U. S. Securities and Exchange Commission
Washington, D.C. 20549
______________
FORM 10-Q/A
Amendment No. 1
______________
| [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended June 30, 2013
Commission File No. 00-51638
GULFSLOPE ENERGY, INC.
(Exact name of the issuer as specified in its charter)
| Delaware | 16-1689008 |
| (State or Other Jurisdiction of | (I.R.S. Employer I.D. No.) |
| incorporation or organization) | |
2500 CityWest Blvd., Suite 800
Houston,Texas 77042
(Address of Principal Executive Offices)
(281) 918-4100
(Issuer’s Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
The number of shares outstanding of our common stock, as of August 14, 2013, was 569,166,666.
GulfSlope Energy, Inc. (the “Company,” “we,” or “our” unless the context indicates otherwise) is filing this Amendment No. 1 on Form 10-Q (this “Amendment”) to our Quarterly Report on Form 10-Q for the three months ended June 30, 2013, as filed on August 14, 2013 (the “Original Filing”), to correct the comparative balance sheet information as of June 30, 2013, the statement of operations for the three months and nine months ended June 30, 2013, and the statement of cash flows for the nine months ended June 30, 2013 to reflect impairment of previously capitalized Exploration Costs. This correction resulted in the recording of of $1,959,128 and $14,542,055 impairment of oil and natural gas properties for the three months and nine months ended June 30, 2013, respectively, resulting in an increase in the net loss for the same amount for those periods. Per these changes, this Amendment includes the Restated Financial Statements and changes to the “Results of Operations” and “Liquidity and Capital Requirements” sections in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations“ and "Item 4. Controls and Procedures." This Amendment on Form 10-Q/A only amends the Original Filing as noted above. This Amendment does not affect any other parts of or exhibits to the Original Filing, and no other information in the Original Filing, including the fiscal year ended September 30, 2012 financial statements or related notes to those financial statements, are amended hereby. Except for the amendments described above, this Amendment on Form 10-Q/A continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the Original Filing, and such forward-looking statements should be read in their historical context. Additionally, in connection with the filing of this Form 10-Q/A and pursuant to Securities and Exchange Commission (“SEC”) rules, we are including currently dated certifications.
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements.
June 30, 2013
| Condensed Balance Sheets | 3 |
| Condensed Statements of Operations | 4 |
| Condensed Statements of Cash Flows | 5 |
| Notes to Condensed Financial Statements | 6 |
GulfSlope Energy, Inc.
(An Exploration Stage Company)
Condensed Balance Sheets
As of June 30, 2013 and September 30, 2012
(Unaudited)
| | | | | | | |
| | | June 30, 2013 | | | September 30, 2012 | |
| | | (As Restated) | | | | |
| Assets | | | | | | |
| Current Assets | | | | | | |
| Cash | | $ | 465,305 | | | $ | 423,009 | |
| Restricted Cash | | | 2,500,124 | | | | - | |
| Prepaid Expenses | | | 7,876 | | | | 329,373 | |
| Total Current Assets | | | 2,973,305 | | | | 752,382 | |
| Property, Plant, and Equipment (net) | | | 65,326 | | | | - | |
| Other Non-Current Assets | | | 18,760 | | | | - | |
| Total Non-Current Assets | | | 84,086 | | | | - | |
| Total Assets | | $ | 3,057,391 | | | $ | 752,382 | |
Liabilities and Stockholders' Equity (Deficit) | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts Payable | | $ | 1,806,047 | | | $ | 31,731 | |
| Related Party Payable | | | 210,000 | | | | - | |
| Accrued Expenses and Other Payables | | | 1,558,190 | | | | - | |
| Loan from Related-Party | | | 5,200,000 | | | | 31,183 | |
| Total Current Liabilities | | | 8,774,237 | | | | 62,914 | |
| Accrued Expenses and Other Payables, Net of Current Portion | | | 5,003,065 | | | | - | |
| Total Liabilities | | $ | 13,777,302 | | | $ | 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); | | | 541,667 | | | | 235,150 | |
| Authorized 750,000,000 shares; 541,666,666 and | | | | | | | | |
| 235,150,000 issued and outstanding, respectively | | | | | | | | |
| Additional Paid-in-capital – shares to be issued | | | 2,100,000 | | | | - | |
| Additional Paid-in-capital | | | 4,910,260 | | | | 2,151,610 | |
| Deficit accumulated during the exploration stage | | | (18,271,838 | ) | | | (1,697,292 | ) |
| Total Stockholders' Equity (Deficit) | | | (10,719,911) | | | | 689,468 | |
| Total Liabilities and Stockholders' Equity (Deficit) | | $ | 3,057,391 | | | $ | 752,382 | |
See accompanying notes to condensed financial statements.
