.
We have focused our activitiesoperations in North America. We have given preference to areas where production infrastructure already exists, whichthe Gulf of Mexico because we believe will allow for any discoveries to be developed quickerthis area provides us with favorable geologic and less expensively, with the goal to reduce economic risk while increasing returns.
Competitive Advantages
Experienced management. Our management has 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. OurThe Company’s management team is led by John N. Seitz and Ronald A. Bain, who havehas over 75200 years of combined industry experience exploring, fordiscovering, and developing oil and natural gas. OurWe successfully deployed a technical team consists of geoscientists and engineers who havewith over 150 years of combined industry experience exploring for and developing oil and natural gas.gas in the development and execution of our technical strategy. We believe that the strengthapplication of our team distinguishesadvanced geophysical techniques on a specific geographic area with unique geologic features such as conventional reservoirs whose trapping configurations have been obscured by overlying salt layers provides us from manywith a competitive E&P companies.advantage.
Advanced seismic image processing.The commercialCommercial improvements in 3-D seismic data imaging and the development 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 seismic data from a scale of time to a scale of depth, thus correctly locating the images in three dimensions. Our technical team has significant experience utilizing advanced seismic image processing techniques in our core area, and applies the industry’s most advanced noise reduction technology to generate clearer images.
Long-term relationships with industryIndustry leading E&P companies. Our management has long-term relationships with multiple E&P companies weposition in our core area.We have licensed 2.2 million acres of 3D seismic data which covers over 440 OCS Federal lease blocks on the highly prolific Louisiana outer shelf, offshore Gulf of Mexico. We believe may have an interest in participating with us, either through farm-in or farm-out arrangements of future wells to be drilled. The reputationthe proprietary and state-of-the-art reprocessing 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.
Technical Strategy
We believe that a major obstacle to identifying potential hydrocarbon accumulations globally has been the inability of seismic technology to accurately image thedeeper geologic formations as a resultbecause of overlying massive, extensive, and complex salt bodies. Large and thick laterally extensive subsurface stratigraphy and structure. Certain subsurfacesalt layers can highly distort the seismic ray paths potentially causing atraveling through them, which often has led to misinterpretation of the underlying geology. Thus, wegeology and the potential major accumulations of oil and gas. We believe that the opportunity exists for a technology-driven petroleum exploration company to extensively apply the most advanced seismic acquisition and processing technologies, possible, with the goal of achieving higherattractive commercial discovery rates for exploratory wells, and their subsequent appraisal and development, potentially having a very positive impact on returns on invested capital.
Our technical approach to exploration and development has beenis to deploy a team of highly experienced technical scientistsgeo-scientists who have current and extensive understanding of the geology and geophysics of select geologic basins,the petroleum system within our core area, thereby decreasing the traditional timing and execution risks of advancing up a learning curve. For data purchaselicensing, re-processing and interpretation, our technical staff has prioritized specific geographic areas within our 2.2 million acres of seismic coverage, with the goal to optimize initial capital outlays.
Modern 3-D seismic datasets with acquisition parameters suitablethat are optimal for improved imaging at variousmultiple depths are readily available in many of these basins,sub-basins across our core area, and can be licensed on commercially reasonable terms. Critical to the technical success is the application of the bestnewest state-of-the-art 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 salt bodies 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 approachanalytical strategy is based on a thorough understanding of the geologic trends within our focus areas. The initial exploration program hascore area. Exploration efforts have 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. Weacres and we have completed advanced processing underway on select areas within this licensed seismic area.area exceeding one million acres. We plan tocan expand this coverage and perform further advanced processing, both with currently licensed seismic data and seismic data to be acquired. We seekhave sought to acquire and reprocess the highest resolution data available in the potential prospect’s direct vicinity. This includes advanced imaging information to further our understanding of a particular reservoir’s characteristics, including both trapping mechanics and fluid migration patterns. Reprocessing is accomplished through a series of model building steps that incorporate the geometry of the geology to optimize the final image. TheOur integration of existing geologic understanding and enhanced seismic processing and interpretation byprovides us provides the Company with unique insights and perspectives on existing producing areas and especially underexplored formations below and adjacent to salt bodies that are highly prospective for hydrocarbon production.
We currently hold seven leases that comprise five prospects and we will seek to acquire leasehold title to properties we consider 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 lease or license agreement, we may be required to pay royalties and rentals on leasesevaluate additional potential sources for our oil and gas production, if any.
We continue to evaluate potential producing property acquisitions in the offshore GOM, taking advantage of our highly specialized subsurface and engineering capabilities, knowledge, and expertise to identify attractive opportunities. Any merger or acquisition is likely to be financed through a combination of debt and equity.
Drilling and other Exploratory and Development Strategies
With our success in the leasing of our targeted prospects, our plan ishas been to enter into farm-in and farm-out arrangementspartner with other entities which could include oil and gas companies with well-established operating capabilities.and/or financial investors. Our goal in these transactions will beis to diversify risk and minimize capital exposure to exploration drilling costs. We expect mucha portion of our exploration drilling costs to be paid by our partners through these transactions, in return for our previous investment in prospect generation and delivery of an identified 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.
Oil and Natural Gas Industry
The oil and natural 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 effort spent on an exploration or production prospect, success is difficult to attain. Even though modern equipment, including seismic equipment and advanced software has helped geoscientistsgeologists 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 the formation and rock hardness)hardness, among others.
Typically, there is a significant chance that exploratory wells will result in non-producing dry holes, leaving investors with the cost of seismic 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 be required 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 natural gas prices determinecan have a significant impact on the commercial feasibility of a project. Certain projects may become feasible with higher prices or, conversely, may falter with lower prices. Volatility in the price of oil, natural gas and other commodities has increased duringand is likely to continue in the last few years, complicatingfuture. Beginning in late 2014, a significant decline in oil prices occurred, the decline continued into 2016, and somewhat stabilized in mid-2017 near $50/bbl. 2018 brought additional volatility with prices increasing to near $78/bbl and then falling in December to near $50/bbl. This volatility complicates the assessment of revenue projections.the commercial viability of many oil and gas projects. Most governments have enforced strict regulations to uphold high standards of environmental awareness; thus, holding companies to a high degree of responsibility vis-àа-vis protecting the environment. Aside from such environmental factors, oil and natural 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 natural gas reserves.
Governmental Regulation
Our future oil and natural gas operations will be subject to various federal, state, and local governmental regulations. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, pooling of properties, occupational health and safety, and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and natural gas wells below actual production capacity in order to conserve supplies of oil and natural 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 affect 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 ultimate cost of compliance with these requirements or their effect on our operations. Although the regulatory burden on the oil and natural gas industry increases our cost of doing business and, consequently, affects our profitability, these burdens generally do not affect us any differently 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 natural 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, somethe payment of which may be material.could have a material adverse effect on our financial condition or results of operations. 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 natural 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 adversely affect our financial condition, results of operations, or prospects. We could incur significant liability for damages, clean-up costs, and penalties in the event of discharges into the environment, environmental damage caused by us, or previous owners of our property, or non-compliance with environmental laws or regulations. In addition to actions brought by governmental agencies, we could face actions brought by private parties or citizens groups. Any of the foregoing could have a material adverse effect on our financial results.
These departments and agencies have authority to grant and suspend operations, and have authority to levy substantial penalties for non-compliance. Failure to comply with environmental laws could result in fines or penalties being owed to third parties or governmental entities, the payment of whichsuch regulations, as interpreted and enforced, could have a material adverse effect on our financial condition orbusiness, results of operations.
On April 22, 2010, the Deepwater Horizon, a semi-submersible deepwaterdeep water drilling rig operating in the U.S. Gulf of Mexico, sank after an apparenta blowout and fire resulting in a significant flow of hydrocarbons from the BP Macondo well. Subsequent to the Deepwater Horizon incident, in the GulfBureau of Mexico in April 2010, the BOEMOcean Energy Management (“BOEM”) issued a series of “NoticeNotice to Lessees”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.
Hurricanes in the Gulf of Mexico can have a significant impact on oil and gas operations on the OCS. The effects from past hurricanes have included structural damage to fixed production facilities, semi-submersibles and jack-up drilling rigs. The BOEM and the BSEE continue to be concerned about the loss of these facilities and rigs as well as the potential for catastrophic damage to key infrastructure and the resultant pollution from future storms. In an effort to reduce the potential for future damage, the BOEM and the BSEE have periodically issued guidance aimed at improving platform survivability by taking into account environmental and oceanic conditions in the design of platforms and related structures.
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 natural 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 mayare 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.
Among 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:
Waste Discharges. The CWA and analogous state laws impose restrictions and strict 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 EPAEnvironmental Protection Agency (“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 requiremandate preparation of detailed plans that address spill response, including appropriate containment beamsberms 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 and Climate Change. The CAAAir emissions from our operations are subject to the Federal Clean Air Act (“CAA”) and associatedcomparable state laws and regulations restrict the emission of air pollutants from many sources, including oil and gas operations. New facilitieslocal requirements. We may be required to obtain permits before construction can begin,incur certain capital expenditures in the future for air pollution control equipment in connection with obtaining and existing facilities may be required to obtain additionalmaintaining operating permits and incur capital costs in orderapprovals for air emissions. In addition, the EPA has developed, and continues to remain in compliance. Moredevelop, stringent regulations governing emissions of toxic air pollutants at specified sources.
Moreover, the U.S. Congress and the EPA in addition to some state and regional efforts have in recent years considered legislation or regulations to reduce emissions of greenhouse gases. These efforts have included consideration of cap-and-trade programs, carbon taxes, and greenhouse gases (“GHGs”) have been developed bygas monitoring and reporting programs. In the absence of federal greenhouse gas limitations, the EPA has determined that greenhouse gas emissions present a danger to public health and the environment, and it has adopted regulations that, among other things, restrict emissions of greenhouse gases under existing provisions of the CAA and may increaserequire the costsinstallation 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 and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful 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”OSH Act”) and comparable state statutes regulate the protection of the health and safety of workers. The OSHAOSH Act’s hazard communication standard requires maintenance of information about hazardous materials used or produced in operations and provision of such information to employees. Other OSHAOSH Act standards regulate specific worker safety aspects of our operations. Failure to comply with OSHAOSH Act requirements can lead to the imposition of penalties.
Safe Drinking Water Act. The Safe Drinking Water Act and comparable state statutes may 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 governed 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.compliance.
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,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. A prolonged suspension of drilling activity or permitting delays in the U.S. Gulf of Mexico and new regulations and increased liability for companies operating in this sector, whether or not caused by a new incident in the region, could adversely affect the business and planned operations of oil and gas companies.
Hazardous Substances and Wastes. CERCLA, also known as the “Superfund law,” imposes liability, without regard to fault or the legality of Existingthe original conduct, on certain classes of persons that are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the owner or Probable Governmental Regulations on our Business
Smaller Reporting Company. We are subjectProtected and Endangered Species. Executive Order 13158, issued in May 2000, directs federal agencies to safeguard existing Marine Protected Areas (“MPAs”) in the United States and establish new MPAs. The order requires federal agencies to avoid harm to MPAs to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),extent permitted by law 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.
Competition
We operate in a highly competitive environment for generating, evaluating and reviewingdrilling prospects and for acquiring properties. Many of our competitors are major or large independent oil and natural gas companies that possess and employ financial resources that allow them to obtain substantially greater technical and personnel resources than ours.well in excess of the Company’s resources. 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 10seven employees. We utilize consultants, as needed, to perform strategic, technical, operational and administrative functions, and as advisors.
Legal Proceedings
There are currently no material pending legal proceedings to time,which the Company may becomeis a party or of which any of its property is the subject, in which any of the above referenced directors or officers is a party adverse to the Company or has a material interest adverse to the Company. Furthermore, during the past ten years, none of the Company’s officers or directors described above were involved in litigation relating to claims arising out of its operations in the normal course of business. Noany legal proceedings government actions, administrative actions, investigationsthat are material to an evaluation of the ability or claims are currently pending against us or involve the Company.
Property
We lease 6,111 square feet of office space at our corporate headquarters at 2500 CityWest,1331 Lamar St., Suite 800,1665, Houston, Texas 7704277010 on market terms through June 30, 2015.September 2021. We own office equipment, office furniture, and computer equipment.
We are currently leasing seven prospective oil and gas blocks from the Bureau of Ocean Energy Management (“BOEM”) located in Federal Waters offshore Louisiana. Our leases have a five-year primary term, expiring in 2020, 2022 and 2023. BOEM’s regulatory framework provides multiple options for leaseholders to apply to receive extensions of lease terms under specified conditions and we are exploring all options contained in BOEM’s regulatory framework. As of the date of this prospectus, we have drilled oil and gas wells on two of our lease blocks.
Historical Background
The Company was incorporated under the laws of the 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 marketing 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 its 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, the Company had not been engaged in any substantive business activity since 2006.
General
Our address is 2500 City West,1331 Lamar St., Suite 800,1665, Houston, Texas 7704277010, and our telephone number is (281) 918-4100. Our web site is currently under construction.www.gulfslope.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock. 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.
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'smanagement’s discussion and analysis of our financial condition and results of operations in conjunction with our historical financial statements included elsewhere in this Prospectus.prospectus. In addition to the impact of the matters discussed in "Risk“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.
Overview
GulfSlope Energy, Inc. is an independent oil and natural gas exploration and production company whose interests are concentrated in the United States, Gulf of Mexico federal waters offshore Louisiana in 450 feet or less of water depth. The Company has under lease seven federal Outer Continental Shelf blocks (referred to March 2013, we had not been engagedas “leases” in any substantive business activity since 2006. In March 2013, we entered into two ordinary course license agreements,this report) and we expect to enter into additional ordinary course license agreements with seismic companies to acquire and reprocess additional seismic data.
The Company has invested significant technical person hours in the Prospectsreprocessing and interpretation of seismic data. We believe the proprietary reprocessing and interpretation and the contiguous nature of our licensed 3-D seismic data gives us an advantage over other exploration and production (“E&P”) companies operating in our core area.
We have historically operated our business with working capital deficits and these deficits have been funded by equity investments and loans from management. As of March 31, 2019, we had $5.0 million of cash on hand, $4.9 million of this amount is for upthe payment of joint payables from drilling operations. The Company estimates that it will need to $10raise a minimum of $10.0 million payable in full by April 11, 2014,to meet its obligations and planned expenditures through June 2020. The Company plans to finance its operations through the issuance of which $2.5 million has been paid to date. Texas South has also agreed to pay its proportionate share of the net rental costs related to the Prospects. equity and/or debt financings. There are no assurances that financing will be available with acceptable terms, if at all.
Current Operations
The Company is obligatedcurrently conducting pre-drill operations on two prospects and we anticipate spudding one well in late 2019. The Company continues to refund allbe active in the evaluation of potential mergers and acquisitions that it deems to be attractive opportunities. Any such merger or acquisition is likely to be financed through a portioncombination of debt and equity.
On January 8, 2018, the Company signed comprehensive documents related to partnering with Delek and Texas South to participate in the drilling of nine currently leased prospects. The initial phase (Phase I) consists of a commitment to drill the Canoe Prospect (VR378) and the Tau Prospect (SS336 and SS351). The Company commenced drilling operations at the Canoe prospect in August 2018. The well completed drilling in August 2018 and based on Logging-While-Drilling (LWD) and Isotube analysis of hydrocarbon samples, oil sands were encountered in the northwest center of the $10 million if it is unsuccessful in obtaining some or allblock. The well was drilled to a total of 5,765 feet measured depth (5,700 feet true vertical depth) and encountered no problems while drilling. A full integration of the leases comprisingwell information and seismic data is being performed for further evaluation of the Prospectsshallow potential of the wellbore and unablethe block, and to substitute prospectsdefine commerciality of similar valuethese oil pays. The well was temporarily abandoned, and multiple open hole plugs were set across several intervals. The well is equipped with a mud-line suspension system for possible future re-entry. A deeper subsalt prospect on the Canoe lease block, for which the block was originally leased, is drill-ready, due to further seismic enhancement.
The Tau Prospect is located approximately six miles northeast of the Mahogany Field, discovered in 1993. The Mahogany Field is recognized as mutually agreed upon.
The Company has completed the shallow hazard seismic survey for a third planned well and the detailed engineering and permitting process for the drilling of that well. The exploration plan for this well was approved by BOEM in July 2019.
The Company has incurred accumulated losses for the period from inception to DecemberMarch 31, 2013 (the end of its most recent fiscal quarter)2019, of approximately $21.3 million.$48.4 million, and has a net capital deficiency. Further losses are anticipated in developing its business. As a result, the Company’s auditors have expressedthere exists substantial doubt about itsthe Company’s ability to continue as a going concern. As of DecemberMarch 31, 2013 (the end of its most recent fiscal year),2019, the Company had $3,344,071approximately $5.0 million of unrestricted cash on hand.hand, $4.9 million of this amount is for the payment of joint payables from drilling operations. Our current capital on hand is insufficient to enable us to execute our business strategy beyond September 2019. The Company estimates that it will need to raise significant additional capitala minimum of $10.0 million to meet its obligations and planned expenditures during calendar year 2014.through June 2020. These expenditures include the Company’s drilling costs, lease rentals to the BOEM, general and administrative expenses, and costs associated with seismic acquisition and processing. The Company plans to finance the Company through best-efforts equity and/or debt financings.financings and farm-out agreements. The financial statements doCompany also plans to extend the agreements associated with loans from related parties, the accrued interest payable on these loans, as well as the Company’s accrued liabilities. However there can be no assurance that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not include any adjustments that might result fromavailable, the outcome of this uncertainty.
Significant Accounting Policies
The Company uses the full cost method of accounting for its oil and natural gas exploration and development activities.activities as defined by the Securities and Exchange Commission (“SEC”). Under the full cost method of accounting, all costs associated with thesuccessful and unsuccessful exploration for and development of oil and gas reservesactivities are capitalized on a country-by-country basis into a single cost center (“full cost pool”). Such costs include landproperty acquisition costs, geological and geophysical (“G&G”) expenses,costs, 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.
Proved properties are amortized on a country-by-country basis using the units of production method (“UOP”), whereby capitalized costs are amortized over total proved reserves. The amortization base in the UOP calculation includes the sum of proved property, net of accumulated depreciation, depletion and amortization (“DD&A”), estimated future development costs (future costs to access and develop proved reserves), and asset retirement costs, less related salvage value.
The costs of unproved properties and related capitalized costs (such as G&G costs) are withheld from the depletion baseamortization calculation until such time as they are either developed or abandoned. WhenUnproved properties and properties under development are reviewed for impairment at least quarterly and are determined through an evaluation considering, among other factors, seismic data, requirements to relinquish acreage, drilling results, remaining time in the commitment period, remaining capital plan, and political, economic, and market conditions. In countries where 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 toexist, exploratory drilling costs subject to depletion and full cost ceiling calculations. Further, capitalized G&G costs that are directly associated with unevaluateddry holes are transferred to proved properties immediately upon determination that a well is dry and amortized accordingly. In countries where a reserve base has not yet owned by the Companybeen established, impairments 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 Regulation S-X Rule 4-10, are subjectcharged 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 monthtwelve-month period.
The cost center ceiling limits such pooled costs tois defined as the aggregatesum of the present value of(a) estimated future net revenues, attributable to proved crude oil and natural gas reserves discounted at 10% plusper annum, from proved reserves, (b) the cost of properties not being amortized, if any, and (c) the lower of cost or market value of unproved properties less any associated tax effects.included in the cost being amortized. 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.
As of our seismic data licensing agreements, certain funds have been placedMarch 31, 2019, the Company’s oil and gas properties consisted of wells in an escrow accountprocess, capitalized exploration and acquisition costs for the purpose of making a future installment paymentunproved properties and are restricted from use in our operations. Those funds have been classified as restricted cash and the restricted cash at September 30, 2013 and at December 31, 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.
A more complete discussion of our critical accounting policies is included in our annual report on Form 10-K as of September 30, 2018, which was filed with the Securities and Exchange Commission on December 31, 2018.
Factors Affecting Comparability of Future Results
Success in Acquiring Oil and Gas Leases or Prospects.Prospects. As a result of our 3-D seismic imaging and reprocessing, we have identified but not yet acquiredcurrently hold seven lease blocks in the leasing or drilling rights to a numberU.S. Gulf of currently available, undrilled prospectsMexico, 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.
