The accompanying
notes are an integral part to these condensed financial statements.
The accompanying notes are an integral
part to these condensed financial statements.
The accompanying
notes are an integral part to these condensed financial statements.
Notes to Condensed Financial Statements
December 31, 2016
(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 crude oil and
natural gas exploration company whose interests are concentrated in the United States Gulf of Mexico federal waters offshore Louisiana
in less than 450 feet of water depth for 16 of our 17 prospects. The Company currently has under lease 17 federal Outer Continental
Shelf blocks (referred to as “prospect,” “portfolio” or “leases” in this Report) and has licensed
2.2 million acres of three-dimensional (3-D) seismic data in its area of concentration.
Since March 2013, we have been singularly
focused on identifying high-potential oil and gas prospects. We have licensed 3-D seismic data covering approximately 2.2
million acres and have evaluated this data using advanced interpretation technologies. As a result of these analyses, we have identified
and acquired leases on 17 prospects that we believe may contain economically recoverable hydrocarbon deposits, and we plan to continue
to conduct more refined analyses of our prospects as well as target additional lease and property acquisitions. Our activities
have been focused exclusively in the federal waters of the Gulf of Mexico. We have given preference to areas with water depths
of 450 feet or less where production infrastructure already exists, which we believe will allow for any discoveries to be developed
faster and less expensively with the goal to reduce economic risk while increasing returns.
As of December 31, 2016, we have no
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, 2016, which were included in the Company’s
Annual Report on Form 10-K for the fiscal year ended September 30, 2016 and filed with the Securities and Exchange Commission on
December 27, 2016.
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
The Company has
incurred accumulated losses as of December 31, 2016 of $34.1 million. Further losses are anticipated in developing our
business. As a result, our auditor expressed substantial doubt about our ability to continue as a going concern on its report
for the year ended September 30, 2016. As of December 31, 2016, we had $0.05 million of unrestricted cash on hand. The
Company estimates that it will need to raise a minimum of $4 million to meet its obligations and planned expenditures
through February 2018. The Company plans to finance its operations through the issuance of equity, debt financings,
joint ventures and the further sale of working interests in prospects. 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
and other related parties. 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. 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 gas exploration and development activities as defined by the Securities and Exchange Commission (“SEC”).
Under the full cost method of accounting, all costs associated with successful and unsuccessful exploration and development activities
are capitalized on a country-by-country basis into a single cost center (“full cost pool”). Such costs include property
acquisition costs, geological and geophysical (“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. Proceeds from property sales will generally be credited to the full cost pool, with no gain or loss recognized, unless
such a sale would significantly alter the relationship between capitalized costs and the proved reserves attributable to these
costs. A significant alteration would typically involve a sale of 25% or more of the proved reserves related to a single
full cost pool.
Proved properties are amortized on a country-by-country
basis using the units of production method (UOP). The UOP calculation multiplies the percentage of estimated proved reserves produced
each quarter by the cost of those 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 amortization calculation until such time as they are either developed
or abandoned. Unproved 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 exist, exploratory drilling costs associated with dry 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 been established, impairments
are charged to earnings.
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.
As of December 31, 2016, the Company’s
oil and gas properties consisted of unproved properties and no proved reserves.
Basic and Dilutive 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). 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 months ended December 31, 2016 and 2015, the potentially dilutive shares are anti-dilutive and are thus not added into
the loss per share calculations. As of December 31, 2016 and 2015, there were 118,268,823 and 52,389,171 potentially dilutive
shares, respectively.
Recent Accounting Pronouncements
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 will replace most existing revenue recognition
guidance in GAAP when it becomes effective. As amended, the new standard is effective for annual reporting periods beginning after
December 15, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect
transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on its financial statements and related
disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing
financial reporting.