GulfSlope Energy, Inc.
(An Exploration Stage Company)
Condensed Statements of Operations
For the Three and Nine Months Ended June 30, 2013 and 2012, and
For the Period from Inception through June 30, 2013
(Unaudited)
| | | (As Restated) For the three months ended | | | For the three months ended | | | (As Restated) For the nine months ended | | | For the nine months ended | | | (As Restated) Since Inception (12/12/03) through | |
| | | June 30, 2013 | | | June 30, 2012 | | | June 30, 2013 | | | June 30, 2012 | | | June 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 | | | 1,959,128 | | | | | | | | 14,542,055 | | | | | | | | 14,542,055 | |
| General & Administrative Expenses | | | 477,138 | | | | 1,108,947 | | | | 1,997,323 | | | | 1,215,946 | | | | 3,679,846 | |
| Net Loss from Operations | | | (2,436,266 | ) | | | (1,108,947 | ) | | | (16,539,378 | ) | | | (1,215,946 | ) | | | (18,221,901 | ) |
| Other Income/(Expenses): | | | | | | | | | | | | | | | | | | | | |
| Interest Income | | | 124 | | | | - | | | | 124 | | | | - | | | | 124 | |
| Interest Expense | | | (35,292) | | | | (60) | | | | (35,292) | | | | (60) | | | | (50,806 | ) |
| Net Loss Before Income Taxes | | | (2,471,434 | ) | | | (1,109,007 | ) | | | (16,574,546 | ) | | | (1,216,006 | ) | | | (18,271,038 | ) |
| Provision for Income Taxes | | | - | | | | - | | | | - | | | | - | | | | (800 | ) |
| Net Loss | | | (2,471,434 | ) | | | (1,109,007 | ) | | | (16,574,546 | ) | | | (1,216,006 | ) | | | (18,271,838 | ) |
| Loss Per Share - Basic and Diluted | | $ | (0.01 | ) | | $ | (0.02 | ) | | $ | (0.05 | ) | | $ | (0.04 | ) | | | | |
| Weighted Average Shares Outstanding – Basic and Diluted | | | 538,298,351 | | | | 64,996,154 | | | | 336,199,450 | | | | 34,243,248 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to condensed financial statements.
GulfSlope Energy, Inc.