We have no proved reserves. As we have not yet acquired any oil and gas interests or drilled wells, we have no proved reserves. While weNo Proved Reserves. We have identified prospects based on available seismic and geological information that indicate the potential presence of oil or gas, to dateand 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, weWe 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.
Success in the Discovery and Development of Reserves.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.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.Expenses. We expect that our general and administrative expenses will increase in future periods.periods when we commence drilling operations.
Demand and Price.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.
For a more complete discussion of the factors affecting comparability of our future results, see the “Risk Factors” above.
Three Months Ended DecemberMarch 31, 2013 compared2019 Compared to DecemberThree Months Ended March 31, 2012
There was no revenue during the three months ended DecemberMarch 31, 20132019 and 2012.March 31, 2018. General and administrative expenses were approximately $0.4$1.0 million for the three months ended DecemberMarch 31, 2013,2019, compared to approximately $0.1 million for the three months ended March 31, 2018. This increase is primarily due to an increase in bad debt expense for March 31, 2019. Interest expense was $0.1 million for the three months ended March 31, 2019 compared to $0.2 million for the three months ended March 31, 2018, primarily due to differences in debt discount amortization. Loss on debt extinguishment was approximately $5.1 million for the three months ended March 31, 2019, and approximately $0.2 million for the three months ended March 31, 2018. This increase is due to a loan and subsequent warrant exercise resulting in loan extinguishment. For the three months ended March 31, 2019 there was a gain of $0.2 million on a derivative financial instrument, compared to zero for the three months ended March 31, 2018.
Six Months Ended March 31, 2019 Compared to Six Months Ended March 31, 2018
There was no revenue during the six months ended March 31, 2019 and March 31, 2018. General and administrative expenses were approximately $1.2 million for the six months ended March 31, 2018, compared to approximately $0.4 million for the threesix months ended DecemberMarch 31, 2012. Geological and geophysical costs were approximately $1.7 million for the three months ended December 31, 2013 as the Company continued its exploration activities launched in March 2013. There were no geological and geophysical costs for the three months ended December 31, 2012.
Liquidity and Capital Resources
As of March 31, 2019, we had $5.0 million of cash on hand, $4.9 million of this amount is for joint payables from drilling operations. We have a working capital deficit of $11.5 million, $8.7 million of this amount is loans from related parties. Our current capital on hand is insufficient to enable us to execute our business strategy beyond September 30, 2012.2019. The increase in net lossCompany estimates that it will need to raise a minimum of approximately $16.0$10 million wasto meet its obligations and planned expenditures through July 2020. The $10 million is comprised primarily attributable to the aforementioned $15.1 million in impairment of oil and natural gas properties, and a $0.7 million increase incapital project expenditures as well as general and administrative expenses,expenses. It does not include any amounts due under outstanding debt obligations, which amounted to $10.9 million of current principal and interest as well as an approximate $0.1 million increaseof March 31, 2019. The Company plans to finance its operations through the issuance of equity and debt financings. Our policy has been to periodically raise funds through the sale of equity on a limited basis, to avoid undue dilution while at the early stages of execution of our business plan. Short term needs have been historically funded through loans from executive management. There are no assurances that financing will be available with acceptable terms, if at all. If the Company is not successful in interest expense dueobtaining financing, operations would need to increased related party debt in 2013.
For the twelvesix months ended September 30, 2013 was $.04, compared to a net loss per share of $.02 forMarch 31, 2019, the twelve months ended September 30, 2012.
We will need to raise additional funds to cover expenditures planned 2014 and 2015 expenditures,after July 2019, as well as any additional, unexpected expenditures that we may encounter in those years.encounter. 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 private equity and debt financings. We do not have any credit or equity facilities available with financial institutions, stockholders or third partythird-party investors, and will continue to rely on best efforts financings. The failure to raise sufficient capital could cause us to cease operations.
Off-Balance Sheet Arrangements
Our common stock is quoted on the OTCBB and the OTCQB under the symbol “GSPE.” Shares of our common stock have historically been thinly traded, and currently there is 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 following table sets forth the approximate high and low bid prices for our common stock for the last two fiscal years and interim periods. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| High | Low | ||||||||
| YEAR 2014 | Quarter ended December 31, 2013 | $ | 1.50 | $ | 0.66 | ||||
| YEAR 2013 | |||||||||
| Quarter ended September 30, 2013 | $ | 0.66 | $ | 0.42 | |||||
| Quarter ended June 30, 2013 | $ | 0.55 | $ | 0.39 | |||||
| Quarter ended March 31, 2013 | $ | 0.41 | $ | 0.20 | |||||
| Quarter ended December 31, 2012 | $ | 0.41 | $ | 0.30 | |||||
| YEAR 2012 | |||||||||
| Quarter ended September 30, 2012 | $ | 0.40 | $ | 0.40 | |||||
| Quarter ended June 30, 2012 | $ | 1.20 | $ | 0.20 | |||||
| Quarter ended March 31, 2012 | $ | 0.60 | $ | 0.60 | |||||
| Quarter ended December 31, 2011 | $ | 1.05 | $ | 0.60 | |||||
| High | Low | |||||||
| YEAR 2019 | ||||||||
| Quarter ended March 31, 2019 | $ | 0.073 | $ | 0.055 | ||||
| YEAR 2018 | ||||||||
| Quarter ended September 30, 2018 | $ | 0.072 | $ | 0.057 | ||||
| Quarter ended June 30, 2018 | $ | 0.120 | $ | 0.100 | ||||
| Quarter ended March 31, 2018 | $ | 0.078 | $ | 0.060 | ||||
| Quarter ended December 31, 2018 | $ | 0.045 | $ | 0.039 | ||||
| YEAR 2017 | ||||||||
| Quarter ended September 30, 2017 | $ | 0.039 | $ | 0.030 | ||||
| Quarter ended June 30, 2017 | $ | 0.018 | $ | 0.018 | ||||
| Quarter ended March 31, 2017 | $ | 0.030 | $ | 0.027 | ||||
| Quarter ended December 31, 2017 | $ | 0.065 | $ | 0.058 | ||||
As of July 19, 2019, the closing sales price of our common stock on March 11, 2014Common Stock was $1.10$0.04 per share per share.
The number of record holders of the Company’s common stock, as of March 11, 2014,July 19, 2019, is approximately 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 the Company’s ability to pay cash dividends on its common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information with respect to purchase two million sharesthe equity compensation plans available to directors, officers, certain employees and certain consultants of common stock granted to an executive officerthe Company at December 31, 2018.
| (a) | (b) | (c) | ||||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans, excluding securities reflected in column (2) | |||||||||
| Equity compensation plans approved by security holders | 103,500,000 | $ | 0.0605 | 42,500,000 | ||||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||
| Total | 103,500,000 | 42,500,000 | ||||||||||
| (1) | This column reflects the maximum number of shares of our common stock subject to stock option awards granted under the 2014 and 2018 Omnibus Incentive Plans outstanding and unvested. |
| (2) | This column reflects the total number of shares of our common stock remaining available for issuance under the 2018 Omnibus Incentive Plan. |
MANAGEMENT, DIRECTORS AND SIGNIFICANT EMPLOYEES
Directors of the corporation are elected by the stockholders and serve until a successor is elected and qualified. Officers of the corporation are appointed by the Board and serves until a successor is duly appointed and qualified, or until he or he is removed from office. The Board also appointed our officers in October 2013.
Our executive officers and directors and their respective ages, positions and biographical information are set forth below.
Name | Position | Age | |
John N. Seitz | Chairman, Chief Executive Officer | 67 | |
| John H. Malanga | Chief Financial Officer | 51 | |
| Dwight M. Moore | Vice President, Secretary | 62 | |
| Charles G. Hughes | Vice President, Land | 62 | |
| Richard S. Langdon | Director | 68 | |
| Paul L. Morris | Director | 77 |
John N. Seitz.Mr. Seitz has served as the Company’s chief executive officer, chief financial officer and chairman of the board and director since May 31, 2013, and served as a consultant to the Company from March 2013 through May 2013, and is a founder and vice chairman of2013. Prior to joining the board of Endeavour International Corporation (NYSE: END), a public company listed on the NYSE and on the London Stock Exchange, which is engaged in oil and gas exploration and production in the U.K. North Sea and in the domestic U.S. market. From 2003 until 2006, Mr. Seitz served as co-chief executive officer of Endeavour. From 1977 to 2003,Company, Mr. Seitz held positions of increasing responsibility at Anadarko Petroleum Corporation (NYSE: APC), serving most recently as a director and as president and chief executive officer.officer until 2003. Mr. Seitz also serves on the board of managers of Constellation Energy Partners LLC (NYSE ARCA: CEP), on the board of directors of Gulf United Energy, Inc. (OTCQB: GLFE), and the board of ION Geophysical Corporation (NYSE: IO), a leading technology focused seismic solutions company. Mr. Seitz is a Certified Professional Geological Scientist from the American Institute of Professional Geologists and a licensed professional geoscientist with the State of Texas. Mr. Seitz also serves as a trustee for the American Geological Institute Foundation. In 2000, the Houston Geological Society honored Mr. Seitz as a “Legend in Wildcatting,” and he is a member of the All American Wildcatters. Mr. Seitz holds a Bachelor of Science degree in Geology from the University of Pittsburgh, a Master of Science degree in Geology from Rensselaer Polytechnic Institute, and has completed the Advanced Management Program at the Wharton School.
John H. Malanga. Mr. Malanga has served as presidentchief financial officer since July 2014 and chief operating officeris responsible for leading the financial function of the Company since May 2013, servedorganization, overseeing strategic planning and analysis, accounting and reporting, treasury, tax, audit and risk management. From 2005 to 2014, Mr. Malanga worked as a consultantsenior investment banker with the energy firms of Weisser, Johnson & Co. and Sanders Morris Harris Inc. Mr. Malanga began his investment banking career with Jefferies & Co. Over his career, he has participated in capital markets, mergers and acquisitions, and financial advisory transactions with particular emphasis on providing strategic and financial advice to the Company from March 2013 through May 2013, and is the principal of ConRon Consulting, Inc., serving inemerging growth companies. Mr. Malanga holds a consulting capacity as corporate advisor to several domestic and international exploration and production companies. From 2004 through 2008, Dr. Bain was corporate exploration advisor and vice president of geosciences of Endeavour International Corporation. From 1983 through 2001, Dr. Bain held numerous management positions in technology and exploration, in both domestic and international exploration, at Anadarko Petroleum Corporation. Dr. Bain entered the industry in 1974 as a research geophysicist with Gulf Oil. Dr. Bain currently serves on the University of Texas Geology Foundation Advisory Council. Dr. Bain holds Bachelor of Science and PhD degrees in PhysicsEconomics from theTexas A&M University of Texas at Austin and a Master of Science degree in PhysicsBusiness Administration with a concentration in finance from the University of Pittsburgh.
Dwight M. Moore.Mr. Moore has served as vice president and secretary of the Company since May 2013, and most recently served as vice president,president- corporate development for ION Geophysical Corporation (NYSE: IO) (2008-2013).from 2008 to 2013. From 2006-07, Mr. Moore was manager of offshore business development at Murphy Oil Corporation (NYSE: MUR). From 1987-2003,1987 to 2003, Mr. Moore held positions at Anadarko Petroleum (NYSE: APC) and from 1978-1987,1978 to 1987, at Diamond Shamrock/Maxus Energy (NYSE: YPF). Mr. Moore has served as president of the Houston Geological Society, as treasurer of the American Association of Petroleum Geologists (AAPG), and recently served as the chairman of the AAPG Investment Committee. Mr. Moore is also a licensed professional geoscientist with the State of Texas, an AAPG Certified Petroleum Geologist, and holds two bachelor degrees with Honors, in Geology and Business Administration-Finance and Economics from Southern Methodist University and its Cox School of Business.
Charles G. Hughes.Mr. RodgersHughes has provided services for us since May 2013, becoming an executive officer in October 2013. From December 2010 until joining us, he served as Headvice president land since April 2014. Mr. Hughes’ executive responsibilities include all land and industry partner related matters. He formerly served as general manager – land and business development for Marubeni Oil & Gas (USA), Inc. from 2007 to 2014. From 1980 to 2007, Mr. Hughes served in roles of J.P. Morgan Investment Bank’s Oil and Gas Acquisitions & Divestitures Group with global responsibilities. His experience includesincreasing responsibility both domestic and international roles, onshore and offshore. The prior 12 years were spentoffshore in technicalthe Gulf of Mexico at Anadarko Petroleum Corporation. Mr. Hughes is a member and managerial capacities at various oil and gas companies including Venoco, Endeavour International, Inc., and Devon Energy. Mr. Rodgers isformer Chairman of the OCS Advisory Board, a member of the SocietyAssociation of Petroleum Engineers, former board memberProfessional Landmen, the Houston Association of Professional Landmen and the Denver Petroleum Club and served on the boardProfessional Landmen’s Association of the Department of Energy’s URTAC (Unconventional Resources Technical Advisory Council) by appointment of the President.New Orleans. Mr. RodgersHughes received ahis Bachelor of ScienceBusiness Administration in Petroleum Engineering from the University of Kansas and a Masters of Science in Global EnergyLand Management from the University of Colorado.
Richard S. Langdon.Richard S. Langdon has served as a director of the Company since June 2012.March 2014. Mr. Askew hasLangdon is currently the executive vice president and chief financial officer of Altamont Energy, Inc., a newly formed privately held exploration and production company. Mr. Langdon served as an independent oilthe president, chief executive officer and gas investoroutside director of Badlands Energy, Inc. and its predecessor entity, Gasco Energy, Inc. since March 2008.May 2013 and Debtor-in Possession since August 2017. Prior thereto,to assuming the President and CEO role, Mr. AskewLangdon had served as president of EnerGulf Resourcesa Gasco Energy Inc. (ENG:TSX.V, “EnerGulf”) from November 2003 through March 2008, and as a director of EnerGulf from August 2002 until March 2008. During his service at EnerGulf,outside board member since 2003. Mr. Askew was involved in a variety of oil and gas exploration projects focused in Texas, South America, and Africa. Mr. Askew provides the board with leadership and management knowledge.
Paul L. Morris. Mr. Morris has two directors who ownserved as a substantial number of the voting securitiesdirector of the Company since March 2014. Mr. Morris founded Elk River Resources, LLC in August 2013 to explore and develop oil and gas potential in the oil-producing regions of the southwest United States. Mr. Morris has served as chairman and chief executive officer of Elk River Resources since inception. Prior to Elk River Resources, Mr. Morris served as president and chief executive officer from 1988 to September 2013 of Wagner & Brown, Ltd., an independent oil and gas company headquartered in Midland, Texas. With Wagner & Brown, Mr. Morris oversaw all company operations, including exploration and production activities, in eight states as well as in France, England and Australia. Mr. Morris also oversaw affiliates involved in natural gas gathering and marketing, crude oil purchasing and reselling, pipeline development, construction and operation, and compressed natural gas (CNG) design, fabrication and operations. Mr. Morris served as president of Banner Energy from 1981 until 1988. Mr. Morris graduated from the University of Cincinnati with a Bachelor of Science degree in Mechanical Engineering in 1964. Mr. Morris has also completed the Executive Management Program in the College of Business Administration of Penn State University.
Board Committees and Meetings
The Board currently consists of three directors. Vacancies on the Board has determined that it is not necessary to havemay be filled by a standing nominating committee or procedures for submitting shareholder nominations. Furthermore, we have not designated any membervote of a majority of the remaining directors, although less than a quorum is present. A director elected by the Board to fill a vacancy shall serve for the remainder of the term of that director until the director’s successor is elected and qualified. This includes vacancies created by an increase in the number of directors. The Board has three standing committees: the Audit and Compliance Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee.
The Company has no formal policy with regard to Board members’ attendance at annual meetings of security holders. The Company held an annual shareholder meeting in May of 2018. During the fiscal year ended September 30, 2018, the Board held 4 meetings.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than 10% of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Directors, executive officers and more than 10% stockholders are required by SEC regulations to provide us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of the reports furnished to us, all Section 16(a) filing requirements applicable to our directors, officers and more than 10% beneficial owners were complied with during the year ended September 30, 2018.
Code of Ethics
We have adopted a written code of ethics and whistleblower policy (the “Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We believe that the Code of Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of our Code of Ethics was previously filed as an audit committee financial expert because we are not requiredexhibit to do soour Annual Report on Form 10-K for the fiscal year ended 2012, and can be found at this time.
Involvement in Certain Legal Proceedings
There are currently no material pending legal proceedings to which the Company is a party or of which any of its property is the subject, in which any of the above referenced directors or officers is a party adverse to the Company or has a material interest adverse to the Company. Furthermore, during the past ten years, none of the Company'sCompany’s officers or directors described above were involved in any legal proceedings that are material to an evaluation of the ability or integrity of such directors and officers.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following tables contain compensation data for our named executive officers as offor the fiscal years ended September 30, 20132018 and 2012:
| Summary Compensation Table | ||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Stock Awards | Stock Option Awards | All Other Compensation | Total | |||||||||||||
John N. Seitz(1) | 2013 | $ | 120,000 | (2) | $ | -- | $ | -- | $ | -- | $ | -- | $ | 120,000 | ||||||
| CEO | 2012 | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | |||||||
Jim Askew(1) | 2013 | $ | 221,573 | $ | -- | $ | -- | $ | -- | $ | 100,000 | (4) | $ | 321,573 | ||||||
| CEO | 2012 | $ | 100,000 | $ | 100,000 | $ | 500,000 | (3) | $ | -- | $ | - | $ | 700,000 | ||||||
| Ronald A. Bain | 2013 | $ | 210,000 | (5) | $ | -- | -- | -- | -- | 210,000 | ||||||||||
| President, COO | 2012 | $ | -- | - | -- | - | -- | -- | ||||||||||||
| Dwight “Clint” M. Moore | 2013 | $ | 83,333 | $ | -- | $ | -- | $ | -- | $ | -- | $ | 83,333 | |||||||
| VP, Secretary | 2012 | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | |||||||
| Brady Rodgers | 2013 | $ | 90,000 | (5) | $ | -- | -- | -- | -- | 90,000 | ||||||||||
| VP | 2012 | $ | -- | - | -- | - | -- | -- | ||||||||||||
Michael Neese(6) | 2013 | $ | 121,458 | $ | -- | $ | -- | $ | -- | $ | -- | $ | 121,458 | |||||||
| Exploration Manager | 2012 | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | |||||||
| Summary Compensation Table | ||||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary | Bonus | Stock | Stock | All Other | Total | |||||||||||||||||||||
| John N. Seitz | 2018 | — | — | — | — | — | — | |||||||||||||||||||||
| CEO | 2017 | — | — | — | — | — | — | |||||||||||||||||||||
| John H. Malanga | 2018 | 36,000 | — | — | 560,250 | — | 596,250 | |||||||||||||||||||||
| CFO | 2017 | 24,000 | — | — | 167,250 | — | 191,250 | |||||||||||||||||||||
| (1) | Mr. Seitz |
Employment and Consulting Arrangements
Mr. Seitz is not currently receiving or accruing any compensation nor does he have any employment arrangement or agreement with the Company as of the date of this prospectus. The consulting agreement with ConRon Consulting, Inc. provides for monthly compensation of $30,000
On January 1, 2016 all officers and terminates in March 2014. On November 1, 2013, the Company entered into an arrangement with Dr. Bain (replacing the consulting agreement) that provides for anall employees’ salaries were reduced due to budgetary constraints. A reduced annual salary of $360,000. As of December 30, 2013, the Company had accrued and unpaid compensation of $90,000 owed to Dr. Bain pursuant to the consulting agreement with ConRon Consulting, Inc.
In January 2017, 33,500,000 stock options were issued to Mr. Rodgers which, along with the October 2013 compensation (an aggregate amount of $112,500), was converted into 937,500 shares of common stock in October 2013 at $0.12 per share. In October 2013, Mr. Rodgers was issued a ten-year option to purchase 2,000,000 shares of common stock atemployees, officers and board members. The options have an exercise price of $0.12 per share (exercisable for cash or on a cashless basis), vesting 50% in October 2014$0.0278 and 50% vested upon grant and 50% vested in October 2015, provided that Mr. Rodgers continues to be employed by us on such vesting dates.