In August 2014, the FASB issued Accounting
Standard Update No. 2014-15 (“ASU No. 2014-15”),
Presentation of Financial Statements Going Concern (Subtopic 205-40)
which requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon
certain principles that are currently in U.S. auditing standards. Specifically, ASU No. 2014-15 provides a definition of the term
substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or
available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration
of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. ASU
No. 2014-15 is effective for fiscal years ending after December 15, 2016, and interim periods within those years, and early application
is permitted. We are currently evaluating the accounting implication and do not believe the adoption of ASU 2014-15 to have material
impact on our financial statements, although there may be additional disclosures upon adoption.
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 not yet 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.
In March 2016, the FASB issued Accounting Standards
Update (“ASU”) 2016-09,
“Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting” (“ASU 2016-09”)
. ASU 2016-09 simplifies several aspects of accounting for share-based
payment award transactions, including income tax consequences, classification of awards as either liability or equity, and classification
on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2016, including interim
periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of
ASU 2016-09 will have on its financial statements.
In March 2016, the FASB issued ASU No. 2016-06,
Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues
Task Force)
(“ASU 2016-06”), which clarifies the requirements for assessing whether contingent call (put) options
that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts and requires
that an entity assess the embedded call (put) options solely in accordance with the four-step decision sequence in ASC 815. ASU
2016-06 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption
is permitted, including adoption in an interim period. The Company is currently evaluating the impact the adoption of ASU 2016-06
will have on its financial statements.
The Company has evaluated all other recent
accounting pronouncements and believes that none of them will have a significant effect on the Company’s financial statements.
NOTE 3 – OIL AND NATURAL GAS
PROPERTIES
In March 2014, the Company was awarded 21 blocks
in the Central Gulf of Mexico Lease Sale 231, conducted by the Bureau of Ocean Energy Management (“BOEM”). In March
2015, the Company was awarded two blocks in the Central Gulf of Mexico Lease Sale 235. During the quarter ended June 30, 2016,
the Company relinquished six of the lease blocks acquired in 2014. The relinquished leases are Ewing Bank 904 and 945, Garden Banks
173, Eugene Island 395, Vermilion 393 and South Marsh Island 187. The capitalized lease costs of $2,610,678 associated with these
blocks were recorded as impairment of oil and natural gas properties. The Company also deducted $280,000 as an impairment of certain
capitalized exploration costs that were directly allocable to the relinquished blocks, for a total impairment deduction of $2,890,678.
In March 2014, the Company entered into
a farm-out letter agreement with Texas South Energy, Inc. (“Texas South”) relating to five prospects located
within the blocks the Company bid on at the Central Gulf of Mexico Lease Sale 231. Under the terms of the farm-out
letter agreement, Texas South acquired a 20% working interest in these five prospects for $10 million. In accordance
with full cost requirements, the Company recorded the proceeds from the transaction as an adjustment to capitalized costs
with no gain recognition. Texas South is obligated to pay its proportionate share of the net annual rental costs related to
the prospects. The Company will be the operator of record.
In May 2016, the Company entered into a letter
of intent (the “LOI”) with Texas South that sets out the terms and conditions of a proposed farm-out arrangement (the
“Farm-out”) to develop two shallow-depth oil and gas prospects located on offshore Gulf of Mexico blocks currently
leased by the Company. Through December 31, 2016 the Company received $400,000 under the terms of the LOI. In accordance with full
cost requirements, the Company recorded the proceeds from the transaction as an adjustment to the capitalized costs of its oil
& gas properties with no gain or loss recognition. The Company also received lease rental reimbursements of $63,147 under the
terms of this letter of intent.
The Company paid $632,665 and $807,755 in gross
annual lease rental payments to the BOEM for the year ended September 30, 2016 and 2015, respectively. The Company’s share
of these amounts are included in unproved properties.
For the year ended September 30, 2016, the
Company incurred $1,354,674 in consulting fees and salaries and benefits associated with full-time geoscientists, and $463,497
associated with technological infrastructure, third party hosting services and seismic data. The Company capitalized these G&G
costs because the Company owned specific unevaluated properties that these costs relate to. At June 30, 2016, a portion
of these costs, $280,000, specifically related to leases relinquished in June 2016 were immediately impaired. These
remaining capitalized amounts when added to the amount paid in 2016 for lease rental payments of $632,665 and netted with the 2016
receipts from sale of a working interest of $400,000 as well as the relinquished leases impairment amount of $2,610,678 subtracting
lease rentals receivable of $191,171 results in unproved oil and gas properties of $4,526,171, reflected on our balance sheet at
September 30, 2016.