(An Exploration Stage Company)
Condensed Statements of Cash Flows
For the Nine Months Ended June 30, 2013 and 2012, and
For the Period from Inception through June 30, 2013
(Unaudited)
| | | (As Restated) For the nine months ended June 30, 2013 | | | For the nine months ended June 30, 2012 | | | (As Restated) Since Inception (12/12/03) Through June 30, 2013 | |
| Net Loss | | $ | (16,574,546 | ) | | $ | (1,216,006 | ) | | $ | (18,271,838 | ) |
| Adjustments to reconcile net income/loss to net cash | | | | | | | | | | | | |
| From Operating Activities: | | | 14,542,055 | | | | - | | | | 14,542,055 | |
| Impairment of Oil & Natural Gas Property | | | | | | | | | | | | |
| Depreciation | | | 1,928 | | | | - | | | | 10,834 | |
| Stock Issued for Services | | | 160,000 | | | | 1,350,000 | | | | 1,510,000 | |
| Changes in Operating Assets and Liabilities | | | | | | | | | | | | |
| (Increase)/Decrease in Prepaid Expenses and Other Assets | | | 302,737 | | | | (483,125 | ) | | | (26,636 | ) |
| Increase/(Decrease) in Accounts Payable | | | 121,845 | | | | 22,027 | | | | 153,577 | |
| Increase/(Decrease) in Accrued Expenses | | | 131,520 | | | | - | | | | 131,520 | |
| Increase/(Decrease) in Related Party Payable | | | 210,000 | | | | (1,619 | ) | | | 252,205 | |
| Net Cash From Operating Activities | | | (1,104,461 | ) | | | (328,723 | ) | | | (1,698,283 | ) |
| Cash From Investing Activities | | | | | | | | | | | | |
| Exploration Costs | | | (4,024,682 | ) | | | - | | | | (4,024,682 | ) |
| Purchase of Equipment | | | (67,254 | ) | | | - | | | | | ) |
| Net Cash From Investing Activities | | | (4,091,936 | ) | | | - | | | | (4,099,342 | ) |
| Cash from Financing Activities | | | | | | | | | | | | |
| Loans from Shareholders | | | 5,200,000 | | | | 7,200 | | | | 5,241,769 | |
| Payment on Loans from Shareholders | | | (31,183 | ) | | | (7,200 | ) | | | (72,952 | ) |
| Restricted Cash | | | (2,500,124 | ) | | | - | | | | (2,500,124 | ) |
| Proceeds from Stock Issuances | | | 470,000 | | | | 791,500 | | | | 1,384,237 | |
| Proceeds from sale of stock (to be issued) | | | 2,100,000 | | | | - | | | | 2,210,000 | |
| Net Cash From Financing Activities | | | 5,238,693 | | | | 791,500 | | | | 6,262,930 | |
| Net Increase/(Decrease) in cash | | | 42,296 | | | | 462,777 | | | | 465,305 | |
| Beginning Cash Balance | | | 423,009 | | | | 87,505 | | | | - | |
| Ending Cash Balance | | $ | 465,305 | | | $ | 550,282 | | | $ | 465,305 | |
| Supplemental Schedule of Cash Flow Activities | | | | | | | | | | | | |
| Cash Paid for Income Taxes | | $ | - | | | $ | - | | | $ | 800 | |
| Cash Paid for Interest | | $ | - | | | $ | 60 | | | $ | 11,356 | |
| Related Party Debt Forgiveness | | $ | - | | | $ | - | | | $ | 11,023 | |
| Stock Issued for Prepaid Expenses | | $ | - | | | $ | 550,000 | | | $ | 550,000 | |
| Property contributed by shareholder | | $ | - | | | $ | - | | | $ | 1,500 | |
| | | | | | | | | | | | | |
| Purchases of Development Capital Expenditures | | | | | | | | | | | | |
| Through Issuance of Common Stock | | $ | 2,435,167 | | | $ | - | | | $ | 2,435,167 | |
| Included in Accrued Expenses | | $ | 6,429,735 | | | $ | - | | | $ | 6,429,735 | |
| Included in Accounts Payable | | $ | 1,652,471 | | | $ | - | | | $ | 1,652,471 | |
| | | | | | | | | | | | | |
See accompanying notes to condensed financial statements.
GulfSlope Energy, Inc.
(An Exploration Stage Company)
Notes to Condensed Financial Statements June 30, 2013
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 TGS-NOPEC Geophysical Company (“TGS”) to license certain seismic data for the purposes of engaging in the exploration of oil and natural gas.
NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Restatement of June 30, 2013 Quarterly Results
The Company determined that previously capitalized geological and geophysical costs (“G&G costs”) (presented within the consolidated balance sheet as “Oil and Natural Gas Properties, Full Cost Method of Accounting, Unproved Properties”) that were properly capitalized in accordance with full cost method accounting rules, should not be excluded from the depletion base as originally accounted for in accordance with the full cost rules defined in Regulation S-X Rule 4-10. As a result of including these G&G costs within the depletion base of the full cost pool the capitalized costs were effectively impaired since the Company did not yet own the specific leasehold properties or have established proven reserves. Though the Company determined that these G&G costs have provided value to the Company in identifying specific unevaluated properties it will attempt to acquire, accounting guidance requires the G&G costs to be included in the depletion base since the specific unevaluated properties had not been acquired by the Company as of the date these G&G costs were capitalized. Once the specific unevaluated properties are acquired by the Company, the cost of their acquisition and subsequent G&G costs, if any, that are directly associated with the acquired unevaluated properties will be capitalized within the full cost pool and excluded from the depletion base until proven reserves are established.
As the Company did not have any specific and owned unevaluated properties as of June 30, 2013, the G&G costs are subject to the ceiling limitation test, resulting in immediate impairment. As a result, in the quarterly filing for June 30, 2013, operating expenses were understated in the amount of the previously capitalized G&G costs $1,959,128 and $14,542,055 for the three months and six months ended June 30, 2013, respectively. As a result, all previously capitalized G&G costs are impaired and reflected on the Company’s statement of operations as Impairment of Oil and Natural Gas Properties. Therefore, the Company is adjusting its previously reported March 31, 2013, balance sheet, statements of operations and cash flows in this restated June 30, 2013 quarterly filing.
The following table reflects the impact of the above corrections to the condensed balance sheet as of June 30, 2013:
| | | As of June 30, 2013 | |
| | | As Reported | | | Adjustments | | | As Restated | |
| | | | | | | | | | |
| Oil and natural gas properties, full cost method of accounting, unproved properties | | $ | 14,542,055 | | | $ | (14,542,055 | ) | | $ | - | |
| Total Assets | | | 17,599,446 | | | | (14,542,055 | ) | | | 3,057,391 | |
| Deficit accumulated during the exploration stage | | | (3,729,783 | ) | | | (14,542,055 | ) | | | (18,271,838 | ) |
| Total Stockholders' Equity (Deficit) | | | 3,822,144 | | | | (14,542,055 | ) | | | (10,719,911 | ) |
| Total Liabilities & Stockholders' Equity (Deficit) | | | 17,599,446 | | | | (14,542,055 | ) | | | 3,057,391 | |
The following table reflects the impact of the above corrections to the condensed statement of operations for the three months ended June 30, 2013:
| | | Three Months Ended June 30, 2013 | |
| | | As Reported | | | Adjustments | | | As Restated | |
| | | | | | | | | | |
| Impairment of Oil and Natural Gas Properties | | $ | - | | | $ | 1,959,128 | | | $ | 1,959,128 | |
| Net Loss | | | (512,306 | ) | | | (1,959,128 | ) | | | (2,471,434 | ) |
| Loss Per Share – Basic & Diluted | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.01 | ) |
| Weighted Average Shares Outstanding – Basic and Diluted | | | 538,298,351 | | | | 538,298,351 | | | | 538,298,351 | |
The following tables reflect the impact of the above corrections to the statement of operations for the nine months ended June 30, 2013:
| | | Nine Months Ended June 30, 2013 | |
| | | As Reported | | | Adjustments | | | As Restated | |
| | | | | | | | | | |
| Impairment of Oil and Natural Gas Properties | | $ | - | | | $ | 14,542,055 | | | $ | 14,542,055 | |
| Net Loss | | | (2,032,491 | ) | | | (14,542,055 | ) | | | (16,574,546 | ) |
| Loss Per Share – Basic & Diluted | | $ | (0.01 | ) | | $ | (0.04 | ) | | $ | (0.05 | ) |
| Weighted Average Shares Outstanding – Basic and Diluted | | | 336,199,450 | | | | 336,199,450 | | | | 336,199,450 | |
The following table reflects the impact of the above corrections to the condensed statement of cash flows for the nine months ended June 30, 2013:
| | | Nine Months Ended June 30, 2013 | |
| | | As Reported | | | Adjustments | | | As Restated | |
| | | | | | | | | | |
| Net Loss | | $ | (2,032,491 | ) | | $ | (14,542,055 | ) | | $ | (16,574,546 | ) |
| Impairment of Oil and Natural Gas Properties | | | - | | | | 14,542,055 | | | | 14,542,055 | |
Presentation
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, 2012, which were included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012.