In May 2018, 500,000 stock options with an exercise price of the expiration of the term by either party. These employment agreements contain confidentiality provisions and two-year non-solicitation and two-year non-competition provisions extending from the termination date. Michael Neese is one of these employees and is paid an annual salary of $265,000. Kevin Bain, adult son of Dr. Bain, is one of these employees and he is paid an annual salary of $150,000, as of December 2013. Three other of these employees$0.065 were issued and in June 2018, 67,500,000 stock options with an aggregateexercise price of 1.62$0.075 were issued to employees, officers and board members. 19 million sharesstock options vested upon grant and 24 million will vest in October 2013June 2019, and the Company has agreed to make gross-up payments to the recipients of these shares to cover their personal income tax obligations25 million will vest in connection with such stock grant.June 2020. The aggregate annual salaries of these six employees are $1,211,000, all of which has been currently paid to date.
Compensation Policies and Practices as they Relate to the Company'sCompany’s Risk Management
We conducted a review of our compensation policies and procedures as they relate to an overall risk management policy. We have concludeddo not believe that any of our compensation policies and practices create risks that are not reasonably likely to have a material adverse effect on the Company.
Director Compensation
During 2013 and 2012,2018, the directors of the Company were not compensated for their services as directors.
Grants of Plan-Based Awards
The Company’s shareholders approved the 2018 Omnibus Incentive Plan in May of 2018. Restricted stock and stock option awards made after this date, to executives, employees, and directors were grantedmade pursuant to any of our named executive officers during the fiscal year ended September 30, 2013.
Outstanding Equity Awards at Fiscal Year End
In October 2013, two million stock options or warrants were held by anyawarded with an exercise price of our named executive officers$0.12 and an expiration of October 2023. Fifty percent vested upon grant and fifty percent vested one year later. In January 2017, 22 million stock options were awarded to GulfSlope Energy executives, 5 million to directors, and 28.5 million to employees. The exercise price of the stock options is $0.0278 and they expire in January 2024. Fifty percent of these options vested upon grant in January 2017 and fifty percent vested in January 2018. In May 2018, 0.5 million stock options were awarded and in June 2018, 67.5 million stock options were awarded to GulfSlope Energy executives, employees and directors. The exercise price of the stock options is $0.075 and they expire in December 2025. 19 million of these options vested upon grant in June 2018, 24 million vested in June 2019, and 25 million will vest in June 2020, provided the recipient remains employed at September 30, 2013.
Certain Relationships and Related Party Transactions
During April through September 2013, the Company entered into convertible promissory notes whereby it borrowed a consulting agreement with Mr. Askew pursuant to which Mr. Askew provided the Company’s boardtotal of directors advice relating to certain of the Company’s strategic and business development activities. In consideration for entering into the consulting agreement, Mr. Askew was issued 50 million shares of the Company’s common stock valued at $0.01 per share. In June 2012, Mr. Askew’s consulting agreement was terminated, and he was appointed as our president,$6,500,000 from John Seitz, its current chief executive officer, secretary, treasurer, and as chairman of the board of directors, pursuant to his employment agreement. Mr. Askew purchased 5 million shares of our common stock in October 2013 at a purchase price of $0.12 per share.
From August 2015 through February 2016 the Company entered into promissory notes whereby it borrowed a total of $267,000 from Dr. Ronald Bain, its former president and chief operating officer, and his affiliate ConRon Consulting, Inc. These notes are not convertible, due on demand and bear interest at the rate of 5% per annum. As of September 30, 2018, the total amount owed to Dr. Bain and his affiliate loaned the Company an aggregatewas $267,000. There was a total of $200,000, due on demand, bearing$42,706 and $27,171 of accrued interest at an annual rate of 5%, and convertible into Company common stock at a conversion price of $0.12 per share. Asassociated with these loans included within our balance sheet as of September 30, 2013, the Company owed Mr.2018 and 2017, respectively. In June of 2016, Dr. Ronald Bain and his affiliatealso entered into a principal amount of $200,000 plus accrued interest of $667. In October 2013, Dr. Bain converted principal and accrued interest in the amount of $180,408.31 into 1,503,403 shares of our common stock (a conversion rate of $0.12 per share). In November 2013, the Company repaid in full the $20,000 remaining principal balance (plus accrued interest) of the$92,000 convertible promissory note owedwith associated warrants under the same terms received by other investors (see Note 7 to Dr. Bain’s affiliate.
On November 15, 2016, a family member of Texas South, the entity with which the CompanyCEO, a related party, entered into a $50,000 convertible promissory note with associated warrants under the March 2014 farm-out letter agreement.
Domenica Seitz CPA, related to John Seitz, has provided accounting consulting services to the Company. During the years ended September 30, 2018 and 2017, the services provided were valued at $23,660 and $32,625, respectively. The Company has accrued these amounts within accrued expenses and other payables, and they have been reflected in the September 30, 2018 and 2017 financial statements.
John Seitz has not received a salary since May 31, 2013, the date he commenced serving as our CEO and accordingly, no amount has been accrued on our financial statements.
The following table sets forth the number and percentage of outstanding shares of common stock owned by: (a) each of our directors; (b) each person who is known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (b) each of our directors; (c) the named executive officers as defined in Item 402 of Regulation S-K; and (d) all current directors and executive officers, as a group. As of March 11, 2014,July 19, 2019, there were 624,224,0101,092,266,844 shares of common stock deemed issued and outstanding.
Unless otherwise stated, beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person or group of persons, the number of shares beneficially owned by such person or group of persons is deemed to include the number of shares beneficially owned by such person or the members of such group by reason of such acquisition rights, and the total number of shares outstanding is also deemed to include such shares (but not shares subject to similar acquisition rights held by any other person or group) for purposes of that calculation. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person’s actual voting power at any particular date. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The address for each of the beneficial owners is the Company’s address.
| Name of Beneficial Owner | Number of Shares of Common Stock Beneficially Owned as of July 19, 2019 | Percentage of Class Beneficially Owned | ||||||
| Named Executive Officers and Directors: | ||||||||
| John N. Seitz (1) | 254,668,176 | 23.3 | % | |||||
| John H. Malanga (3) | 35,666,667 | 3.3 | % | |||||
| Dwight M. Moore (4) | 21,045,555 | 1.9 | % | |||||
| Richard S. Langdon (5) | 7,916,667 | 0.7 | % | |||||
| Paul L. Morris (2) | 9,228,038 | 0.8 | % | |||||
| All directors & executive officers as a group (5 persons) | 328,525,103 | 30 | % | |||||
| Shareholders of Greater Than 5%: | ||||||||
| Delek GOM Investments, LLC | 238,095,238 | 21.8 | % | |||||
| (1) | Includes 44,166,667 shares of common stock underlying the convertible demand note in the principal amount of $5.3 million and 9,241,300 shares underlying the convertible accrued interest in the amount of $1,108,956. |
| (2) | Includes 4,167 shares of common stock held by the Morris Family Limited Partnership LP, a partnership of which an entity controlled by Mr. Morris is the general partner and 2,500,000 stock options awarded in January 2017, one-half vested in January of 2017 and one-half vested in January 2018. Includes 4,500,000 stock options awarded in June 2018, one-third vested in June of 2018, one-third will vest in June 2019 and one-third will vest in June 2020. |
| (3) | Includes 15,000,000 stock options awarded in January 2017, one-half vested in January of 2017 and one-half vested in January 2018. Includes 18,000,000 stock options awarded in June 2018, one-third vested in June of 2018, one-third will vest in June 2019 and one-third will vest in June 2020. |
Number of Shares of Common Stock Beneficially Owned | Percentage of Class Beneficially Owned | |
Named Executive Officers and Directors: | ||
| John N. Seitz | 244,212,223(1) | 36.5% |
| Ronald A. Bain | 41,548,958 | 6.2% |
| Dwight M. Moore | 10,045,555 | 1.5% |
| James M. Askew | 55,000,000 | 8.2% |
| Michael Neese | 2,000,000 | * |
| Brady Rodgers | 1,193,606 | * |
All directors & executive officers as a group (5 persons) | 352,000,342 | 53% |
| Shareholders of Greater Than 5%: | ||
| John B. Connally III | 50,000,000 | 7.5% |
__________________ * Less than one percent. (1) Includes 44,166,667 shares of common stock underlying the convertible demand note in the principal amount of $5.3 million. | ||
| (4) | Includes 3,000,000 stock options awarded in January 2017, one-half vested in January of 2017 and one-half vested in January 2018. Includes 8,000,000 stock options awarded in June 2018, 2 million vested in June of 2018, 3 million will vest in June 2019 and 3 million will vest in June 2020. |
| (5) | Includes 2,500,000 stock options awarded in January 2017, one-half vested in January of 2017 and one-half vested in January 2018. Includes 4,500,000 stock options awarded in June 2018, one-third vested in June of 2018, one-third will vest in June 2019 and one-third will vest in June 2020. |
DISCLOSURE OF COMMISSION POSITION OFINDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our directors and officers are indemnified to the fullest extent permitted under Delaware law. We have also purchased and maintain directors and officers insurance which protects our officers and directors against any liabilities incurred in connection with their service in such a capacity.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of ours in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The financial statements as of September 30, 20132018 and 20122017 and for the period from inception (December 12, 2003) through September 30, 2013years then ended included in this Prospectus and in the Registration Statement have been audited by Mantyla McReynolds, LLC (anso included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm)firm (the report on the financial statements contains an explanatory paragraph regarding the Company’s ability to the extent and for the periods set forth in their report thereon,continue as a going concern) appearing elsewhere herein and in this registration statement, and are included in reliance upon such reportthe Registration Statement, given on the authority of suchsaid firm as experts in auditing and accounting.
The validity of the shares of common stock and the shares of common stock to be sold in this offeringregistered for resale hereby will be passed upon by Brewer & Pritchard, P.C.,Mayer Brown LLP, Houston, Texas. Members of Brewer & Pritchard, P.C., own an aggregate of 13 million shares of common stock for services rendered to the Company in May 2012 and March 2013, none of which are included in this registration statement.
We have filed with the SEC under the Securities Act, a registration statement on Form S-1 relating to the securities offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to our company and the securities we are offering by this prospectus you should refer to the registration statement, including the exhibits and schedules thereto. You may inspect a copy of the registration statement without charge at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The SEC’s internet address is http://www.sec.gov.
GulfSlope Energy, Inc.
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors and Shareholders
Opinion on the Financial Statements
We have audited the accompanying balance sheets of GulfSlope Energy, Inc. [an exploration stage company](the “Company”) as of September 30, 20132018 and 2012, and2017, the related statements of operations, stockholders’ equity (deficit),deficit, and cash flows for the years then ended, September 30, 2013 and 2012, and for the period from inception [December 12, 2003] through September 30, 2013. These financial statements arerelated notes (collectively referred to as the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discusseddescribed in Note 2 to the financial statements, the Company has incurred accumulateda net capital deficiency, and further losses and negative cash flows from operations fromare anticipated in developing the period of inception through September 30, 2013. These issuesCompany’s business, which 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 adjustmentadjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Mantyla McReynolds, LLC
We have served as the Company’s auditor since 2016.
Salt Lake City, Utah
| September 30, | ||||||||
| 2013 | 2012 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 310,199 | $ | 423,009 | ||||
| Restricted Cash | 2,500,317 | - | ||||||
| Prepaid Expenses | 5,514 | 329,373 | ||||||
| Total Current Assets | 2,816,030 | 752,382 | ||||||
| Property, Plant, and Equipment (net) | 70,188 | - | ||||||
| Other Non-Current Assets | 18,760 | |||||||
| Total Assets | $ | 2,904,978 | $ | 752,382 | ||||
| Liabilities and Stockholders' Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 156,439 | $ | 31,731 | ||||
| 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 | 9,334,591 | 62,914 | ||||||
| Accrued Expenses and Other Payables, Net of Current Portion | 3,003,065 | - | ||||||
| Total Liabilities | 12,337,656 | 62,914 | ||||||
| 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 577,210,000 and 235,150,000, as of September 30, 2013 and 2012, respectively | 577,210 | 235,150 | ||||||
| Additional Paid-in Capital | 9,139,917 | 2,151,610 | ||||||
| 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 | ||||
| For the Year Ended September 30, 2013 | For the Year Ended September 30, 2012 | Since Inception [December 12, 2003] through September 30, 2013 | ||||||||||
| Revenues | $ | - | $ | - | $ | 9,694 | ||||||
| Revenues from Related Parties | - | - | 2,346 | |||||||||
| Total Revenue | - | - | 12,040 | |||||||||
| Cost of Sales | - | - | 8,394 | |||||||||
| Cost of Sales to Related Parties | - | - | 2,101 | |||||||||
| Total Cost of Sales | - | - | 10,495 | |||||||||
| Gross Profit | - | - | 1,545 | |||||||||
| Impairment of Oil and Natural Gas Properties | 15,120,574 | - | 15,120,574 | |||||||||
| General & Administrative Expenses | 2,237,269 | 1,537,215 | 3,919,792 | |||||||||
| Net Loss from Operations | (17,357,843 | ) | (1,537,215 | ) | (19,038,821 | ) | ||||||
| Other Income/(Expenses): | ||||||||||||
| Interest Income | 316 | 316 | ||||||||||
| Interest Expense | (94,986 | ) | (60 | ) | (110,500 | ) | ||||||
| Net Loss Before Income Taxes | (17,452,513 | ) | (1,537,275 | ) | (19,149,005 | ) | ||||||
| Provision for Income Taxes | - | - | (800 | ) | ||||||||
| Net Loss | $ | (17,452,513 | ) | $ | (1,537,275 | ) | $ | (19,149,805 | ) | |||
| Loss Per Share - Basic and Diluted | $ | (0.04 | ) | $ | (0.02 | ) | ||||||
| Weighted Average Shares Outstanding - Basic and Diluted | 394,016,867 | 83,487,568 | ||||||||||
| As of September 30, | ||||||||
2018 | 2017 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 5,621,814 | $ | 6,426 | ||||
| Accounts Receivable, Net | 6,286,796 | — | ||||||
| Prepaid Expenses and Other Current Assets | 32,042 | 40,573 | ||||||
| Total Current Assets | 11,940,652 | 46,999 | ||||||
| Property and Equipment, net of depreciation | 14,786 | 3,484 | ||||||
| Oil and Natural Gas Properties, Full Cost Method of Accounting, Unproved Properties | 8,112,784 | 1,887,879 | ||||||
| Other Non-Current Assets | 24,785 | — | ||||||
| Total Non-Current Assets | 8,152,355 | 1,891,363 | ||||||
| Total Assets | $ | 20,093,007 | $ | 1,938,362 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 7,591,236 | $ | 476,244 | ||||
| Deposits from Joint Interest Owners | 4,078,786 | — | ||||||
| Related Party Payable | 306,386 | 298,458 | ||||||
| Accrued Interest Payable | 1,732,239 | 1,318,188 | ||||||
| Accrued Expenses and Other Payables | 268,862 | 1,321,927 | ||||||
| Loans from Related Parties | 9,084,500 | 9,155,581 | ||||||
| Notes Payable | — | 3,690 | ||||||
| Convertible Promissory Notes Payable | 135,000 | 669,419 | ||||||
| Derivative Financial Instrument | 271,710 | — | ||||||
| Funds Received from Capital Raise | 965,800 | — | ||||||
| Other | 44,723 | 11,605 | ||||||
| Total Current Liabilities | 24,479,242 | 13,255,112 | ||||||
| Total Liabilities | 24,479,242 | 13,255,112 | ||||||
| Commitments and Contingencies (Note 11) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred Stock; par value ($0.001); Authorized 50,000,000 shares, none issued or outstanding | — | — | ||||||
| Common Stock; par value ($0.001); Authorized 1,500,000,000 as of September 30, 2018 and 975,000,000 as of September 30, 2017; issued and outstanding 832,013,272 and 692,196,625, as of September 30, 2018 and 2017, respectively | 832,013 | 692,196 | ||||||
| Additional Paid-in Capital | 36,640,009 | 27,212,577 | ||||||
| Accumulated Deficit | (41,858,257 | ) | (39,221,523 | ) | ||||
| Total Stockholders’ Deficit | (4,386,235 | ) | (11,316,750 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 20,093,007 | $ | 1,938,362 | ||||
The accompanying notes are an integral part to these financial statements.
GulfSlope Energy, Inc.
For the years ended September 30, | ||||||||
2018 | 2017 | |||||||
| Revenues | $ | — | $ | — | ||||
| Impairment of Oil and Natural Gas Properties | — | 3,316,212 | ||||||
| General & Administrative Expenses | 1,220,247 | 964,309 | ||||||
| Net Loss from Operations | (1,220,247 | ) | (4,280,521 | ) | ||||
| Other Income/(Expenses): | ||||||||
| Interest Expense | (780,513 | ) | (1,324,127 | ) | ||||
| Interest Income | 27,312 | — | ||||||
| Loss on Derivative Financial Instrument | (136,827 | ) | — | |||||
| Loss on Debt Extinguishment | (526,459 | ) | (89,701 | ) | ||||
| Net Loss Before Income Taxes | (2,636,734 | ) | (5,694,349 | ) | ||||
| Provision for Income Taxes | — | — | ||||||
| Net Loss | $ | (2,636,734 | ) | $ | (5,694,349 | ) | ||
| Loss Per Share – Basic and Diluted | $ | (0.00 | ) | $ | (0.01 | ) | ||
| Weighted Average Shares Outstanding – Basic and Diluted | 768,365,759 | 684,935,344 | ||||||
The accompanying notes are an integral part to these financial statements.
GulfSlope Energy, Inc.
| Common | Additional Paid-in Capital | Common Shares To Be Issued | Additional Paid-in Capital Common Shares To Be Issued | Subscription Receivable | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||
| 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 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 | ) | |||||||||||||||||||
| Common | Additional Paid-in | Accumulated | Net Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance September 30, 2016 | 682,402,225 | $ | 682,402 | $ | 26,151,376 | $ | (33,527,174 | ) | $ | (6,693,396 | ) | |||||||||
| Common stock issued for services | 1,250,000 | 1,250 | (1,250 | ) | — | — | ||||||||||||||
| Common stock issued for cash received in prior period | — | — | 653,670 | — | 653,670 | |||||||||||||||
| Common stock issued resulting from anti-dilution provision | — | — | 131,165 | — | 131,165 | |||||||||||||||
| Restricted common stock issued to employees | — | — | 81,861 | — | 81,861 | |||||||||||||||
| Value of warrants in conjunction with convertible promissory notes | 1,500,000 | 1,500 | 24,210 | — | 25,710 | |||||||||||||||
| Value of beneficial conversion feature in conjunction with convertible promissory notes | 7,044,400 | 7,044 | 120,844 | — | 127,888 | |||||||||||||||
| Loss from extension of due date and issuance of Bridge Note extensions | — | — | 50,701 | — | (50,701 | ) | ||||||||||||||
| Net loss | — | — | — | (5,694,349 | ) | (5,694,349 | ) | |||||||||||||
| Balance at September 30, 2017 | 692,196,625 | 692,196 | 27,212,577 | (39,221,523 | ) | (11,316,750 | ) | |||||||||||||
| Common stock issued for services | 84,348,985 | 84,349 | 5,122,404 | — | 5,206,753 | |||||||||||||||
| Amortization of employee stock options | — | — | 1,857,531 | — | 1,857,531 | |||||||||||||||
| Value of beneficial conversion feature in conjunction with convertible promissory notes | — | — | 103,519 | — | 103,519 | |||||||||||||||
| Value of warrants in conjunction with convertible promissory notes | — | — | 47,387 | — | 47,387 | |||||||||||||||
| Common stock issued for convertible promissory notes | 2,000,000 | 2,000 | 47,093 | — | 49,093 | |||||||||||||||
| Common stock issued for conversion of convertible promissory notes plus accrued interest | 41,850,996 | 41,851 | 924,474 | — | 966,325 | |||||||||||||||
| Common stock issued for warrants exercised | 416,666 | 417 | 12,083 | — | 12,500 | |||||||||||||||
| Common stock issued to settle debt | 11,200,000 | 11,200 | 1,095,800 | — | 1,107,000 | |||||||||||||||
| Value of warrants issued in conjunction with Bridge Note extensions | — | — | 217,141 | — | 217,141 | |||||||||||||||
| Net loss | — | — | — | (2,636,734 | ) | (2,636,734) | ||||||||||||||
| Balance at September 30, 2018 | 832,013,272 | $ | 832,013 | $ | 36,640,009 | $ | (41,858,257 | ) | $ | (4,386,235) | ||||||||||
The accompanying notes are an integral part to these financial statements
GulfSlope Energy, Inc.