For the quarter ended December 31, 2016, the
Company incurred $56,679 in consulting fees and salaries and benefits associated with geoscientists, and $7,713 associated with
technological infrastructure and third party hosting services. The Company capitalized these G&G costs because the Company
owned specific unevaluated properties that these costs relate to. These amounts when added to unproved properties at September
30, 2016 result in $4,590,563 unproved properties at December 31, 2016.
NOTE 4 – 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, which shares were issued in July 2013. Between June of 2014 and September 2016, the Company entered into
promissory notes whereby it borrowed a total of $2,773,000 from Mr. Seitz. The notes are not convertible, due on demand and bear
interest at a rate of 5% per annum. Additionally, during the quarter ended December 31, 2016, the Company entered into promissory
notes with John Seitz whereby it borrowed a total of $93,000. The notes are not convertible, due on demand and bear interest
at the rate of 5% per annum. As of December 31, 2016 the total amount owed to John Seitz, our CEO, is $8,166,000. There was
a total of $885,335 of unpaid interest associated with these loans included in accrued interest payable within our balance sheet
as of December 31, 2016.
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 current 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 December 31, 2016, the total amount owed to Dr. Bain and his affiliate was $267,000. There was
a total of $18,047 of accrued interest associated with these loans and the Company has recorded interest expense for the same amount.
Interest expense for the quarter ended December 31, 2016 is $3,412. Dr. Ronald Bain also entered into a $92,000 convertible promissory
note with associated warrants (“Bridge Financing”) under the same terms received by other investors (see Note 5).
Domenica Seitz, CPA, a related party,
has provided accounting consulting services to the Company. During the three month period ended December 31, 2016, services provided
were valued at $14,880 based on market-competitive salaries, time devoted and professional rates. The Company has accrued
these amounts, and they are reflected in the December 31, 2016 condensed financial statements.
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).
John Seitz has not received a salary
since May 31, 2013, the date he commenced serving as our chief executive officer and accordingly, no amount has been accrued on
our financial statements.
Kevin Bain, son of Dr. Bain, is a geoscientist,
employee of the Company.
All employees of the Company (including
executive management), who are all shareholders of the Company have been paid a reduced salary plus benefits beginning on January
1, 2016.
NOTE 5 – BRIDGE FINANCING –
CONVERTIBLE PROMISSORY NOTES WITH ASSOCIATED WARRANTS
Between June and August 2016, the Company issued
ten convertible promissory notes with associated warrants in a private placement to accredited investors for total gross proceeds
of $787,000. Two of the notes were to related parties for proceeds totaling $172,000, including the extinguishment of $70,000 worth
of related party payables. The convertible notes have a maturity of one year, 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
26.2 million warrants (5.7 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 required fair value accounting. 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 $431,527 to the warrants and $355,473 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 $355,473. Accordingly, the debt discount associated with these notes was $887,000.
Such discount will be amortized using the effective interest rate method over the term (one year) of the convertible notes. For
the quarter ended December 31, 2016 amortization of this discount totaled $198,367 and is included in interest expense in the statement
of operations. Accrued interest expense at December 31, 2016 is $31, 333.
In November 2016 the Company issued a
convertible promissory note with associated warrants in a private placement to a related party and an accredited investor for total
gross proceeds of $50,000. The convertible note has a maturity of one year, bears 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 note, the investor received 1.7
million warrants 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 required fair value
accounting. 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 $20,895 to the warrants and $29,105 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 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 $28,895. Accordingly,
the debt discount associated with this note was $49,790. Such discount will be amortized using the effective interest rate method
over the term (one year) of the convertible note. For the quarter ended December 31, 2016 amortization of this discount totaled
$6,275 and is included in interest expense in the statement of operations. Accrued interest expense at December 31, 2016 is $511.