Cash and 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. Cash equivalents consist primarily of interest-bearing bank accounts 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
We have incurred accumulated losses for the period from inception to June 30, 2013 of $18,271,838. Further losses are anticipated in developing our business. As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern. As of June 30, 2013, we had $465,305 of unrestricted cash on hand. The Company estimates that it will need to raise a minimum of $20 million to fund operations through December 31, 2013, and likely significantly more capital to meet its obligations during the subsequent 12 months. The Company plans to finance the Company through best-efforts equity and/or debt financings. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company uses the full cost method of accounting for oil and gas exploration and development activities. Under the full cost method of accounting, all costs associated with the exploration for and development of oil and gas reserves are capitalized on a country-by-country basis into a single cost center (“full cost pool”). Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling both productive and non-productive wells and overhead charges directly related to acquisition, exploration and development activities.
The costs of unproved properties and related capitalized costs (such as G&G costs) are withheld from the depletion base until such time as they are either developed or abandoned. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion and full cost ceiling calculations. Further, capitalized G&G costs that are directly associated with unevaluated properties not yet owned by the Company are included in the depletion base. As of June 30, 2013, the Company had no proved reserves, nor any unevaluated properties. As a result, the geological and geophysical costs are included in the amortization base as incurred and, per Rule 4-10, are subject to the ceiling limitation test, resulting in immediate impairment.
Companies that use the full cost method of accounting for oil and natural gas exploration and development activities are required to perform a ceiling test calculation each quarter. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10. The ceiling test is performed quarterly, on a country-by-country basis, utilizing the average of prices in effect on the first day of the month for the preceding twelve month period. The ceiling limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved crude oil and natural gas reserves discounted at 10% plus the lower of cost or market value of unproved properties less any associated tax effects. If such capitalized costs exceed the ceiling, the Company will record a write-down to the extent of such excess as a non-cash charge to earnings. Any such write-down will reduce earnings in the period of occurrence and results in a lower depreciation, depletion and amortization rate in future periods. A write-down may not be reversed in future periods even though higher oil and natural gas prices may subsequently increase the ceiling.
(e) Capitalized Interest
Interest is capitalized on the cost of unevaluated gas and oil properties that are excluded from amortization and actively being evaluated, if any.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its financial statements.
NOTE 3 – EXPLORATION COSTS
On March 20, 2013, the Company entered into an assignment and assumption agreement (the “Assignment Agreement”) with third parties pursuant to which the Company was assigned the exclusive right to license certain seismic data from TGS. On March 22, 2013, the Company executed a master license agreement with TGS. In consideration for the assignment and other transactions contemplated by the Assignment Agreement, the Company agreed to issue to the assignor parties an aggregate of 243,516,666 shares of the Company’s common stock. The common stock was valued at $2,435,167 and the shares were subsequently issued in April 2013. A portion of these costs were included in accrued expenses as of June 30, 2013.
In March 2013, the Company licensed certain seismic data from TGS. The seismic data license fee totaled $6,135,500.
In March 2013, the Company licensed certain seismic data from a different seismic company pursuant to another ordinary business course agreement. The seismic data purchase totaled $4,012,260.
During May 2013, the Company incurred $90,000 in costs to participate in a geophysical research program with a public institution.