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (2,636,734 | ) | $ | (5,694,349 | ) | ||
| Adjustments to Reconcile Net Loss to Cash Provided by (Used in) Operating Activities: | ||||||||
| Impairment of Oil and Natural Gas Properties | — | 3,316,212 | ||||||
| Change in Allowance For Doubtful Accounts Receivable | — | (128,024 | ) | |||||
| Depreciation | 4,724 | 20,804 | ||||||
| Debt Discount Amortization | 254,501 | 810,540 | ||||||
| Loss on Debt Extinguishment | 526,459 | 89,701 | ||||||
| Stock Based Compensation | 1,036,654 | 458,543 | ||||||
| Stock Issued for Services | 503,076 | — | ||||||
| Change in fair value of Derivatives | 136,827 | — | ||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| (Increase) Decrease in Accounts Receivable | (6,286,796 | ) | 191,171 | |||||
| (Increase) Decrease in Prepaid Expenses and Other Current Assets | 146,488 | 156,927 | ||||||
| Increase (Decrease) in Deposits from Joint Interest Owners | 4,078,786 | — | ||||||
| Increase (Decrease) in Accounts Payable | 5,914,705 | (30,205 | ) | |||||
| Increase (Decrease) in Related Party Payable | 7,928 | 32,626 | ||||||
| Increase (Decrease) in Accrued Interest Payable | 520,375 | 509,139 | ||||||
| Increase (Decrease) in Accrued Liabilities and Other Payables | 633,865 | — | ||||||
| Increase (Decrease) in Other | 44,723 | — | ||||||
| Net Cash Provided by (Used in) Operating Activities | 4,885,581 | (266,915 | ) | |||||
| INVESTING ACTIVITIES | ||||||||
| Leases Purchased / Lease Rentals Paid | (280,268 | ) | (284,089 | ) | ||||
| Proceeds From Sale of Working Interest | 2,884,651 | 26,400 | ||||||
| Capitalized Exploration and Wells In Process Costs | (1,904,618 | ) | (175,931 | ) | ||||
| Deposits and Equipment Purchases | (22,050 | ) | — | |||||
| Net Cash Provided by (Used in) Investing Activities | 677,715 | (433,620 | ) | |||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from Related Party Loans | — | 652,500 | ||||||
| Payments on Note Payable | (160,408 | ) | (159,653 | ) | ||||
| Proceeds from Convertible Promissory Notes and Warrants | 212,500 | 150,000 | ||||||
| Net Cash Provided by (Used in) Financing Activities | 52,092 | 642,847 | ||||||
| Net Increase (Decrease) in Cash | 5,615,388 | (57,688 | ) | |||||
| Beginning Cash Balance | 6,426 | 64,114 | ||||||
| Ending Cash Balance | $ | 5,621,814 | $ | 6,426 | ||||
| Supplemental Schedule of Cash Flow Activities | ||||||||
| Cash Paid for Interest | $ | 5,636 | $ | 4,448 | ||||
| Non-Cash Investing and Financing Activities | ||||||||
| Prepaid Asset Financed Through Notes Payable | $ | 156,718 | $ | 159,188 | ||||
| Accrued Liabilities, Convertible Notes and Accrued Interest Settled Through Issuance of Common Stock | 1,896,999 | — | ||||||
| Purchase of Capital Expenditures | ||||||||
| Included in Accounts Payable | 1,223,792 | 49,177 | ||||||
| Through Stock Based Compensation to Employees | 820,877 | 195,127 | ||||||
| Through Issuance of Common Stock | 4,880,000 | — | ||||||
| For the Year Ended September 30, 2013 | For the Year Ended September 30, 2012 | Since Inception [December 12, 2003] through 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 | ||||||||||
GulfSlope Energy, Inc.
NOTE 1 -– ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
GulfSlope Energy, Inc. (the “Company” or “GulfSlope”) 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. The 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,exploration company whose interests are concentrated in the United States Gulf of Mexico federal waters offshore Louisiana. The Company has leased 14 federal Outer Continental Shelf blocks (referred to as “prospect,” “portfolio” or “leases”) and licensed three-dimensional (3-D) seismic data in its area of concentration.
(b) Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the instructions to Form 10-K and Regulation S-X published by the US Securities and Exchange Commission (the “SEC”). The accompanying financial statements include the accounts of the Company.
(c) Going Concern
The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses through September 30, 2018 of $41.9 million, has a lack of cash on-hand not from joint interest owners, and a working capital deficit. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. Management intends to raise additional operating funds through equity and/or debt offerings. Management also plans to extend the agreements associated with loans from related parties, the accrued interest payable on these loans, as well as the Company’s accrued liabilities. However, there can be no assurance that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company enteredmay be required to curtail or cease operations or the exploration stage on March 22, 2013 when it executed a master license agreement with a seismic companyCompany would need to license certain seismic data for the purposes of engaging in the exploration of oilsell assets or consider alternative plans up to and natural gas.
(d) Cash and Cash Equivalents
The Company considers all short-term highly liquid investments with insignificant interest rate risk andan original maturities tomaturity at the Companydate of purchase of three months or less to be cash equivalents. CashThere were no cash equivalents consist primarilyat September 30, 2018 and 2017, respectively.
(e) Accounts Receivable
The Company records an accounts receivable for operations expense reimbursements due from joint interest partners. The Company estimates allowances for doubtful accounts based on the aged receivable balances and historical losses. If the Company determines any account to be uncollectible based on significant delinquency or other factors, it is immediately written off. As of interest-bearing bank accountsSeptember 30, 2018 and money market funds. The Company’s cash positions represent assets held in checking accounts. These assets2017, no allowance was recorded. Accounts receivable from joint operations are generally available on a daily or weekly basis and are highly liquid in nature.
(f) Full Cost Method
The Company uses the full cost method of accounting for its oil and gas exploration and development activities. Under the full cost method of accounting, all costs associated with thesuccessful and unsuccessful exploration for and development of oil and gas reservesactivities are capitalized on a country-by-country basis into a single cost center (“full cost pool”). Such costs include landproperty acquisition costs, geological and geophysical expenses,(“G&G”) costs, 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.
Proved properties are amortized on a country-by-country basis using the units of production method (“UOP”), whereby capitalized costs are amortized over total proved reserves. The amortization base in the UOP calculation includes the sum of proved property, net of accumulated depreciation, depletion and amortization (“DD&A”), estimated future development costs (future costs to access and develop proved reserves), and asset retirement costs, less related salvage value.
The costs of unproved properties and related capitalized costs (such as G&G costs) are withheld from the depletion baseamortization calculation until such time as they are either developed or abandoned. WhenUnproved properties and properties under development are reviewed for impairment at least quarterly and are determined through an evaluation considering, among other factors, seismic data, requirements to relinquish acreage, drilling results, remaining time in the commitment period, remaining capital plan, and political, economic, and market conditions. In countries where 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 toexist, exploratory drilling costs subject to depletion and full cost ceiling calculations. Further, capitalized G&G costs that are directly associated with unevaluateddry holes are transferred to proved properties immediately upon determination that a well is dry and amortized accordingly. In countries where a reserve base has not yet owned by the Companybeen established, impairments 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 cost center ceiling limits such pooled costs tois defined as the aggregatesum of the present value of(a) estimated future net revenues, attributable to proved crude oil and natural gas reserves discounted at 10% plusper annum, from proved reserves, (b) the cost of properties not being amortized, if any, and (c) the lower of cost or market value of unproved properties less any associated tax effects.included in the cost being amortized. 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.
As of September 30, 2018, the costCompany’s oil and gas properties consisted of unevaluated gasunproved properties, wells in process and oil properties that are excluded from amortization and actively being evaluated, if any.
(g) 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.
(h) Income Taxes
Deferred tax assets and liabilities are recognized 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.
(i) Stock-Based Compensation
The Company records expenses associated with the fair value of stock-based compensation. For fully vested and restricted stock grants, the Company calculates the stock based compensation expense based upon estimated fair value on the date of grant. For stock warrants and options, the Company uses the Black-Scholes option valuation model to calculate stock based compensation at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.
(j) Stock Issuance
The Company records the stock-based compensation awards issued to non-employees and other external entities for goods and services at either the fair market value of the goods received or services rendered or the instruments issued in exchange for such services, whichever is more readily determinable.
(k) Earnings per Share
Basic earnings per share (“EPS”) is computed by dividing net income (loss) (the numerator) by the weighted average number of common shares outstanding for the period (denominator).period. Diluted EPS is computed by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include stock options, warrants, convertible notes and restricted stock. The number of potential common shares outstanding relating to stock options, warrants, and restricted stock is computed using the treasury stock or if-converted method.
(l) Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principlesGAAP 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.
(m) Impact of New Accounting Standards
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU No. 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance. ASU 2014-09 will be effective for us October 1, 2018. Once implemented, the Company can use one of two retrospective application methods for prior periods. The Company has reviewedcompleted its evaluation of the provisions of this standard and concluded that the adoption will not result in any adjustment to beginning accumulated deficit as the Company does not have any revenues. The Company will adopt this new standard effective October 1, 2018 using the modified retrospective method of adoption as permitted by the standard. The adoption of Topic 606 will have no material impact on our financial position, results of operations, stockholders’ equity, or cash flows, but will impact disclosures when the Company has revenue.
On February 25, 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842). The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early application is permitted for all recently issued, butorganizations. The Company has not yet adopted,selected the period during which it will implement this pronouncement, and it is currently evaluating the impact the adoption of ASU 2016-02 will have on its financial statements.
The Jumpstart Our Business Startups Act, or JOBS Act, provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards in orderuntil those standards would otherwise apply to determine their effects, if any,private companies. However, the Company has elected not to take advantage of such extended transition period, and as a result, will comply with new or revised accounting standards on its resultsthe relevant dates on which adoption of operation, financial position or cash flows. Based on that review, thesuch standards is required for non-emerging growth companies.
The Company has evaluated all other recent accounting pronouncements and believes that none of these pronouncementsthem will have a significant effect on itsthe Company’s financial statements.
NOTE 2 -– LIQUIDITY/GOING CONCERN
The Company has incurred accumulated losses and negative cash flows from operations for the period from inception toas of September 30, 20132018 of $19,149,805.$41.9 million, and has a net capital deficiency. Further losses are anticipated in developing its business. As a result, the Company’s auditors have expressedour business, and there exists substantial doubt about itsthe Company’s ability to continue as a going concern. As of September 30, 2013,2018, the Company had $310,199$5.6 million of unrestricted cash on hand.hand, $4.5 million of this amount is for the payment of joint payables from drilling operations. The Company estimates that it will need to raise a minimum of $19.4$8 million to meet its obligations and planned expenditures during calendar year 2014.through December 2019. The Company plans to finance the Companyoperations and planned expenditures through equity and/or debt financings.financings and/or farm-out agreements. The Company also plans to extend the agreements associated with all loans, the accrued interest payable on these loans, as well as the Company’s accrued liabilities. There are no assurances that financing will be available with acceptable terms, if at all. If the Company is not successful in obtaining financing, operations would need to be curtailed or ceased or the Company would need to sell assets or consider alternative plans up to and including restructuring. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 – EXPLORATION COSTS
In January 2018, the Company entered into an assignmenta strategic partnership with Delek Group Ltd. (“Delek”), and assumptionTexas South Energy, Inc. (“Texas South”) (collectively, the “Parties”) and executed a participation agreement for a multi-phase exploration program. Under the terms of the Agreement, the Parties have committed to drill the Company’s “Canoe” and “Tau” prospects (the “Assignment Agreement”“Initial Phase”) with third parties pursuantDelek having the option to whichparticipate in two additional two-well drilling phases and a final, three-well drilling phase (collectively, the “Phases”). In each Phase, Delek will earn a 75% working interest upon paying 90% of the exploratory costs associated with drilling each exploratory well. The Company will retain a 20% working interest while paying 8% of the exploratory costs associated with drilling each well. The Company will be required to fund 20% of any well costs in excess of 115% of budget. In addition, Delek will pay the Company was assignedapproximately $1.1 million in cash for each Prospect when the exclusiverespective exploration plan is filed with BOEM. Also, each Party will be responsible for their pro rata share (based on working interest) of delay rentals associated with the Prospects. The Company will be the Operator during exploratory drilling of the Prospect, however, subsequent to a commercial discovery, Delek will have the right to license certain seismic data. On March 22, 2013,become the Company executed a master license agreement withOperator. Delek will have the right to terminate this seismic company. In consideration forAgreement at the assignment and other transactions contemplated byconclusion of any drilling Phase. Delek will also have the Assignment Agreement, the Company agreedoption to issuepurchase up to the assignor parties an aggregate of 243,516,666 shares5% of the Company’s common stock. stock, par value $0.001 per share (the “Common Stock”), upon fulfilling its obligation for each Phase (maximum of 20% in the aggregate) at a price per share equal to a 10% discount to the 30-day weighted average closing price for the Common Stock preceding the acquisition. This option will expire January 8, 2020.
The common stock was valued at $2,435,167Company will assign an eight-tenths of one percent of eight/eights net profits interest in certain of the Company’s oil and gas leases to include Vermilion Area, South Addition 378, Ship Shoal Area, South Addition 336, and Ship Shoal Area, South Addition 351, to Hi-View Investment Partners, LLC (“Hi-View”) in consideration for oil and gas consulting services provided pursuant to a non-exclusive consulting engagement dated October 25, 2017, by and between Hi-View, the Company, and Texas South (the “Advisory Agreement”). Hi-View will be entitled to additional assignments on the same terms and conditions as described above related to any of the Leases whereby Delek elects to participate in drilling of an exploratory well. In addition, the Company issued an aggregate of eighty million shares of Common Stock to Hi-View in consideration for oil and gas consulting services provided in facilitating the Delek farm out agreement. The value of the shares of $4.8 million determined using the share price on March 29, 2018, the date the shares were subsequently issuedowed to Hi-View per the agreement which was the date of the funding obligation of the first well, was capitalized to unproved properties.
The Company, as the operator of two wells being drilled in April 2013. These expenses werethe Gulf of Mexico, has incurred tangible and intangible drilling costs for the wells in process and has billed its working interest partners for their respective shares of the drilling costs to date. The first of the two wells has been drilled and is being evaluated. The second well was spud in September 2018 and is currently being drilled.
The Company paid $376,368 in gross annual lease rental payments to the BOEM for the year ended September 30, 2017. The Company’s share of these amounts is included in accrued expenses as of March 31, 2013.
In August 2017, the Company entered into a letter agreement with Texas South that sets out the terms of an agreement for the Company’s Tau prospect. In exchange for $166,989, Texas South acquired an undivided 20% interest in the prospect. In accordance with full cost requirements, the Company recorded the proceeds from a different seismic company pursuantthe transaction as an adjustment to another ordinary business course agreement. The seismic data purchase totaled $4,012,260.
In October 2017, the Company executed the second amendment to the March 2014 farm-out agreement with Texas South under which Texas South acquired 20% of Gulfslope’s interest in two prospects for $329,062.
On January 1, 2018, the Company executed the third amendment to the March 2014 farm-out agreement with Texas South under which Texas South acquired 20% of GulfSlope’s interest in two prospects for $225,000.
For the year ended September 30, 2017, the Company incurred $90,000$172,094 in consulting fees, salaries and benefits, $195,127 in stock option costs to participate in a geophysical research programassociated with a public institution.
For the year ended September 2013,30, 2018, the Company incurred $773,271$229,267 in consulting fees, and salaries and benefits associated with full-time employed geoscientists, analyzing the aforementioned seismic data.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of September 30, 20132018 and September 30, 2012:
2018 | 2017 | |||||||
| Office equipment and computers | $ | 133,089 | $ | 143,897 | ||||
| Furniture and fixtures | 16,280 | 16,280 | ||||||
| Leasehold improvements | 5,756 | 4,054 | ||||||
| Total | 155,125 | 164,231 | ||||||
| Less: accumulated depreciation | (140,339 | ) | (160,747 | ) | ||||
| Net property and equipment | $ | 14,786 | $ | 3,484 | ||||
| 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 | Shorter of 5 years or related lease term |
Depreciation expense was $7,217$4,724 and $0$20,804 for the years ended September 30, 20132018 and 2012,2017, respectively.
The provision for income taxes consists of the following as of September 30, 20132018 and 2012:
| September 30, | ||||||||
| 2013 | 2012 | |||||||
| FEDERAL | ||||||||
| Current | $ | - | $ | - | ||||
| Deferred | - | - | ||||||
| STATE | ||||||||
| Current | - | 100 | ||||||
| Deferred | - | - | ||||||
| TOTAL PROVISION | $ | - | $ | 100 | ||||
9/30/2018 | 9/30/2017 | |||||||
| FEDERAL | $ | $ | ||||||
| Current | — | — | ||||||
| Deferred | — | — | ||||||
| STATE | ||||||||
| Current | — | — | ||||||
| Deferred | — | — | ||||||
| TOTAL PROVISION | $ | — | $ | — | ||||
The difference between the actual income tax provision versus tax computed at the statutory rate is as follows for the years ended September 30, 2018 and 2017, respectively:
9/30/2018 | 9/30/2017 | |||||||
| Expected provision (based on statutory rate of 21% in 2018 and 15% in 2017) | $ | (553,714 | ) | $ | (854,152 | ) | ||
| Effect of: | ||||||||
| Increase in valuation allowance | 2,696,631 | 732,562 | ||||||
| Non-deductible expense | 53,493 | 121,590 | ||||||
| Rate change | (2,305,270 | ) | — | |||||
| Other, net | 108,860 | — | ||||||
| Total actual provision | $ | — | $ | — | ||||
On December 22, 2017, the President of the United States (“the President”) signed into law the tax bill commonly referred to as the “Tax Cuts and Job Act” (“TCJA”), significantly changing federal income tax laws. According to ASC section 740, “Income Taxes,” a company is required to record the effects of an enacted tax law or rate change in the period of enactment, which is the date the bill is signed by the President and becomes law. The TCJA did not have a significant impact on the financial statements as the change in the deferred income tax assets and liabilities at September 30, 2013 and 2012 consist ofwas fully offset by a change in the following temporary differences:
| September 30, | ||||||||
| 2013 | 2012 | |||||||
| DEFERRED TAX ASSETS | ||||||||
| Current | $ | - | $ | - | ||||
| Noncurrent | ||||||||
| Net operating losses | 1,166,327 | 336,029 | ||||||
| Exploration costs | 1,701,065 | - | ||||||
| Differences in book/tax depreciation | 0 | 0 | ||||||
| Total noncurrent | $ | 2,867,392 | $ | 336,029 | ||||
| Valuation Allowance | (2,867,392 | ) | (336,029 | ) | ||||
| NET DEFERRED TAX ASSET | - | - | ||||||
| DEFERRED TAX LIABILITIES | - | - | ||||||
| NET DEFERRED TAXES | $ | - | $ | - | ||||
| Expiration | |||
| $ | 3,203 | 9/30/2024 | |
| 7,695 | 9/30/2025 | ||
| 18,447 | 9/30/2026 | ||
| 16,876 | 9/30/2027 | ||
| 17,986 | 9/30/2028 | ||
| 8,596 | 9/30/2029 | ||
| 7, 713 | 9/30/2030 | ||
| 64,097 | 9/30/2031 | ||
| 513,914 | 9/30/2032 | ||
| 7,116,987 | 9/30/2033 | ||
| $ | 7,775,514 | Total | |
| September 30, | ||||||||
| 2013 | 2012 | |||||||
| Expected provision (based on statutory rate) | $ | (2,617,887 | ) | $ | (307,455 | ) | ||
| Effect of: | ||||||||
| Increase in valuation allowance | 2,531,363 | 307,152 | ||||||
| State minimum tax, net of federal benefit | 0 | 0 | ||||||
| Non-deductible expense | 2,541 | 303 | ||||||
| Temporary differences due to depreciation | 0 | 0 | ||||||
| Rate Change | 83,973 | 0 | ||||||
| Total actual provision | $ | 0 | $ | 0 | ||||
| 9/30/2018 | 9/30/2017 | |||||||
| DEFERRED TAX ASSETS (LIABILITIES) | ||||||||
| Net operating losses | $ | 7,131,636 | $ | 5,611,276 | ||||
| Exploration costs | (1,503,472 | ) | (931,289 | ) | ||||
| Oil and natural gas leases | 2,192,654 | 691,336 | ||||||
| Stock based compensation | 411,287 | 138,278 | ||||||
| Accrued interest and expenses not paid | 271,190 | 246,360 | ||||||
| Derivative financial instrument | (57,059 | ) | — | |||||
| Differences in book/tax depreciation | 13,573 | 7,215 | ||||||
| Net deferred tax asset | $ | 8,459,809 | $ | 5,763,176 | ||||
| Valuation allowance | (8,459,809 | ) | (5,763,176 | ) | ||||
| NET DEFERRED TAXES | $ | — | $ | — | ||||
The Company’s valuation allowance increased $2,696,633 during the year ended September 30, 2018 and $732,562 during the year ended September 30, 2017.