During May and June 2013, the Company incurred $1,562,470 in costs associated with technological infrastructure and third party hosting services to maintain the aforementioned seismic data.
During May and June 2013, the Company incurred $306,658 in consulting fees and salaries and benefits associated with full-time employed geoscientists analyzing the aforementioned seismic data.
The Company properly capitalized these G&G costs and included them in the depletion base because the Company did not yet own the specific unevaluated properties these costs related to. Therefore, these G&G costs were subject to the ceiling limitation test, resulting in immediate impairment for accounting purposes.
NOTE 4 – RELATED PARTY TRANSACTIONS
In May 2013, James Askew resigned as the Company’s Chief Executive Officer. Simultaneously, John Seitz was appointed Chief Executive Officer and Chairman of the board of directors.
During April through June 2013, the Company entered into convertible promissory notes whereby it borrowed $5,200,000 from 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 conversion price is equal to the most recent sale of the Company’s stock (see Note 5 below).
In May 2013, the Company’s current Chief Executive Officer opted to convert $1,200,000 of the aforementioned debt into 10,000,000 shares of common stock pursuant to the aforementioned convertible promissory notes. The shares were not issued as of June 30, 2013 and were subsequently issued in July 2013.
NOTE 5 – COMMON STOCK/PAID IN CAPITAL
Effective April 2012, the Company completed a reincorporation in the State of Delaware from the State of Utah. The reincorporation was effected by the merger of Plan A with and into GulfSlope Energy, Inc., a newly formed, wholly owned Delaware subsidiary. As of the effective time of the reincorporation merger, Plan A ceased to exist as a separate entity with GulfSlope being the surviving entity. Each outstanding share of common stock of Plan A was automatically converted into one share of GulfSlope common stock. The par value of GulfSlope common stock and preferred stock changed from $0.01 per share to $0.001 per share. In addition, the number of authorized shares of common stock was increased from 50,000,000 to 750,000,000 and the number of authorized shares of preferred stock was increased from 5,000,000 to 50,000,000. These condensed financial statements and related notes give retroactive effect to the change in par value.
During February and March 2013, the Company sold 47,000,000 shares of common stock for cash proceeds of $470,000 or $0.01 per share.
During April 2013, the Company issued a total of 6,000,000 shares of common stock to two third parties for services rendered. The shares were valued at $60,000 based upon the most recent sale (March 2013) of stock through a private placement at a price of $0.01 per share
During April 2013, the Company issued 10,000,000 shares of common stock to John B. Connally III as consideration for termination of a consulting agreement. The shares were valued at $100,000 based upon the most recent sale (March 2013) of stock through a private placement at a price of $0.01 per share.
During April 2013, the Company issued 243,516,666 shares of common stock to third parties in relation to the licensing of certain seismic data (see Note 3 above). The shares were valued at $2,435,167 based upon the most recent sale (March 2013) of stock through a private placement at a price of $0.01 per share.
During April 2013, the Company sold 16,666,667 shares of common stock for $2,000,000 cash or $0.12 per share. The shares were subsequently issued in July 2013.
During May 2013, the Company was obligated to issue 10,000,000 shares of common stock to its Chief Executive Officer to settle $1,200,000 in debt (see Note 4 above). The shares were not issued as of June 30, 2013 and were subsequently issued in July 2013.
During June 2013, the Company sold 833,333 shares of common stock for $100,000 cash or $0.12 per share. The shares were subsequently issued in July 2013.
NOTE 6– COMMITMENTS AND CONTINGENCIES
Effective March 2013, the Company amended the employment agreement of James Askew to allow the Company to terminate such agreement at any time. The Company agreed to pay Mr. Askew a severance payment upon termination in the amount of up to $100,000 as reimbursement for any tax liabilities arising from salary and other compensation paid to Mr. Askew during calendar year 2012. The termination amount was accrued and not paid as of June 30, 2013.