At September 30, 2018, the Company had approximately $34.0 million of NOLs, 95% of which will expire from 2032 to 2037. All of the Company’s NOLs are allowable as a deduction against 100 percent of future taxable income since they were generated prior to the effective date of limitations imposed by the TCJA.
The tax years ended September 30, 20102015 through 20132018 are open for examination for federal income tax purposes and by other major taxing jurisdictions to which we are subject.
NOTE 6 -– RELATED PARTY TRANSACTIONS
During April through September 2013, the Company entered into convertible promissory notes whereby it borrowed a total of $6,500,000 from John Seitz, its current chief executive officer. The notes are due on demand, bear interest at the rate of 5% per annum, and are convertible into shares of common stock at a conversion price equal to $0.12 per share of common stock (the then offering price of shares of common stock to unaffiliated investors). In May 2013, John Seitz converted $1,200,000 of the aforementioned debt into 10,000,000 shares of common stock, pursuant to the aforementioned convertible promissory notes. Thewhich shares were issued in July 2013. AsBetween June of September 30, 2013, there was a total of $94,319 accrued interest associated with these loans2014 and the Company has recorded $94,319 in interest expense.
From August 2015 through February 2016 the Company entered into promissory notes whereby it borrowed a total of $267,000 from Dr. Ronald Bain, its former president and chief operating officer, and his affiliate ConRon Consulting, Inc. These notes are not convertible, due on demand and bear interest at the rate of 5% per annum. As of September 30, 2018, the total amount owed to Dr. Bain and his affiliate was $267,000. There was a total of $42,706 and $27,171 of accrued interest associated with these loans included within our balance sheet as of September 30, 2018 and 2017, respectively. In June of 2016, Dr. Ronald Bain also entered into a $92,000 convertible promissory note with associated warrants under the same terms received by other investors (see Note 7).
On November 15, 2016, a family member of the CEO, a related party, entered into a $50,000 convertible promissory note with associated warrants under the same terms received by other investors (see Note 7).
Domenica Seitz CPA, related to John Seitz, has provided accounting consulting services to the Company. During the years ended September 30, 2018 and 2017, the services provided were valued at $23,660 and $32,625, respectively. The Company has accrued these amounts within accrued expenses and other payables, and they have been reflected in the September 30, 2018 and 2017 financial statements.
John Seitz has not received a salary since May 31, 2013, the date he commenced serving as our CEO and accordingly, no amount has been accrued on our financial statements.
NOTE 7 – NOTES PAYABLE
Between June and November 2016, the Company issued eleven convertible promissory notes (“Bridge Financing Notes”) with associated warrants in a private placement to accredited investors for total gross proceeds of $837,000. Three of the notes were to related parties for proceeds totaling $222,000, including the extinguishment of $70,000 worth of related party payables. The convertible notes had a maturity of one year (prior to extension), bear an annual interest rate of 8% and can be converted at the option of the holder at a conversion price of $0.025 per share. In addition, the convertible notes will automatically convert if a qualified equity financing of at least $3 million occurs before maturity and such mandatory conversion price will equal the effective price per share paid in the qualified equity financing. In addition to the convertible notes, the investors received 27.9 million warrants (7.4 million to the above mentioned related parties) with an exercise price of $0.03 and a term of the earlier of three years or upon a change of control. The Company evaluated the various financial instruments under ASC 480 and ASC 815 and determined no instruments or features represented embedded derivatives. Therefore, in accordance with ASC 470-20-25-2, the Company allocated the proceeds between the convertible notes and warrants based on their relative fair values. This resulted in an allocation of approximately $452,000 to the warrants and approximately $385,000 to the convertible notes. After such allocation, the Company evaluated the conversion option to discern whether a beneficial conversion feature existed based upon comparing the effective exercise price of the convertible notes to the fair value of the shares they are convertible into. The Company concluded a beneficial conversion feature existed and measured such beneficial conversion feature at approximately $385,000. Accordingly, the debt discount associated with these notes was approximately $837,000. Such discount was amortized using the effective interest rate method over the term (one year) of the convertible notes.
Upon maturity of eight of the eleven promissory notes in June 2017, the Company issued 3,225,000 extension warrants with an exercise price of $0.03 per share (equal to 25% of the original warrant amount) to the holders of the notes to extend the terms to January 15, 2018. The Company evaluated this modification including considering the fair value of the warrants issued and concluded that extinguishment accounting was required as the present value of future cash flows from the new note, including the fair value of the warrants issued to extend, exceeded the present value of future cash flows of the old note by more than 10%. The fair value of the warrants was deemed to be approximately $51,000 and such amount was recognized immediately as a loss on extinguishment of debt. The fair value of the warrants was determined using the Black-Scholes option pricing model. In July and August 2017, the three remaining promissory notes issued in July, August and November 2016 were extended until January 15, 2018 and issued 3,750,000 extension warrants (equal to 25% of the original warrant amount). The Company evaluated this transaction including considering the fair value of the warrants issued and concluded that modification accounting was required as the present value of future cash flows from the new note, including the fair value of the warrants issued to extend, was less than 10% of the present value of future cash flows of the old note. When an instrument is modified, any incremental increase in value (in this case the warrants) should be added to the discount of the notes and such discount should be amortized to interest expense using the effective interest rate method over the new remaining life of the note. The fair value of the warrants, approximately $39,000, was determined using the Black-Scholes option pricing model.
Upon revised maturity of the eleven promissory notes on January 15, 2018, the Company issued 2,790,000 extension warrants with an exercise price of $0.10 per share (equal to 10% of the original warrant amount) to the holders of the notes to extend the term to April 16, 2018. The Company evaluated this transaction including considering the fair value of the warrants issued and concluded that extinguishment accounting was required as the present value of future cash flows from the new note, including the fair value of the warrants issued to extend, exceeded the present value of future cash flows of the old note by more than 10%. The fair value of the warrants was deemed to be approximately $217,000 and such amount was recognized immediately as a loss on extinguishment of debt. The fair value of the warrants was determined using the Black-Scholes option pricing model. In June 2018, the maturity date of all of the notes was extended to January 15, 2019.
For the year ended September 30, 2018, the amortization of the discounts associated with the Bridge Financing Notes was approximately $30,000. Six of the Bridge Financing Notes with a principal balance of $560,000 plus accrued interest of $86,525 were converted during the year ended September 30, 2018. The remaining note balance at September 30, 2018 is $277,000. See Note 9 for a summary of the warrants outstanding relating to the Bridge Financing Notes.
On December 28, 2016, the Company issued a convertible promissory note (together with the convertible promissory notes issued below, the “Financing Notes”) with 500,000 shares of restricted stock and 550,000 warrants in a private placement to an accredited investor for $50,000 in proceeds. The warrants have a five year term and an exercise price of $0.10. The promissory note has a face value of approximately $56,000, which includes 10% original issue discount (“OID”) and incurs a one-time upfront interest charge of six percent. The holder of the note has the option to convert the note into shares of common stock at a conversion price equalof $0.02 per share. Approximately $450,000 of additional funding is available under similar terms if the Company and the lender mutually agree to $0.12 per share offurther tranches. The Company evaluated the various financial instruments under ASC 480 and ASC 815 and determined no material instruments or features represented embedded derivatives. Therefore, in accordance with ASC 470-20-25-2, the Company allocated the proceeds between the convertible note, restricted common stock, (the then offeringand warrants based on their relative fair values. This resulted in an allocation of approximately $8,000 to the restricted stock, approximately $8,000 to the warrants and approximately $34,000 to the convertible note. After such allocation, the Company evaluated the conversion option to discern whether a beneficial conversion feature existed based upon comparing the effective exercise price of the convertible note to the fair value of the shares it is convertible into. The Company concluded a beneficial conversion feature existed and measured such beneficial conversion feature at approximately $34,000. Accordingly, at December 28, 2016, the debt discount associated with these notes was approximately $56,000. Such discount was amortized using the effective interest rate method over the term (seven months) of the convertible note. For the year ended September 30, 2017 amortization of this discount totaled $56,000 and is included in interest expense in the statement of operations. The note, related OID and accrued interest were converted into approximately 5.5 million shares of GulfSlope Energy common stock in a series of conversions beginning on July 10, 2017 and ending with a conversion on September 18, 2017 on which date all were paid in full.
On March 14, 2017, the Company issued a convertible promissory note with 1,000,000 shares of restricted stock and 1,100,000 warrants in a private placement to an accredited investor for $100,000 in proceeds. The warrants have a five-year term and an exercise price of $0.10. The promissory note has a face value of approximately $111,000, which includes 10% original issue discount (“OID”), and incurs a one-time upfront interest charge of six percent. The holder of the note has the option to convert the note into shares of common stock at a conversion price of $0.02 per share. Approximately $350,000 of additional funding is available under similar terms if the Company and the lender mutually agree to unaffiliated investors). Asfurther tranches. The Company evaluated the various financial instruments under ASC 480 and ASC 815 and determined no material instruments or features represented embedded derivatives. Therefore, in accordance with ASC 470-20-25-2, the Company allocated the proceeds between the convertible note, restricted common stock, and warrants based on their relative fair values. This resulted in an allocation of September 30, 2013, there wasapproximately $17,000 to the restricted stock, approximately $14,000 to the warrants and approximately $69,000 to the convertible note. After such allocation, the Company evaluated the conversion option to discern whether a totalbeneficial conversion feature existed based upon comparing the effective exercise price of $667 accrued interestthe convertible note to the fair value of the shares it is convertible into. The Company concluded a beneficial conversion feature existed and measured such beneficial conversion feature at approximately $69,000. Accordingly, at March 14, 2017, the debt discount associated with these loansnotes was approximately $111,000. Such discount will be amortized using the effective interest rate method over the term (seven months) of the convertible note. For the year ended September 30, 2017 amortization of this discount totaled approximately $106,000 and the Company has recordedis included in interest expense forin the same amount.statement of operations. In October 2013, Dr. BainSeptember 2017, $30,000 was converted principalinto 1.5 million shares of stock, leaving a note balance of $81,111 at September 30, 2017. The remaining balance and accrued interest were converted in October 2017 at which time all was paid in full.
On October 16, 2017, the amountCompany issued a convertible promissory note with 1,000,000 shares of $180,408restricted stock and 1,100,000 warrants in a private placement to an accredited investor for $100,000 in proceeds. The warrants have a five-year term and an exercise price of $0.10. The promissory note has a face value of $110,000, which includes 10% original issue discount (“OID”), and incurs a one-time upfront interest charge of six percent. The holder of the note has the option to convert the note into 1,503,403 shares of common stock (aat a conversion rateprice of $.12$0.02 per share). In November 2013,share. Approximately $250,000 of additional funding is available under similar terms if the Company repaidand the lender mutually agree to further tranches. The Company evaluated the various financial instruments under ASC 480 and ASC 815 and determined no material instruments or features represented embedded derivatives. Therefore, in fullaccordance with ASC 470-20-25-2, the Company allocated the proceeds between the convertible note, restricted common stock, and warrants based on their relative fair values. This resulted in an allocation of approximately $21,000 to the restricted stock, approximately $20,000 remaining principal balance (plus accrued interest)to the warrants and approximately $59,000 to the convertible note. After such allocation, the Company evaluated the conversion option to discern whether a beneficial conversion feature existed based upon comparing the effective exercise price of the convertible promissorynote to the fair value of the shares it is convertible into. The Company concluded a beneficial conversion feature existed and measured such beneficial conversion feature at approximately $59,000. Accordingly, at October 16, 2017, the debt discount associated with these notes was $110,000. Such discount was amortized using the effective interest rate method over the term (seven months) of the convertible note.
On December 15, 2017, the Company issued a convertible promissory note with 1,000,000 shares of restricted stock and 1,100,000 warrants in a private placement to an accredited investor for $100,000 in proceeds. The warrants have a five-year term and an exercise price of $0.10. The promissory note has a face value of $110,000, which includes 10% original issue discount (“OID”), and incurs a one-time upfront interest charge of six percent. The holder of the note has the option to convert the note into shares of common stock at a conversion price of $0.02 per share. Approximately $150,000 of additional funding is available under similar terms if the Company and the lender mutually agree to further tranches. The Company evaluated the various financial instruments under ASC 480 and ASC 815 and determined no material instruments or features represented embedded derivatives. Therefore, in accordance with ASC 470-20-25-2, the Company allocated the proceeds between the convertible note, restricted common stock, and warrants based on their relative fair values. This resulted in an allocation of approximately $28,000 to the restricted stock, approximately $27,000 to the warrants and approximately $45,000 to the convertible note. After such allocation, the Company evaluated the conversion option to discern whether a beneficial conversion feature existed based upon comparing the effective exercise price of the convertible note to the fair value of the shares it is convertible into. The Company concluded a beneficial conversion feature existed and measured such beneficial conversion feature at approximately $45,000. Accordingly, at December 15, 2017, the debt discount associated with these notes was $110,000. Such discount was amortized using the effective interest rate method over the term (seven months) of the convertible note. In June 2018 the note and accrued interest was converted into 5.8 million shares of common stock and paid in full.
See Note 9 for a summary of the warrants outstanding relating to the Financing Notes.
NOTE 8 – Fair Value Measurement
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified and disclosed in one of the following categories:
| Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. GulfSlope considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
| Level 2: | Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that GulfSlope values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange traded derivative financial instruments as well as long-term incentive plan liabilities calculated using the Black-Scholes model to estimate the fair value as of the measurement date. |
| Level 3: | Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). |
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
Fair Value on a Recurring Basis
The following table sets forth by level within the fair value hierarchy GulfSlope Energy, Inc.’s liabilities that were accounted for at fair value on a recurring basis as of September 30, 2013, executive officers paid $60,100 to trade vendors2018 (no financial assets or liabilities were accounted for at fair value on behalfa recurring basis as of September 30, 2017):
| Fair Value Measurements Using | |||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | Total Carrying | ||||||||||||||
| Description | (Level 1) | (Level 2) | (Level 3) | Value as of | |||||||||||||
| (In thousands) | |||||||||||||||||
| Derivative Financial Instrument | $ | — | $ | (271,710 | ) | $ | — | $ | (271,710 | ) | |||||||
| Total as of Total as of September 30, 2018 | $ | — | $ | (271,710 | ) | $ | — | $ | (271,710 | ) | |||||||
During the years ended September 30, 2018 and 2017, the Company in the ordinary course of business.
NOTE 79 - COMMON STOCK/PAID IN CAPITAL
At our annual shareholder meeting in May of common stock for $20,000 cash in a private placement.
As discussed in Note 7, during the change in par value.
The fair value of the warrants were determined using the Black Scholes valuation model with the following key assumptions:
| June 2016 | July 2016 | August 2016 | November 2016 | June 2017 | July 2017 | August 2017 | January 2018 | |||||||||||||||||
| Warrants Issued | 12.9 million | 10.0 million | 3.3 million | 1.7 million | 3.2 million | 2.5 million | 1.25 million | 2.8 Million | ||||||||||||||||
| Stock Price: | 0.054 | (1) | 0.040 | (1) | 0.032 | (1) | 0.029 | (1) | 0.025 | (1) | 0.019 | (1) | 0.016 | (1) | 0.11 | (1) | ||||||||
| Exercise Price | 0.03 | 0.03 | 0.03 | 0.03 | 0.03 | 0.03 | 0.03 | 0.10 | ||||||||||||||||
| Term | 3 years | 3 years | 3 years | 3 years | 2 years | 2 years | 2 years | 1.5 years | ||||||||||||||||
| Risk Free Rate | .87 | % | .80 | % | .88 | % | 1.28 | % | 1.35 | % | 1.35 | % | 1.33 | % | 1.89 | % | ||||||||
| Volatility | 135 | % | 138 | % | 137 | % | 131 | % | 135 | % | 136 | % | 135 | % | 163 | % | ||||||||
| (1) Fair market value on the date of agreement. | ||||||||||||||||||||||||
A summary of warrants, issued in conjunction with the Bridge Financing Notes and outstanding at September 30, 2018:
| Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||||||||||
| Date Issued | Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (Yrs) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||||||
| June 2016 | $ | 0.03 | 12,566,667 | .69 | $ | 0.03 | 12,566,667 | $ | 0.03 | ||||||||||||||||||
| July 2016 | $ | 0.03 | 10,000,000 | .79 | $ | 0.03 | 10,000,000 | $ | 0.03 | ||||||||||||||||||
| August 2016 | $ | 0.03 | 3,333,333 | .88 | $ | 0.03 | 3,333,333 | $ | 0.03 | ||||||||||||||||||
| November 2016 | $ | 0.03 | 1,666,667 | 1.13 | $ | 0.03 | 1,666,667 | $ | 0.03 | ||||||||||||||||||
| June 2017 | $ | 0.03 | 3,141,667 | .69 | $ | 0.03 | 3,141,667 | $ | 0.03 | ||||||||||||||||||
| July 2017 | $ | 0.03 | 2,500,000 | .79 | $ | 0.03 | 2,500,000 | $ | 0.03 | ||||||||||||||||||
| August 2017 | $ | 0.03 | 833,333 | .88 | $ | 0.03 | 833,333 | $ | 0.03 | ||||||||||||||||||
| August 2017 | $ | 0.03 | 416,667 | 1.13 | $ | 0.03 | 416,667 | $ | 0.03 | ||||||||||||||||||
| January 2018 | $ | 0.10 | 2,790,000 | .78 | $ | 0.10 | 2,790,000 | $ | 0.10 | ||||||||||||||||||
In December 2016 and March 2017 the Company issued 500,000 and 1,000,000 shares of GulfSlope Energy stock, respectively to an investor as part of a financing transaction (see Financing Notes in Note 7). In December 2016 and March 2017 the Company issued 550,000 and 1,100,000 warrants to purchase stock at $0.10 per share to an investor as part of a financing transaction (see Financing Notes in Note 7). The warrants have a term of 5 years.
In October 2017 and December 2017 the Company issued 1,000,000 and 1,000,000 shares of GulfSlope Energy stock, respectively to an investor as part of a financing transaction (see Financing Notes in Note 7). In October 2017 and December 2017 the Company issued 1,100,000 and 1,100,000 warrants to purchase stock at $0.10 per share to an investor as part of a financing transaction (see Financing Notes in Note 7). The warrants have a term of 5 years.
A summary of the Financing Note warrants, issued in conjunction with the Financing Notes and outstanding at September 30, 2018:
| Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||||||
| Exercise Price | Number Outstanding | Remaining Contractual Life (Yrs) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | ||||||||||||||||||
| $ | 0.10 | 550,000 | 3.25 | $ | 0.10 | 550,000 | $ | 0.10 | |||||||||||||||
| $ | 0.10 | 1,100,000 | 3.46 | $ | 0.10 | 1,100,000 | $ | 0.10 | |||||||||||||||
| $ | 0.10 | 1,100,000 | 4.04 | $ | 0.10 | 1,100,000 | $ | 0.10 | |||||||||||||||
| $ | 0.10 | 1,100,000 | 4.21 | $ | 0.10 | 1,100,000 | $ | 0.10 | |||||||||||||||
Beginning in August 2018, the Company began negotiating a capital raise which is expected to consist of the issuance of common shares and warrants. The specific terms of the capital raise have not been finalized including the number of shares and warrants to be received by each investor. Through September 30, 2018, approximately $970,000 has been received from investors related to this capital raise; however, the agreements have not been finalized, and no shares or equity have been issued. As such, the funds received have been recorded as a liability on the balance sheet as of September 30, 2018.
In September 2018, the Company issued approximately 4 million shares of common stock valued at approximately $231,000 on the date of grant and 2 million warrants valued at $80,000 utilizing the Black Scholes model with an exercise price of $0.15 per share in settlement of a liability for services rendered.
NOTE 10 – STOCK-BASED COMPENSATION
On January 1, 2017, 33.5 million stock options were granted to John Preftokis,employees, officers and directors of the Company. The CEO was not included in the award. The stock options vested 50% on January 1, 2017 and 50% on January 1, 2018. The stock options are exercisable for seven years from the original grant date of January 1, 2017, until January 1, 2024.
In May 2018, 500,000 stock options were granted to an employee. In June 2018, 33.5 million stock options were granted to employees, officers and directors of the Company. The CEO was not included in the award. Approximately 33% of the stock options vested on June 1, 2018 and approximately 33% will vest on June 1, 2019 and 2020, respectively, provided that the option holder continues to serve as an employee or director on the vesting date. The stock options are exercisable from the original grant date until December 31, 2025.
Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized over the vesting period. The Company recognized $1,857,531 and $653,669 in stock-based compensation expense for the years ended September 30, 2018 and 2017, respectively. A portion of these costs allocable to the Company’s former presidentexploration activities, $820,877 and chief executive officer,$195,125 were capitalized to unproved properties and the remainder was recorded as general and administrative expenses, for services rendered valuedthe years ended September 30, 2018 and 2017, respectively.
The following table summarizes the Company’s stock option activity during the year ended September 30, 2018:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Average Intrinsic Value | |||||||||||||
| Outstanding at beginning of period | 35,500,000 | $ | 0.033 | |||||||||||||
| Granted | 68,000,000 | 0.075 | — | |||||||||||||
| Exercised | — | — | — | |||||||||||||
| Cancelled | — | — | — | |||||||||||||
| Outstanding at end of period | 103,500,000 | $ | 0.0605 | 3.32 | $ | 1.2 million | ||||||||||
| Vested and expected to vest | 103,500,000 | $ | 0.0605 | 3.32 | $ | 1.2 million | ||||||||||
| Exercisable at end of period | 54,500,000 | $ | 0.0475 | — | $ | 1.3 million | ||||||||||
The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted. The weighted-average fair values of stock options granted for the years ended September 30, 2018 and 2017 were based on the following assumptions at $200,000 or $0.01 per share.
| 2018 | 2017 | |||||||
| Expected dividend yield | 0 | % | 0 | % | ||||
| Expected stock price volatility | 145.2 | % | 127.2 | % | ||||
| Risk-free interest rate | 2.7 | % | 1.71 | % | ||||
| Expected life of options | 7 years | 4 years | ||||||
| Weighted-average grant date fair value | $ | 0.065 | $ | 0.022 | ||||
The Company issued 10,000,000 sharesused its historical stock trading price volatility for the last four years. The Company has no historical data regarding the expected life of common stockthe options and therefore used the simplified method of calculating the expected life. The risk free rate was calculated using the U.S. Treasury constant maturity rates similar to five third parties for services rendered valued at $100,000 or $0.01 per share.
As of September 30, 2012, $208,333 had been expensed with $291,667 recorded as a prepaid expense. The remaining $291,6672018 there was expensed as$2.7 million of September 30, 2013.
NOTE 911 – SUBSEQUENT EVENTS
From time to time, the Company sold 42,952,773may 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.
In July 2018 the Company entered into a 39 month lease for approximately 5,000 square feet of office space in 4 Houston Center in downtown Houston. Annual base rent is approximately $94 thousand for the first 18 months, increasing to approximately $97 thousand and $99 thousand, respectively during the remaining term of the lease.
The Company reached an agreement with a vendor in August 2018 for the settlement of approximately $1 million in debt. The vendor was paid $150,000 in cash, future cash payments of $7,500 and 10 million shares of GulfSlope common stock. The agreement contains a provision that upon the sale of the common stock if the original debt is not fully satisfied, full payment will be made, under a mutually agreed payment plan. If the stock is sold for a gain any surplus in excess of $1.3 million shall be a private placement atcredit against future purchases from the vendor. The agreement was determined to meet the definition of a price of $0.12 per share for $5,154,333 cash.
| December 31, 2013 | September 30, 2013 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 3,344,071 | $ | 310,199 | ||||
| Restricted Cash | 2,500,506 | 2,500,317 | ||||||
| Prepaid Expenses | 348,711 | 5,514 | ||||||
| Total Current Assets | 6,193,288 | 2,816,030 | ||||||
| Property, Plant, and Equipment (net) | 78,434 | 70,188 | ||||||
| Other Non-Current Assets | 18,760 | 18,760 | ||||||
| Total Assets | $ | 6,290,482 | $ | 2,904,978 | ||||
Liabilities and Stockholders' Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 274,379 | $ | 156,439 | ||||
| Related Party Payable | 366,480 | 490,101 | ||||||
| Accrued Expenses and Other Payables | 3,003,065 | 3,093,065 | ||||||
| Accrued Interest | 162,042 | 94,986 | ||||||
| Note Payable | 94,273 | - | ||||||
| Loan from Related-Party | 5,300,000 | 5,500,000 | ||||||
| Total Current Liabilities | 9,200,239 | 9,334,591 | ||||||
| Accrued Expenses and Other Payables, Net of Current Portion | 3,003,065 | 3,003,065 | ||||||
| Total Liabilities | $ | 12,203,304 | $ | 12,337,656 | ||||
| Stockholders' Deficit | ||||||||
| Preferred Stock; par value ($0.001); | - | - | ||||||
| Authorized 50,000,000 shares | ||||||||
| none issued or outstanding | ||||||||
| Common Stock; par value ($0.001); | 624,223 | 577,210 | ||||||
| Authorized 750,000,000 shares; 624,223,676 and | ||||||||
| 577,210,000 issued and outstanding, respectively | ||||||||
| Additional Paid-in-Capital | 14,761,617 | 9,139,917 | ||||||
| Deficit accumulated during the exploration stage | (21,298,662) | (19,149,805) | ||||||
| Total Stockholders' Deficit | (5,912,822) | (9,432,678) | ||||||
| Total Liabilities and Stockholders' Deficit | $ | 6,290,482 | $ | 2,904,978 | ||||
| For the three months ended | For the three months ended | Since Inception (12/12/03) through | ||||||||||
| December 31, 2013 | December 31, 2012 | December 31, 2013 | ||||||||||
| Revenues | $ | - | $ | - | $ | 9,694 | ||||||
| Revenues from Related Parties | - | - | 2,346 | |||||||||
| Total Revenue | - | - | 12,040 | |||||||||
| Cost of Sales | - | - | 8,394 | |||||||||
| Cost of Sales to Related Parties | - | - | 2,101 | |||||||||
| Total Cost of Sales | - | - | 10,495 | |||||||||
| Gross Profit | - | - | 1,545 | |||||||||
| Impairment of Oil and Natural Gas Properties | 1,676,548 | - | 16,797,122 | |||||||||
| General & Administrative Expenses | 404,253 | 396,376 | 4,324,045 | |||||||||
| Net Loss from Operations | (2,080,801 | ) | (396,376 | ) | (21,119,622 | ) | ||||||
| Other Income/(Expenses): | ||||||||||||
| Interest Income | 1,300 | - | 1,616 | |||||||||
| Interest Expense | (69,356 | ) | - | (179,856 | ) | |||||||
| Net Loss Before Income Taxes | (2,148,857 | ) | (396,376 | ) | (21,297,862 | ) | ||||||
| Provision for Income Taxes | - | - | (800 | ) | ||||||||
| Net Loss | (2,148,857 | ) | (396,376 | ) | (21,298,662 | ) | ||||||
| Loss Per Share - Basic and Diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||
| Weighted Average Shares Outstanding – Basic and Diluted | 609,025,787 | 235,150,000 | ||||||||||
For the three months ended December 31, 2013 | For the three months ended December 31, 2012 | Since Inception (12/10/03) Through December 31, 2013 | ||||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net Loss | $ | (2,148,857 | ) | $ | (396,376 | ) | $ | (21,298,662 | ) | |||
| Adjustments to reconcile net income/loss to net cash | ||||||||||||
| From Operating Activities: | ||||||||||||
| Impairment of Oil and Natural Gas Properties | 1,676,548 | - | 16,797,122 | |||||||||
| Depreciation | 6,558 | - | 22,681 | |||||||||
| Stock Issued for Services | 221,472 | - | 1,731,472 | |||||||||
| Changes in Operating Assets and Liabilities | ||||||||||||
| Prepaid Expenses | (228,449 | ) | 128,818 | (233,963 | ) | |||||||
| Other Assets | - | - | (18,760 | ) | ||||||||
| Accounts Payable | 19,130 | 2,976 | 66,111 | |||||||||
| Related Party Payable | (123,621 | ) | (31,183 | ) | 241,003 | |||||||
| Accrued Interest | 67,464 | - | 162,450 | |||||||||
| Accrued Liabilities | 22,500 | - | 67,500 | |||||||||
| Net Cash From Operating Activities | (487,255 | ) | (295,765 | ) | (2,463,046 | ) | ||||||
| �� | ||||||||||||
| INVESTING ACTIVITIES | ||||||||||||
| Exploration Costs | (1,577,738 | ) | - | (7,966,057 | ) | |||||||
| Purchase of Equipment | (14,804 | ) | - | (99,615 | ) | |||||||
| Net Cash From Investing Activities | (1,592,542 | ) | - | (8,065,672 | ) | |||||||
| FINANCING ACTIVITIES | ||||||||||||
| Restricted Cash | (189 | ) | - | (2,500,506 | ) | |||||||
| Proceeds from Stock Issuance | 5,154,333 | - | 9,713,770 | |||||||||
| Proceeds from Related Party Loans | - | - | 6,741,769 | |||||||||
| Payments on Note Payable | (20,475 | ) | - | (20,475 | ) | |||||||
| Payments on Related Party Loans | (20,000 | ) | - | (61,769 | ) | |||||||
| Net Cash From Financing Activities | 5,113,669 | - | 13,872,789 | |||||||||
| Net Increase/(Decrease) in cash | 3,033,872 | (295,765 | ) | 3,344,071 | ||||||||
| Beginning Cash Balance | 310,199 | 423,009 | - | |||||||||
| Ending Cash Balance | $ | 3,344,071 | $ | 127,244 | $ | 3,344,071 | ||||||
| Supplemental Schedule of Cash Flow Activities | ||||||||||||
| Cash Paid for Income Taxes | $ | - | $ | - | $ | 925 | ||||||
| Cash Paid for Interest | $ | 912 | $ | - | $ | 12,268 | ||||||
| Related Party Debt Forgiveness | $ | - | $ | - | $ | 11,023 | ||||||
| Stock Issued for Prepaid Expenses | $ | - | $ | - | $ | 550,000 | ||||||
| Property Contributed by Shareholder | $ | - | $ | - | $ | 1,500 | ||||||
| Non-Cash Financing and Investing Activities | ||||||||||||
| Stock Issued on Settlement of Related Party Note | $ | 180,000 | $ | - | $ | 1,380,000 | ||||||
| Prepaid Asset Financed by Note Payable | $ | 114,748 | $ | - | $ | 114,748 | ||||||
| Settlement of Accrued Expenses through Stock Issuance | $ | 112,500 | $ | - | $ | 112,500 | ||||||
NOTE 12 – SUBSEQUENT EVENTS
In October 2018, the Company purchased an insurance policy for $159,995 and financed $146,310 of the premium by executing a note payable.
In October 2018, the Company paid the 80% lease bonus payment and the first year rentals in the amount of $139,809 and was awarded Gulf of Mexico lease block Eugene Island, South Addition 371.
In November 2018, the Company paid the 80% lease bonus payment and the first year rentals in the amount of $187,809 and was awarded Gulf of Mexico lease block Vermillion, South Addition 376.
GulfSlope Energy, Inc.
As of March 31, 2019 and September 30, 2018
(Unaudited)
| March 31, 2019 | September 30, 2018 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 5,001,143 | $ | 5,621,814 | ||||
| Prepaid Expenses and Other Current Assets | 113,611 | 32,042 | ||||||
| Accounts Receivable, net | 9,722,309 | 6,286,796 | ||||||
| Total Current Assets | 14,837,063 | 11,940,652 | ||||||
| Property and Equipment, Net of Depreciation | 12,196 | 14,786 | ||||||
| Oil and Natural Gas Properties, Full Cost Method of Accounting Unproved Properties | 16,892,281 | 8,112,784 | ||||||
| Other Non-Current Assets | 24,785 | 24,785 | ||||||
| Total Non-Current Assets | 16,929,262 | 8,152,355 | ||||||
| Total Assets | $ | 31,766,325 | $ | 20,093,007 | ||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 14,022,521 | $ | 7,591,236 | ||||
| Deposits from Joint Interest Owners | 4,078,786 | |||||||
| Related Party Payable | 336,145 | 306,386 | ||||||
| Accrued Interest Payable | 1,970,160 | 1,732,239 | ||||||
| Accrued Expenses and Other Payables | 268,862 | 268,862 | ||||||
| Loans from Related Parties | 8,725,500 | 9,084,500 | ||||||
| Notes Payable | 347,755 | — | ||||||
| Convertible Promissory Notes Payable | 227,000 | 135,000 | ||||||
| Funds Received from Capital Raise | — | 965,800 | ||||||
| Derivative Financial Instrument | 288,702 | 271,710 | ||||||
| Other | 64,275 | 44,723 | ||||||
| Total Current Liabilities | 26,250,920 | 24,479,242 | ||||||
| Total Liabilities | 26,250,920 | 24,479,242 | ||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock; par value ($0.001); Authorized 50,000,000 shares none issued or outstanding | — | — | ||||||
| Common Stock; par value ($0.001); Authorized 1,500,000 shares; issued and outstanding 1,089,433,510 and 832,013,272, respectively | 1,089,433 | 832,013 | ||||||
| Additional Paid-in-Capital | 52,794,029 | 36,640,009 | ||||||
| Accumulated Deficit | (48,368,056 | ) | (41,858,257 | ) | ||||
| Total Stockholders’ Equity (Deficit) | 5,515,405 | (4,386,235 | ) | |||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 31,766,325 | $ | 20,093,007 | ||||
The accompanying notes are an integral part to these condensed financial statements.
GulfSlope Energy, Inc.
Condensed Statements of Operations
For the Three and Six Months Ended March 31, 2019 and 2018
(Unaudited)
| For the Three Months Ended March 31, 2019 | For the Three Months Ended March 31, 2018 | For the Six Months Ended March 31, 2019 | For the Six Months Ended March 31, 2018 | |||||||||||||
| Revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
| General & Administrative Expenses | 1,059,721 | 101,139 | 1,189,158 | 390,465 | ||||||||||||
| Net Loss from Operations | (1,059,721 | ) | (101,139 | ) | (1,189,158 | ) | (390,465 | ) | ||||||||
| Other Income/(Expenses): | ||||||||||||||||
| Interest Expense, net | (106,152 | ) | (227,489 | ) | (204,309 | ) | (452,566 | ) | ||||||||
| Loss on Debt Extinguishment | (5,099,340 | ) | (217,141 | ) | (5,099,340 | ) | (217,141 | ) | ||||||||
| Gain (Loss) on Derivative Financial Instrument | 179,274 | — | (16,992 | ) | — | |||||||||||
| Net Loss Before Income Taxes | (6,085,939 | ) | (545,769 | ) | (6,509,799 | ) | (1,060,172 | ) | ||||||||
| Provision for Income Taxes | — | — | — | — | ||||||||||||
| Net Loss | $ | (6,085,939 | ) | $ | (545,769 | ) | $ | (6,509,799 | ) | $ | (1,060,172 | ) | ||||
| Loss Per Share - Basic and Diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||||
| Weighted Average Shares Outstanding – Basic and Diluted | 919,010,230 | 770,552,707 | 875,033,746 | 733,243,895 | ||||||||||||
The accompanying notes are an integral part to these condensed financial statements.
GulfSlope Energy, Inc.
Condensed Statements of Stockholders’ Equity (Deficit)
For the Three Months Ended March 31, 2019 and 2018
(unaudited)
For the Three Months Ended March 31, 2019
| Common Stock | Additional Paid- | Accumulated | Net Shareholders’ | |||||||||||||||||
| Shares | Amount | In Capital | Deficit | Equity (Deficit) | ||||||||||||||||
| Balance at December 31, 2018 | 851,338,272 | $ | 851,338 | $ | 37,979,934 | $ | (42,282,117 | ) | $ | (3,450,846 | ) | |||||||||
| Stock Based Compensation | — | — | 409,103 | — | 409,103 | |||||||||||||||
| Warrants Issued in Debt Transaction | — | — | 4,643,087 | — | 4,643,087 | |||||||||||||||
| Stock Issued for Warrant Exercise | 238,095,238 | 238,095 | 9,761,905 | — | 10,000,000 | |||||||||||||||
| Net Loss | — | — | — | (6,085,939 | ) | (6,085,939 | ) | |||||||||||||
| Balance at March 31, 2019 | 1,089,433,510 | $ | 1,089,433 | $ | 52,794,029 | $ | (48,368,056 | ) | $ | 5,515,405 | ||||||||||
For the Three Months Ended March 31, 2018
| Common Stock | Additional Paid- | Accumulated | Net Shareholders’ | |||||||||||||||||
| Shares | Amount | In Capital | Deficit | Equity (Deficit) | ||||||||||||||||
| Balance at December 31, 2017 | 698,526,625 | $ | 698,526 | $ | 27,586,227 | $ | (39,735,926 | ) | $ | (11,451,173 | ) | |||||||||
| Common Stock Issued for Services | 80,293,425 | 80,294 | 4,814,961 | — | 4,895,255 | |||||||||||||||
| Value of Warrants issued with Bridge Note Extensions | — | — | 217,141 | — | 217,141 | |||||||||||||||
| Net Loss | — | — | — | (545,769 | ) | (545,769 | ) | |||||||||||||
| Balance at March 31, 2018 | 778,820,050 | $ | 778,820 | $ | 32,618,329 | $ | (40,281,695 | ) | $ | (6,884,546 | ) | |||||||||
The accompanying notes are an integral part to these condensed financial statements.
GulfSlope Energy, Inc.