On March 1, 2013, the Company entered into a one-year consulting agreement with ConRon Consulting Inc. (“ConRon”) whereby ConRon will assist the Company in negotiating licensing for certain seismic data, as well as provide other general consulting. Pursuant to the agreement, ConRon is paid cash compensation of $30,000 per month. It is expected that in the near future the Company will enter into an arrangement to replace the consulting agreement. As of June 30, 2013, the consulting fees for the months of March, April, and May, and June totaling $120,000 were unpaid and had been accrued.
On March 1, 2013, the Company entered into a one-year consulting agreement with John N. Seitz, a shareholder, whereby Mr. Seitz will assist the Company in negotiating licensing for certain seismic data, as well as provide other general consulting. Pursuant to the agreement, Mr. Seitz is paid cash compensation of $40,000 per month. The agreement was terminated in May 2013, as Mr. Seitz was appointed as the Company’s Chief Executive Officer and it is expected that Mr. Seitz will enter into an arrangement with the Company in the near future providing equity-based compensation. As of June 30, 2013, the consulting fees for the months of March, April, and May totaling $120,000 were unpaid and had been accrued.
In March 2013, the Company licensed certain seismic data pursuant to two agreements. With respect to the first agreement, as of the date of this report, the Company has paid $2,135,500 in cash, and has provided an additional $2,500,000 in an escrow account, which will be released to the vendor at a later date. This amount has been recorded as restricted cash as of June 30, 2013. The Company is obligated to provide the remaining $1,500,000 in an escrow account upon the delivery of certain additional seismic data by the vendor to the Company, which is expected to occur during the first calendar quarter of 2014. With respect to the second agreement, as of the date of this Report, the Company has paid $2,006,130 in cash and is obligated to pay $1,003,065 during April 2014 and $1,003,065 during April 2015.
In March and April 2013, the Company agreed to issue pursuant to employment offers and non-competes an aggregate of 1,500,000 shares of common stock to two employees. To date, the shares have not been issued and are pending board approval.
NOTE 7 – SUBSEQUENT EVENTS
During July and August 2013, the Company entered into promissory notes whereby it borrowed $550,000 from 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.
During July 2013, the Company issued 16,666,667 shares of common stock for $2,000,000 cash received in April 2013 (see note 5 above).
During July 2013, the Company issued 10,000,000 shares of common stock to its Chief Executive Officer related to the settlement of $1,200,000 in debt in May 2013 (see Note 4 above).
During July 2013, the Company issued 833,333 shares of common stock for $100,000 received in June 2013.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012
We recorded no revenue during the three months ended June 30, 2013 and 2012. Impairment of capitalized geological and geophysical costs were approximately $2.0 million for the three months ended June 30, 2013, as the Company launched exploration activities in March 2013. There were no geological and geophysical costs for the three months ended June 30, 2012. General and administrative expenses were approximately $0.5 million for the three months ended June 30, 2013, compared to approximately $1.1 million for the three months ended June 30, 2012. The decrease in general and administrative expenses for the three months ended June 30, 2013 compared to the same period in 2012 was primarily attributed to (i) a decrease of approximately $0.2 million of consulting fees and professional fees paid to third parties, (ii) a decrease of approximately $0.5 million of employee compensation and benefits paid, and (iii) an increase of approximately $0.1 million in office rent and related office expenses.
Nine Months Ended June 30, 2013 Compared to Nine Months Ended June 30, 2012
We recorded no revenue during the nine months ended June 30, 2013 and 2012. Impairment of capitalized geological and geophysical costs were approximately $14.5 million for the nine months ended June 30, 2013, as the Company launched exploration activities in March 2013. There were no geological and geophysical costs for the nine months ended June 30, 2012. General and administrative expenses were approximately $2.0 million for the nine months ended June 30, 2013, compared to approximately $1.2 million for the nine months ended June 30, 2012. The increase in general and administrative expenses for the nine months ended June 30, 2013 compared to the same period in 2012 was primarily attributed to (i) an increase of approximately $0.9 million of consulting fees and professional fees paid to third parties (ii) a decrease of approximately $0.2 million of employee compensation and benefits and (iii) an increase of approximately $0.1 million in office rent and related office expenses.