Condensed Statements of Stockholders’ Equity (Deficit)
For the Six Months Ended March 31, 2019 and 2018
(unaudited)
For the Six Months Ended March 31, 2019
| Common Stock | Additional Paid- | Accumulated | Net Shareholders’ | |||||||||||||||||
| Shares | Amount | In Capital | Deficit | Equity (Deficit) | ||||||||||||||||
| Balance at September 30, 2018 | 832,013,272 | $ | 832,013 | $ | 36,640,009 | $ | (41,858,257 | ) | $ | (4,386,235 | ) | |||||||||
| Stock Based Compensation | 802,103 | 802,103 | ||||||||||||||||||
| Warrants Issued in Debt Transaction | 4,643,087 | 4,643,087 | ||||||||||||||||||
| Stock Issued in Capital Raise | 19,325,000 | 19,325 | 946,925 | 966,250 | ||||||||||||||||
| Stock Issued for Warrant Exercise | 238,095,238 | 238,095 | 9,761,905 | 10,000,000 | ||||||||||||||||
| Net Loss | (6,509,799 | ) | (6,509,799 | ) | ||||||||||||||||
| Balance at March 31, 2019 | 1,089,433,510 | $ | 1,089,433 | $ | 52,794,029 | $ | (48,368,056 | ) | $ | 5,515,405 | ||||||||||
For the Six Months Ended March 31, 2018
| Common Stock | Additional Paid- | Accumulated | Net Shareholders’ | |||||||||||||||||
| Shares | Amount | In Capital | Deficit | Equity (Deficit) | ||||||||||||||||
| Balance at September 30, 2017 | 692,196,625 | $ | 692,196 | $ | 27,212,577 | $ | (39,221,523 | ) | $ | (11,316,750 | ) | |||||||||
| Stock Based Compensation | 93,381 | 93,381 | ||||||||||||||||||
| Common Stock Issued for Services | 80,293,425 | 80,294 | 4,814,961 | 4,895,255 | ||||||||||||||||
| Common Stock Issued for Convertible Promissory Note | 2,000,000 | 2,000 | 47,094 | 49,094 | ||||||||||||||||
| Value of Beneficial Conversion Feature in Conjunction with Convertible Promissory Notes | 103,519 | 103,519 | ||||||||||||||||||
| Value of Warrants in Conjunction with Convertible Promissory Notes | 47,386 | 47,386 | ||||||||||||||||||
| Common Stock Issued for Conversion of Convertible Promissory Note and Accrued Interest | 4,330,000 | 4,330 | 82,270 | 86,600 | ||||||||||||||||
| Value of Warrants issued with Bridge Note Extensions | 217,141 | 217,141 | ||||||||||||||||||
| Net Loss | (1,060,172 | ) | (1,060,172 | ) | ||||||||||||||||
| Balance at March 31, 2018 | 778,820,050 | $ | 778,820 | $ | 32,618,329 | $ | (40,281,695 | ) | $ | (6,884,546 | ) | |||||||||
The accompanying notes are an integral part to these condensed financial statements.
GulfSlope Energy, Inc.
Condensed Statements of Cash Flows
For the Six Months Ended March 31, 2019 and 2018
(Unaudited)
| For the Six Months Ended March 31, 2019 | For the Six Months Ended March 31, 2018 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (6,509,799 | ) | $ | (1,060,172 | ) | ||
| Adjustments to reconcile net loss to net cash From Operating Activities: | ||||||||
| Depreciation | 2,590 | 2,976 | ||||||
| Stock Based Compensation | 260,648 | 65,506 | ||||||
| Bad Debt Expense | 672,500 | — | ||||||
| Loss on Derivative Financial Instrument | 16,992 | — | ||||||
| Stock Issued for Services | — | 3,650 | ||||||
| Debt Discount Amortization | 11,449 | 175,634 | ||||||
| Loss on Debt Extinguishment | 5,099,340 | 217,141 | ||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase)/Decrease in Accounts Receivable | (4,108,013 | ) | (218,664 | ) | ||||
| (Increase)/Decrease in Prepaid Expenses | 64,741 | 65,968 | ||||||
| Increase/(Decrease) in Deposits from Joint Interest Owners | (4,078,786 | ) | — | |||||
| Increase/(Decrease) in Accounts Payable | 3,384,095 | 1,496,334 | ||||||
| Increase/(Decrease) in Related Party Payable | 29,758 | 11,830 | ||||||
| Increase/(Decrease) in Other | 19,553 | — | ||||||
| Increase/(Decrease) in Accrued Interest | 237,921 | 272,727 | ||||||
| Net Cash (Used In) Provided By Operating Activities | (4,897,011 | ) | 1,032,930 | |||||
| INVESTING ACTIVITIES | ||||||||
| Investments in Oil and Gas Properties | (5,658,105 | ) | (281,584 | ) | ||||
| Proceeds From Sale of Working Interest | — | 1,485,589 | ||||||
| Net Cash (Used In) Provided By Investing Activities | (5,658,105 | ) | 1,204,005 | |||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from Term Loan | 10,000,000 | — | ||||||
| Proceeds from Convertible Promissory Notes and Warrants | — | 200,000 | ||||||
| Payments on Note Payable | (65,555 | ) | (73,413 | ) | ||||
| Net Cash Provided By Financing Activities | 9,934,445 | 126,587 | ||||||
| Net Increase/(Decrease) in Cash | (620,670 | ) | 2,363,522 | |||||
| Beginning Cash Balance | 5,621,814 | 6,426 | ||||||
| Ending Cash Balance | $ | 5,001,143 | $ | 2,369,948 | ||||
| Supplemental Schedule of Cash Flow Activities: | ||||||||
| Cash Paid for Interest | $ | 2,870 | $ | 3,036 | ||||
| Non-Cash Financing and Investing Activities: | ||||||||
| Prepaid Asset Financed by Note Payable | $ | 146,310 | $ | 156,718 | ||||
| Debt Issuance Costs in Accounts Payable | $ | 467,704 | $ | — | ||||
| Capital Expenditures Included in Accounts Payable | $ | — | $ | 16,260 | ||||
| Stock-Based Compensation Capitalized to Unproved Properties | $ | 541,905 | $ | 27,875 | ||||
| Stock Issued for Consulting Services Capitalized to Unproved Properties | $ | — | $ | 4,880,000 | ||||
| Loans Extinguished through Exercise of Warrants | $ | 10,000,000 | $ | — | ||||
| Receivable from Sale of Working Interest | $ | — | $ | 304,052 | ||||
| Wells In Process Included in Accounts Payable | $ | 2,579,486 | $ | 127,415 | ||||
| Funds Received from Capital Raise Transferred to Equity | $ | 965,800 | $ | — | ||||
The accompanying notes are an integral part to these condensed financial statements.
GulfSlope Energy, Inc.
Notes to Condensed Financial Statements
March 31, 2019
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
GulfSlope Energy, Inc. (the “Company,” “GulfSlope,” “our” and words of similar import), 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 geophysicaland production company to license certain seismic data for the purposes of engagingwhose interests are concentrated in the explorationUnited States Gulf of oil and natural gas.
As of March 31, 2019, GulfSlope has no production or proved reserves.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The condensed financial statements included herein are unaudited. However, these condensed financial statements include all adjustments (consisting of normal recurring adjustments), which, in the opinion of management are necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods. The results of operations for interim periods are not necessarily indicative of the results to be expected for an entire year. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed financial statements and accompanying notes. Actual results could differ materially from those estimates.
Certain information, accounting policies, and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted in this Form 10-Q pursuant to certain rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed financial statements should be read in conjunction with the audited financial statements for the year ended September 30, 2013,2018, which were included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013.
Cash Equivalents
GulfSlope considers highly liquid investments with insignificant interest rate risk and original maturities to the Company of three months or less to be cash equivalents. CashThere were no cash equivalents consist primarily of interest-bearing bank accountsat March 31, 2019 and money market funds. The Company’s cash positions represent assets held in checking and money market accounts. These assets are generally available on a daily or weekly basis and are highly liquid in nature.
Liquidity/Going Concern
The Company has incurred accumulated losses for the period from inception to Decemberas of March 31, 20132019, of $21,298,662.$48.4 million. Further losses are anticipated in developing our business. These factors raise substantial doubt about the Company’s ability to continue as a going concern. As a result, our auditors have expressedthere exists substantial doubt about our ability to continue as a going concern. As of DecemberMarch 31, 2013,2019, we had $3,344,071$5.0 million of unrestricted cash on hand, excluding $2,500,506$4.9 million of restricted cash in an escrow account earmarkedthis amount is for a futurethe payment associated with the acquisition of seismic data.joint payables from drilling operations. The Company estimates that it will need to raise a minimum of $15$5.0 million to fund operations through December 31, 2014, and likely significantly more capital to meet its obligations during the subsequent 12 months.and planned expenditures through May 2020. The Company plans to finance the Companyoperations and planned expenditures through best-efforts equity and/or debt financings.financings and/or farm-out agreements. The Company also plans to extend the agreements associated with all loans, the accrued interest payable on these loans, as well as the Company’s accrued liabilities. There are no assurances that financing will be available with acceptable terms, if at all. If the Company is not successful in obtaining financing, operations would need to be curtailed or ceased or the Company would need to sell assets or consider alternative plans up to and including restructuring. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Full Cost Method
The Company uses the full cost method of accounting for its oil and natural gas exploration and development activities.activities as defined by the SEC. Under the full cost method of accounting, all costs associated with thesuccessful and unsuccessful exploration for and development of oil and gas reservesactivities are capitalized on a country-by-country basis into a single cost center (“full cost pool”). Such costs include landproperty acquisition costs, geological and geophysical (“G&G”) expenses,costs, 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 baseamortization calculation until such time as they are either developed or abandoned. WhenUnproved properties and properties under development are reviewed for impairment at least quarterly and are determined through an evaluation considering, among other factors, seismic data, requirements to relinquish acreage, drilling results, remaining time in the commitment period, remaining capital plan, and political, economic, and market conditions. In countries where 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 toexist, exploratory drilling costs subject to depletion and full cost ceiling calculations. Further, capitalized G&G costs that are directly associated with unevaluateddry holes are transferred to proved properties immediately upon determination that a well is dry and amortized accordingly. In countries where a reserve base has not yet owned by the Companybeen established, impairments are included in the depletion base. As of December 31, 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 subjectcharged 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 monthtwelve-month period. The cost center ceiling limits such pooled costs tois defined as the aggregatesum of the present value of(a) estimated future net revenues, attributable to proved crude oil and natural gas reserves discounted at 10% plusper annum, from proved reserves, (b) the cost of properties not being amortized, if any, and (c) the lower of cost or market value of unproved properties less any associated tax effects.included in the cost being amortized. 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.
As of March 31, 2019, the Company’s oil and gas properties consisted of wells in process, and capitalized exploration and acquisition costs for unproved properties and no proved reserves.
Basic and Dilutive Earnings Per Share
Basic (loss) per share (“EPS”) is computed by dividing net income (loss) (the numerator) by the weighted average number of common shares outstanding for the period (denominator). Diluted EPS is computed by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each 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 three and six months ended March 31, 2019 and 2018, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. As of March 31, 2019 and 2018, there were 225,311,416 and 179,062,176 potentially dilutive shares, respectively.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-10, ASU 2017-13 and ASU 2017-14, which FASB issued inAugust 2015, March 2016, April 2016, May 2016, May 2016, December 2016, May 2017, September 2017 and November 2017, respectively (collectively, the amended ASU 2014-09). The amended ASU 2014-09 provides a single comprehensive model for the recognition of revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It requires an entity to recognize revenue when the entity transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amended ASU 2014-09 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) with the customer, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The amended ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The effective date for the amended ASU 2014-09 for the Company is fiscal year 2019, including interim reporting periods within that reporting period. Early adoption is permitted for fiscal year 2018, including interim reporting periods within that reporting period. The Company adopted this new standard effective October 1, 2018, using the modified retrospective method of adoption as permitted by the standard. The adoption of Topic 606 had no material impact on the financial position, results of operations, stockholders’ equity, or cash flows, but will impact disclosures when the Company has revenue.
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early application is permitted for all organizations. The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any,selected the period during which it will implement this pronouncement, and it is currently evaluating the impact the adoption of ASU 2016-02 will have on its resultsfinancial statements.
In June 2018, the FASB issued ASU 2018-07,Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-based Payments (“ASU 2018-07”). This ASU expands the scope of operations, financial positionTopic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted and the Company adopted this new standard effective January 1, 2019.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds disclosure requirements on fair value measurements. ASU 2018-13 is effective for the Company for fiscal years beginning after December 15, 2019 and the Company is permitted to early adopt any removed or cash flows. Basedmodified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of the adoption of this guidance on that review, theits disclosures.
The Company has evaluated all other recent accounting pronouncements and believes that none of these pronouncementsthem will have a significant effect on itsthe Company’s financial statements.
NOTE 3 – EXPLORATION COSTS
The Company currently has under lease fourteen federal Outer Continental Shelf blocks and has licensed 2.2 million acres of three-dimensional (3-D) seismic data in its area of concentration. The Company submitted the high bid in the Bureau of Ocean Energy Management (“BOEM”) Lease Sale 252 in March 20, 2013,2019, and is awaiting BOEM’s award of the lease.
In January 2018, the Company entered into an assignmenta strategic partnership with Delek GOM Investments, LLC. (“Delek”), and assumptionTexas South Energy, Inc. (“Texas South”) (collectively, the “Parties”) and executed a participation agreement (the “Assignment Agreement”“Agreement”) for a multi-phase exploration program. Under the terms of the Agreement, the Parties have committed to drill the Company’s “Canoe” and “Tau” prospects (the “Initial Phase”) with third parties pursuantDelek having the option to whichparticipate in two additional two-well drilling phases and a final, three-well drilling phase (collectively, the “Phases”). In each Phase, Delek will earn a 75% working interest upon paying 90% of the exploratory costs associated with drilling each exploratory well. The Company will retain a 20% working interest while paying 8% of the exploratory costs associated with drilling each well. The Company will be required to fund 20% of well costs in excess of 115% of budget. In addition, Delek will pay the Company was assignedapproximately $1.1 million in cash for each Prospect when the exclusiverespective exploration plan is filed with BOEM for each phase. Also, each Party will be responsible for their pro rata share (based on working interest) of delay rentals associated with the Prospects. The Company will be the Operator during exploratory drilling of the Prospect, however, subsequent to a commercial discovery, Delek will have the right to license certain seismic data. On March 22, 2013,become the Company executed a master license agreement withOperator. Delek will have the right to terminate this seismic company. In consideration forAgreement at the assignment and other transactions contemplated byconclusion of any drilling Phase. Delek will also have the Assignment Agreement, the Company agreedoption to issuepurchase up to the assignor parties an aggregate of 243,516,666 shares5% of the Company’s common stock. stock, par value $0.001 per share (the “Common Stock”), upon fulfilling its obligation for each Phase (maximum of 20% in the aggregate) at a price per share equal to a 10% discount to the 30-day weighted average closing price for the Common Stock preceding the acquisition. This option will expire January 8, 2020. On March 11, 2019, Delek notified the Issuer that it is exercising its right under the Agreement to enter into a stock purchase agreement for the purchase of up to 5% of the Issuer’s Common Stock, upon the fulfillment of certain milestones and obligations.
The common stock was valued at $2,435,167Company, as the operator of two wells drilled in the Gulf of Mexico, has incurred tangible and intangible drilling costs for the wells in process and has billed its working interest partners for their respective shares of the drilling costs to date. GulfSlope drilled the first well, Canoe, to a total depth of 5,765 feet (5,670 feet TVD). Multiple open hole plugs were set across several intervals and the shares were subsequently issuedwell is equipped with a mud-line suspension system for possible future re-entry. Calibration of seismic amplitudes, petrophysical analysis, reservoir engineering and scoping of development is currently underway to determine the commerciality of these sands and that work is expected to be completed in April 2013. These expenses were includedthe second calendar quarter of 2019. The second well, Tau, was spud in accrued expensesSeptember 2018 and is expected to be completed in May 2019. In February 2019, the Tau well experienced an underground control of well event and as a result, the Company filed an insurance claim with its insurance underwriters. The Company estimates the total amount of the claim to be approximately $10 million for 100% working interest.
As of March 31, 2013.
NOTE 4 – RELATED PARTY TRANSACTIONS
During April 2013 through September 2013,2017, the Company entered into convertible promissory notes whereby it borrowed a total of $6,500,000$8,675,500 from John Seitz, its current chief executive officer. The notes are due on demand, bear interest at the rate of 5% per annum, and are convertible into shares of common stock at a conversion price equal to $0.12 per share of common stock (the then offering price of shares of common stock to unaffiliated investors). In May 2013, John Seitz converted $1,200,000$5,300,000 of the aforementioned debt into 10,000,000 shares of common stock, which shares were issued in July 2013. As of December 31, 2013, there was a total of $162,042 accrued interest associated with these loans and the Company has recorded $94,319 in interest expense for the year ended September 30, 2013 and $67,723 in interest expense for the quarter ended December 31, 2013.
On November 15, 2016, a family member of the CEO, a related party, entered into a $50,000 convertible promissory note with associated warrants (“Bridge Financing”) under the same terms received by other investors (see Note 5).
Domenica Seitz CPA, related to John Seitz, has provided accounting consulting services to the Company. During the three and six month period ended March 31, 2019, the services provided were valued at $14,880 and $29,760, respectively. The Company has recorded interest expense for the same amount. In October 2013, Dr. Bain converted principalaccrued these amounts, and accrued interestthey have been reflected in related party payable in the amount of $180,408 into 1,503,403 shares of common stock (a conversion rate of $0.12 per share). In NovemberMarch 31, 2019 financial statements.
John Seitz has not received a salary since May 31, 2013, the Company repaiddate he commenced serving as our CEO and accordingly, no amount has been accrued in full the $20,000 remaining principal balance (plus accrued interest) of the convertible promissory note.
NOTE 5 – NOTES PAYABLE
Between June and November 2016, the Company issued 937,500 shareseleven convertible promissory notes (“Bridge Financing Notes”) with associated warrants in a private placement to accredited investors for total gross proceeds of common stock$837,000. Three of the notes were to Brady Rodgers,related parties for proceeds totaling $222,000, including the Company’s vice president,extinguishment of $70,000 worth of related party payables. The convertible notes had a maturity of one year (prior to settle $112,500extension), bear an annual interest rate of fees due8% and can be converted at the option of the holder at a conversion price of $0.025 per share. In addition, the convertible notes will automatically convert if a qualified equity financing of at least $3 million occurs before maturity and such mandatory conversion price will equal the effective price per share paid in the qualified equity financing. In addition to Mr. Rodgers for services rendered.
On March 1, 2019, the Company entered into a ten-year optionTerm Loan Agreement by and among the Company, as borrower, and Delek, as lender. In the Term Loan Agreement, Delek agreed to provide the Company with multiple draw term loans in an aggregate stated principal amount of up to $11.0 million (the “Term Loan Facility” and the loans thereunder, the “Loans”). The maturity date of the Term Loan Facility is six months following the closing date of the Term Loan Agreement. Until such maturity date, the Loans under the Term Loan Agreement shall bear interest at a rate per annum equal to 5.0%, payable in arrears on the maturity date. If an event of default occurs, all Loans under the Term Loan Agreement shall bear interest at a rate equal to 7.0%, payable on demand. In connection with the Term Loan Agreement, the Company entered into: (i) a Subordination Agreement (the “Subordination Agreement”) by and among the Company, as borrower, John N. Seitz, as subordinated lender (the “Subordinated Lender”), and Delek, as senior lender; (ii) a Security Agreement (the “Security Agreement”) among the Company, as debtor, and Delek, as lender; and (iii) warrants to purchase 2,000,000238,095,238 shares of the Company’s common stockCommon Stock, at an exercise price of $0.12$0.042 per share. Ashare issued to Delek GOM (the “Warrants”). The Company may elect, at its option, to prepay borrowings outstanding under the Term Loan Agreement in multiples of $100,000 and not less than $500,000 without premium or penalty. The Company is required to prepay the Loans with any net cash proceeds resulting from an asset sale, receipt of insurance proceeds from certain casualty events, proceeds from equity issuances or incurrence of indebtedness other than the Loans (subject to a $500,000 carve-out to be applied toward the Company’s general corporate purposes) or receipt of any cash proceeds from any payments, refunds, rebates or other similar payments and amounts under the Company’s operative documents. Amounts outstanding under the Term Loan Agreement are secured by a security interest in substantially all of the properties and assets of the Company.
As of March 6, 2019, the Company had borrowed a total of $10.0 million under the Term Loan Facility and issued to Delek GOM warrants to purchase 238,095,238 shares of Common Stock; and Delek GOM fully exercised the warrants through a Loan Reduction Exercise, thereby extinguishing the Company’s outstanding obligations to Delek GOM as of that date. Upon receiving the proceeds in two tranches, the Company allocated the proceeds between debt and warrants on a relative fair value basis, recording a debt discount of approximately $5.1 million. The exercise of the warrants through the extinguishment of the loan was accounted for as a standard warrant exercise and an extinguishment of debt including a recognition of a loss in the amount of the debt discount of approximately $5.1 million.
NOTE 6 – FAIR VALUE MEASUREMENT
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified and disclosed in one of the following categories:
| Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. GulfSlope considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
| Level 2: | Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that GulfSlope values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange traded derivative financial instruments as well as warrants to purchase common stock and long-term incentive plan liabilities calculated using the Black-Scholes model to estimate the fair value as of the measurement date. |
| Level 3: | Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). |
As required by ASC 820-10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of $177,298 was computed usingassets and liabilities and their placement within the Black-Scholes option-pricing model,fair value hierarchy levels.
Fair Value on a Recurring Basis
The following table sets forth by level within the fair value hierarchy the Company’s derivative financial instruments that were accounted for at fair value on a recurring basis as of which $25,632 has been expensed duringMarch 31, 2019:
| Description | Quoted Prices in ActiveMarkets for Identical Assets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | Total Carrying Value as of | ||||||||||||
| Derivative Financial Instrument at September 30, 2018 | — | (271,710 | ) | — | (271,710 | ) | ||||||||||
| Changes in Fair Value at December 31, 2018 | — | (196,266 | ) | — | (196,266 | ) | ||||||||||
| Changes in Fair Value at March 31, 2019 | 179,274 | 179,274 | ||||||||||||||
| Derivative Financial Instrument at March 31, 2019 | — | (288,702 | ) | — | (288,702 | ) | ||||||||||
During the three monthsquarter ended DecemberMarch 31, 2013. The options vest 50% in October 2014 and 50% in October 2015.
NOTE 57 – COMMON STOCK/PAID IN CAPITAL
As discussed in Note 5, between June and November 2016, the Company completedissued 27.9 million warrants in conjunction with convertible notes payable. The warrants have an exercise price of $0.03 and a reincorporationterm of the earlier of three years or upon a change of control. Based upon the allocation of proceeds between the convertible notes payable and the warrants, approximately $452,422 was allocated to the warrants. During June through August 2017, the maturity date of all of the Bridge Financing Notes was extended to January 15, 2018, in exchange for the Stateissuance of Delaware25% additional warrants. The warrants have an exercise price of $0.03 and the same expiration date (three years from original transaction) as the Stateoriginal warrants. On January 15, 2018, the maturity date of Utah.the Bridge Financing Notes was extended to April 16, 2018, in exchange for the issuance of 10% additional warrants (see Note 5 for status of notes). The current numberwarrants have an exercise price of authorized$0.10 per share and the same expiration date (three years from original transaction) as the original warrants. Through March 31, 2019, approximately 471,000 warrants have been exercised.
The fair value of the warrants were determined using the Black Scholes valuation model with the following key assumptions:
| Warrants Issue Date | June 2016 | July 2016 | August 2016 | November 2016 | June 2017 | July 2017 | August 2017 | January 2018 | ||||||||||||||||||||||||
| Warrants Outstanding | 12.6 million | 10.0 million | 3.3 million | 1.7 million | 3.1 million | 2.5 million | 1.25 million | 2.8 million | ||||||||||||||||||||||||
| Stock Price (1) | $ | 0.054 | $ | 0.040 | $ | 0.032 | $ | 0.029 | $ | 0.025 | $ | 0.019 | $ | 0.016 | $ | 0.11 | ||||||||||||||||
| Exercise Price | $ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.10 | ||||||||||||||||
| Term (2) | 3 years | 3 years | 3 years | 3 years | 2 years | 2 years | 2 years | 1.5 years | ||||||||||||||||||||||||
| Risk Free Rate | .87 | % | .80 | % | .88 | % | 1.28 | % | 1.35 | % | 1.35 | % | 1.33 | % | 1.89 | % | ||||||||||||||||
| Volatility | 135 | % | 138 | % | 137 | % | 131 | % | 135 | % | 136 | % | 135 | % | 163 | % | ||||||||||||||||
(1) Fair market value on the date of agreement.
(2) Average term.
Below is a summary of warrants issued in conjunction with convertible notes which were paid in full as of September 30, 2018. The warrants are outstanding at March 31, 2019.
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Exercise Price | Number Outstanding | Remaining Contractual Life (Yrs) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
| $ | 0.10 | 550,000 | 2.75 | $ | 0.10 | 550,000 | $ | 0.10 | ||||||||||||||
| $ | 0.10 | 1,100,000 | 2.96 | $ | 0.10 | 1,100,000 | $ | 0.10 | ||||||||||||||
| $ | 0.10 | 1,100,000 | 3.55 | $ | 0.10 | 1,100,000 | $ | 0.10 | ||||||||||||||
| $ | 0.10 | 1,100,000 | 3.71 | $ | 0.10 | 1,100,000 | $ | 0.10 | ||||||||||||||
During the six months ended March 31, 2019, the Company issued approximately 19.3 million shares of common stock is 750,000,000and approximately 9.7 million warrants to accredited investors in a private placement. The funds were received in the prior fiscal year and moved to equity during the quarter ended December 31, 2018. Based upon the allocation of proceeds between the common stock and the numberwarrants, approximately $259,000 was allocated to the warrants.
The fair value of authorized sharesthe warrants were determined using the Black Scholes valuation model with the following key assumptions:
| December 2018 | |||
| Number of Warrants Issued | 9,662,500 | ||
| Stock Price | $ | 0.044 | |
| Exercise Price | $ | 0.09 | |
| Term | 3 years | ||
| Risk Free Rate | 2.46 | % | |
| Volatility | 149 | % | |
As discussed in Note 5, as of preferred stock is 50,000,000.
NOTE 6–8 – STOCK-BASED COMPENSATION
On January 1, 2017, 33.5 million stock options, with an exercise price of $0.0278 per share, were granted to 6 employees and 2 directors of the Company. The CEO was not included in the award. The stock options vested 50% on January 1, 2017, and 50% on January 1, 2018. The stock options are exercisable for seven years from the original grant date of January 1, 2017, until January 1, 2024.
On May 1, 2018, 500,000 stock options, with an exercise price of $0.065 per share were granted to an employee. The stock options vested on the issue date. The stock options are exercisable for approximately 7.5 years from the date of grant of May 1, 2018 to December 31, 2025. These stock options were awarded from the Company’s 2014 Omnibus Incentive Plan.
On June 1, 2018, 67.5 million stock options, with an exercise price of $0.075 per share were granted to employees, directors and contractors. 18.5 million of the stock options vested on June 1, 2018, 24 million will vest on June 1, 2019 and 25 million will vest on June 1, 2020 provided the holder continues to serve as an employee or a director on the vesting date. The stock options are exercisable for approximately 7.5 years from the grant date basedof June 1, 2018, to December 31, 2025. 49 million of these stock options were awarded from the Company’s 2018 Omnibus Incentive Plan and 18.5 million stock options were inducement awards.
On January 2, 2019 the Company issued 1 million stock options to a former employee and contractor. 50% of the stock options vested on the estimatedissue date and the remainder will vest in July 2019. The stock options were valued at approximately $35,000 to be recognized over the service period of seven months. The stock options are exercisable until December 31, 2025.
The fair value of the award,stock-options granted during 2018 and is recognized over2019 were determined using the required vesting period. The Company recognized $25,632 and $0 in stock-based compensation expense during the three months ended December 31, 2013 and 2012, respectively. These expenses were recorded as exploration costs and as general and administrative expenses in the condensed consolidated statements of operations.
| Number of Options | Weighted Average Exercise Price | |
| Outstanding at beginning of period | - | - |
| Granted | 2,000,000 | $0.12 |
| Exercised | - | - |
| Cancelled | - | - |
| Outstanding at end of period | 2,000,000 | $0.12 |
| Exercisable at end of period | - | - |
| Date of Grant | May 1, 2018 | June 1, 2018 | January 2, 2019 | |||||||||
| Number of Stock Options Granted | 500,000 | 67,500,000 | 1,000,000 | |||||||||
| Stock Price | $ | 0.065 | $ | 0.075 | $ | 0.045 | ||||||
| Exercise Price | $ | 0.065 | $ | 0.075 | $ | 0.045 | ||||||
| Expected Life of Options | 4.25 years | 4.25 years | 3.75 years | |||||||||
| Risk Free Rate | 2.74 | % | 2.675 | % | 2.51 | % | ||||||
| Volatility | 145.21 | % | 145.21 | % | 126.37 | % | ||||||
The Company used a varietythe historical volatility of comparable and peer companies to determineits stock for the expected volatility.period June 2014, through June 1, 2018, for the Black Scholes computation. The Company has no historical data regarding the expected life of the options and therefore used the simplified method of calculating the expected life. The risk freerisk-free rate was calculated using the U.S. Treasury constant maturity rates similar to the expected life of the options, as published by the Federal Reserve. The Company has no plans to declare any future dividends.
The Company used the historical volatility of its stock for the prior year to value the stock options granted in 2019. The Company has no historical data regarding the expected life of the options and therefore used the simplified method of calculating the expected life. The risk-free rate was calculated using the U.S. Treasury constant maturity rates similar to the expected life of the options, as published by the Federal Reserve. The Company has no plans to declare any future dividends.
The following table summarizes the Company’s stock option activity during the six months ended March 31, 2019:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (In years) | Average Intrinsic Value | |||||||||||||
| Outstanding at September 30, 2018 | 103,500,000 | 0.0605 | ||||||||||||||
| Granted | 1,000,000 | — | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Cancelled | — | — | ||||||||||||||
| Outstanding at March 31, 2019 | 104,500,000 | $ | 0.0604 | 2.82 | $1.5 million | |||||||||||
| Vested and expected to vest | 104,500,000 | $ | 0.0604 | 2.82 | $1.5 million | |||||||||||
| Exercisable at March 31, 2019 | 55,000,000 | $ | 0.0475 | 2.82 | $1.5 million | |||||||||||
There was approximately $1.5 million of intrinsic value for the options outstanding as of March 31, 2019. As of DecemberMarch 31, 20132019, there was $151,666$1.9 million of unrecognized stock-based compensation cost, related to the stock option grant that is expected to be expensedrecognized over a weighted average period of two2.82 years. There was $0
Stock-based compensation cost is measured at the grant date, using the estimated fair value of intrinsic valuethe award, and is recognized over the required vesting period. The Company recognized $409,103 and zero in stock based compensation during the three months ended March 31, 2019 and March 31, 2018, respectively. A portion of these costs, $223,247 and zero were capitalized to unproved properties for options outstandingthe three months ended March 31, 2019 and March 31, 2018, respectively, with the remainder recorded as general and administrative expenses for each respective period. The Company recognized $802,553 and $93,381 in stock based compensation for six months ended March 31, 2019 and 2018, respectively. A portion of Decemberthese costs $541,905, and $27,875 were capitalized to unproved properties for the six months ended March 31, 2013.
NOTE 7–9 – COMMITMENTS AND CONTINGENCIES
In July 2013,2018, the Company entered into a two-yearthirty-nine month lease for approximately 5,000 square feet of office lease agreement. The agreement calls for monthly payments ofspace in 4 Houston Center in downtown Houston. Annual base rent is approximately $20,200$94 thousand for the first twelve18 months, increasing to approximately $97 thousand and $20,500 for$99 thousand, respectively during the second twelve months. In addition,remaining term of the Company paid a $18,760 security deposit in July 2013.
The Company entered into a one-year consultingreached an agreement with a third party.vendor in August 2018 for the settlement of approximately $1 million in debt. The vendor was paid approximately $0.16 million in cash and 10 million shares of GulfSlope common stock. The agreement calls for monthly retainer paymentscontains a provision that upon the sale of $11,000 per month for the first four months (a total of $44,000). As of December 31, 2013,common stock if the Company has paid 3 paymentsoriginal debt is not fully satisfied, full payment will be made under a mutually agreed payment plan. If the stock is sold for a totalgain any surplus in excess of $33,000. After$1.3 million shall be a credit against future purchases from the fourth payment,vendor. The agreement was determined to meet the consultant will be compensated ondefinition of a time and materials basis.
In October 2013,2018, the Company purchased ana directors and officers’ insurance policy for approximately $160,000 and financed $146,000 of the premium by executing a note payable in the amount of $114,748.payable. The balance of the note payable at DecemberMarch 31, 20132019, is $94,273.
NOTE 10 – SUBSEQUENT EVENTS
Insurance proceeds for an underground control of well event were received in April and May 2019. Several partial payments totaling approximately $8 million were received for 100% working interest.
Loan proceeds of $1 million were received under the $11 million Term Loan Facility described in Note 5 in April 2019.
BACK COVER PAGE
Part II
Information not required in prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with the distribution of the securities being registered. The expenses shall be paid by the Company.
| SEC registration fees | $ | 9,449 | ||
| Legal fees | 20,000 | * | ||
| Accounting fees | 10,000 | * | ||
| EDGAR/financial printing | 5,000 | * | ||
| Misc. | 10,000 | * | ||
| Total | $ | $54,449 | * | |
| SEC registration fees* | $ | 1,000 |
| Legal fees* | $ | 30,000 |
| Accounting fees* | $ | 25,000 |
| EDGAR/financial printing* | $ | 5,000 |
| Misc.* | $ | 10,000 |
| Total | $ | 71,000 |
*
EstimatedItem 14. Indemnification of directors and officers
Section 145 of the DGCL permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action.
In an action brought to obtain a judgment in the corporation’s favor, whether by the corporation itself or derivatively by a stockholder, the corporation may only indemnify for expenses, including attorneys’ fees, actually and reasonably incurred in connection with the defense or settlement of such action, and the corporation may not indemnify for amounts paid in satisfaction of a judgment or in settlement of the claim. In any such action, no indemnification may be paid in respect of any claim, issue or matter as to which such person shall have been adjudged liable to the corporation except as otherwise approved by the Delaware Court of Chancery or the court in which the claim was brought. In any other type of proceeding, the indemnification may extend to judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with such other proceeding, as well as to expenses (including attorneys’ fees).
The statute does not permit indemnification unless the person seeking indemnification has acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, in the case of criminal actions or proceedings, the person had no reasonable cause to believe his conduct was unlawful. There are additional limitations applicable to criminal actions and to actions brought by or in the name of the corporation. The determination as to whether a person seeking indemnification has met the required standard of conduct is to be made (i) by a majority vote of a quorum of disinterested members of the board of directors, (ii) by independent legal counsel in a written opinion, if such a quorum does not exist or if the disinterested directors so direct, or (iii) by the stockholders.
As permitted by the DGCL, In accordance with Section 102(b)(7) of the DGCL, our Certificate of Incorporation eliminates the personal liability of directors to us and to our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to us or our stockholders, (ii) for acts or omissions which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. Our Certificate of Incorporation further provides that, if the DGCL is amended after the effective date of our Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Our Certificate of Incorporation and Bylaws contains provisions that provide for indemnification of officers and directors to the full extent permitted by, and in the manner permissible under Delaware law. Delaware law empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. A Delaware corporation may indemnify directors, officers, employees and other agents of such corporation in an action by or in the right of a corporation under the same conditions against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense and settlement of such action or suit, except that no indemnification is permitted without judicial approval if the person to be indemnified has been adjudged to be liable to the corporation.
The Company has entered into Indemnification Agreements with Mr. Seitz, a director and executive officer, Mr. Askew,Langdon, a director, Mr. Morris, a director and Mr. Moore, Dr. Bain and Mr. Rodgers, eachMalanga, an executive officers of the Company.officer. Pursuant to the Indemnification Agreements, the Company agrees to indemnify each director or officer against any and all expenses to the fullest extent permitted by the law and the Company’s Certificate of Incorporation if such director or officer was, is, becomes or is threatened to be made a party to or witness or other participant in a claim by reason of (or arising in part out of) the director or officer’s service as a director, officer, partner, employee, trustee, agent or fiduciary of the Company or any of its subsidiaries or the director or officer’s service at the request of the Company in any such capacity with any other enterprise. The Indemnification Agreement also provides for, among other things, the advancement of expenses relating to the indemnification obligations, subject to reimbursement in the event the individual is not entitled to indemnification under applicable law and the Company’s Certificate of Incorporation.
Item 15. Recent Sales of Unregistered Securities
As previously reported in the past three years,Company’s Report on Form 8-K, on June 21, 2019 the registrant has soldCompany entered into a SPA with one or more buyers identified on the following securities which were not registered undersignature pages thereto (“Buyers”). Under the Securities Act:
The shares were subsequently issued in July 2013.
As previously reported in the Corporation’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2017, the Company issued two convertible promissory notes, each with 1 million shares of restricted stock and 1.1 million warrants in a private placement to Section 4(a)(2)an accredited investor for $100,000 in proceeds. The warrants have a five year term and an exercise price of $0.10. The promissory notes have a face value of $110,000 and incur a one-time upfront interest charge of six percent. The holder of the Securities Act. Each purchaser represented that such purchaser’s intentionnote has the option to acquireconvert the note into shares for investment onlyof common stock at a conversion price of $0.02 per share.
The offer and not with a view toward distribution. We requested our stock transfer agent to affix appropriate legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser was given adequate access to sufficient information about us to make an informed investment decision. Except as described in this prospectus, nonesale of the securities described above were sold through an underwritermade without registration under the Securities Act, and accordingly, there were no underwriting discounts or commissions involved.
Item 16. Exhibits
| (a) (1) Financial Statements (included under Item 11): | Page |
(3) Exhibits. The following exhibits are filed as part of this Annual Report:
| Exhibit No. | Description |
| 3.1 | Amended and Restated Certificate of Incorporation of GulfSlope Energy, Inc., incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed | |||
| 3.2 | Bylaws of GulfSlope Energy, Inc., incorporated by reference to Exhibit 3.2 of the Company’s Form | |||
| 4.1 | Common Stock Specimen, incorporated by reference to Exhibit 4.1 of the Company’s Form 10-K | |||
| Opinion of | ||||
| Form of | ||||
| Form of Indemnification Agreement, incorporated by reference to Exhibit 10.1 of Form 8-K filed October 31, 2013 | ||||
| Form of Convertible Promissory Note between the Company and John N. Seitz, incorporated by reference to Exhibit 10.4 of Form 8-K filed October 31, 2013 | ||||
| Form of | ||||
| GulfSlope Energy, Inc. 2014 Omnibus Incentive Plan dated effective May 24, 2014, incorporated by reference to Exhibit | ||||
| Securities Purchase Agreement dated June 21, 2019, between the Company and the Buyers identified therein, incorporated by reference to Exhibit | ||||
| Convertible Debenture dated June 21, 2019, between the Company and the Buyers identified therein, incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed June 27, 2019 | ||||
| 10.8 | Registration Rights Agreement dated June 21, 2019, between the Company and the Buyers identified therein, incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed June 27, 2019 | |||
| 10.9 | Company Warrant dated June 21, 2019, between the Company and the Buyers identified therein, incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed June 27, 2019 | |||
| 14.1 | Code of Ethics, incorporated by reference to Exhibit 14.1 of the | |||
| 23.1(1) | Consent of | |||
| 31.1(1) | Certification of | |||
| 31.2(1) | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
| 32.1(1) | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
| 32.2(1) | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
| 101.INS | XBRL Instance Document Documents | |||
| 101.SCH | XBRL Schema Document | |||
| 101.CAL | XBRL Calculation Linkbase Document | |||
| 101.DEF | XBRL Definition Linkbase Document | |||
| 101.LAB | XBRL Label Linkbase Document | |||
| 101.PRE | XBRL Presentation Linkbase Document | |||
| (1) | |
| Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
4. For determining liability of the undersigned registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Houston, State of Texas, on March 19, 2014.
| GULFSLOPE ENERGY, INC. | ||
| By: | /S/ John N. Seitz | |
| John N. Seitz | ||
| Chief Executive Officer | ||
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated below on March 19, 2014.
| Signature | Title | Date | |
/ | Chief Executive Officer and Chairman | ||
| John N. Seitz | (Principal Executive Officer) | ||
/ | Chief Financial Officer | ||
| John | (Principal Financial Officer) (Principal Accounting Officer) | ||
| /s/ Richard S. Langdon | Director | August 5, 2019 | |
| Richard S. Langdon | |||
/ | Director | ||
| Paul Morris | |||