Liquidity and Capital Requirements
As of June 30, 2013, we had $465,305 of cash on hand, excluding $2,500,124 restricted cash in an escrow account earmarked for a future payment associated with seismic data. From April 2013 through the date of this Report, we sold 17,500,000 shares of common stock for gross proceeds of $2.1 million and borrowed approximately $5.8 million from our Chief Executive Officer, bearing interest at the rate of 5% per annum, convertible into shares of common stock at a conversion price of $0.12 per share. To date, our Chief Executive Officer has converted $1.2 million of this loan into 10,000,000 shares of common stock. Under our current business plan, we will require a minimum of approximately $20 million to fund operations through December 31, 2013, and a minimum of approximately $55 million to fund our working capital needs during the subsequent two-year period . Future equity financings may be dilutive to our stockholders, and the terms of future equity financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through best efforts private equity financings. We do not have any credit or equity facilities available with financial institutions, stockholders or third party investors, and will continue to rely on best efforts financings. There is no assurance that we can raise up to $20 million during 2013, or raise additional capital thereafter. Failure to raise estimated required capital, on favorable terms or at all, will have a material adverse effect on our operations, and will likely cause us to curtail or cease operations.
We have incurred losses from inception to June 30, 2013 of approximately $18.3 million. Further losses are anticipated in developing our business. As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern. As of June 30, 2013, we had $465,305 of cash on hand, excluding $2,500,124 restricted cash in an escrow account earmarked for a future payment associated with seismic data. The Company estimates that it will need to raise a minimum of $20 million to fund operations through December 31, 2013 and likely significantly more capital, to meet its obligations during the subsequent 12 months. The Company plans to finance the Company through best-efforts equity and/or debt financings. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission, and that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.
The Company determined that previously capitalized geological and geophysical costs (“G&G costs”) (presented within the consolidated balance sheet as “Oil and Natural Gas Properties, Full Cost Method of Accounting, Unproved Properties”) that were properly capitalized in accordance with full cost method accounting rules, should not be excluded from the depletion base as originally accounted for in accordance with the full cost rules defined in Regulation S-X Rule 4-10. As a result of including these G&G costs within the depletion base of the full cost pool, the capitalized costs were effectively impaired since the Company did not yet own the specific leasehold properties or have established proven reserves. Though the Company determined that these G&G costs have provided value to the Company in identifying specific unevaluated properties it will attempt to acquire, accounting guidance requires the G&G costs to be included in the depletion base since the specific unevaluated properties had not been acquired by the Company as of the date these G&G costs were capitalized. Once the specific unevaluated properties are acquired by the Company, the cost of their acquisition and subsequent G&G costs, if any, that are directly associated with the acquired unevaluated properties will be capitalized within the full cost pool and excluded from the depletion base until proven reserves are established.
Under the supervision and with the participation of our management, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our management concluded that, as of June 30, 2013, our disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.
Limitations on the Effectiveness of Controls
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company's financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter covered by this Report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 6. Exhibits
The following exhibits are attached hereto or are incorporated by reference:
| 31.1 (1) | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) |
| 32.1 (1) | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 18 U.S.C. Section 1350, adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101 | The following financial information from our Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2013 formatted in Extensible Business Reporting language (XBRL); (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations, (iii) Condensed Statements of Cash Flows and (iv) Notes to the Condensed Financial Statements (2) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Issuer has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
GULFSLOPE ENERGY, INC.
(Issuer)
| Date: | 12/30/2013 | | By: | /s/John N. Seitz |
| | | | | John N. Seitz, Chief Executive Officer, Principal Financial Officer, and Chairman |