On December 28, 2016, the Company issued
a convertible promissory note 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 $55,555 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 $450,000 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 required fair value accounting.
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 $8,460 to the restricted stock, $7,969
to the warrants and $33,571 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 $33,571. Accordingly, at December 28, 2016, the debt discount associated with these notes was
$55,555. Such discount will be amortized using the effective interest rate method over the term (seven months) of the convertible
note. For the three months ended December 31, 2016 amortization of this discount totaled $786 and is included in interest expense
in the statement of operations. Accrued interest expense at December 31, 2016 is $3,333.
NOTE 6 – COMMON STOCK/PAID IN
CAPITAL
In September 2014, the Company awarded 3,030,000
shares of restricted stock to six employees under the Company’s 2014 Omnibus Incentive Plan, one-half of which vested in
September 2015 and the remaining half vested in September 2016
In March 2016, the Company issued 520,273 shares
of common stock to one vendor as consideration for services rendered in the ordinary course of business.
As discussed in Note 5, between June and November
2016, the Company issued 27.9 million warrants in conjunction with convertible notes payable. The warrants have an exercise price
of $0.03 and a term of the earlier of 3 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.
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
|
Number of Warrants Issued
|
12.9 million
|
10 million
|
3.3 million
|
1.6 million
|
Stock Price:
|
$0.054
|
$0.040
|
$0.032
|
$0.029
|
Exercise Price:
|
$0.03
|
$0.03
|
$0.03
|
$0.03
|
Term:
|
3 years
|
3 years
|
3 years
|
3 years
|
Risk Free Rate:
|
.87%
|
.80%
|
.88%
|
1.28%
|
Volatility:
|
135%
|
138%
|
137%
|
131%
|
In December 2016, 500,000 shares of restricted
stock were issued in conjunction with a financing transaction (see Note 5).
As discussed in Note 5, in December 2016, the Company issued 550,000
warrants in conjunction with a convertible note payable. The warrants have an exercise price of $0.10 and a term of the earlier
of 5 years or upon a change of control. Based upon the allocation of proceeds between the convertible note payable and the warrants,
approximately $13,188 was allocated to the warrants.
The fair value of the warrants were determined using the Black Scholes
valuation model with the following key assumptions:
|
|
December 2016
|
|
Number of Warrants Issued
|
|
|
550,000
|
|
Stock Price:
|
|
$
|
0.028
|
|
Exercise Price:
|
|
$
|
0.10
|
|
Term:
|
|
|
5 years
|
|
Risk Free Rate:
|
|
|
2.02
|
%
|
Volatility:
|
|
|
155
|
%
|
NOTE 7– STOCK-BASED COMPENSATION
Stock-based compensation cost is measured
at the grant date, based on the estimated fair value of the award, and is recognized over the required vesting period. The Company
recognized $0 and $205,395 in stock-based compensation during the three months ended December 31, 2016, and December 31, 2015,
respectively. For the three months ended December 31, 2015, a portion of these costs, $113,697 were capitalized to unproved
properties and the remainder were recorded as general and administrative expenses.
The following table summarizes the Company’s
stock option activity during the three months ended December 31, 2016:
|
|
Number
of Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Term
(In years)
|
|
Outstanding at September 30, 2015
|
|
|
2,000,000
|
|
|
|
—
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
2,000,000
|
|
|
$
|
0.12
|
|
|
|
2.55
|
|
Vested and expected to vest
|
|
|
2,000,000
|
|
|
$
|
0.12
|
|
|
|
2.55
|
|
Exercisable at December 31, 2016
|
|
|
2,000,000
|
|
|
|
—
|
|
|
|
—
|
|
As of December 31, 2016 there was no
stock-based compensation cost. There was no intrinsic value for options outstanding as of December 31, 2016. As of December
31, 2016 there was no unrecognized stock-based compensation.
NOTE 8 – COMMITMENTS AND
CONTINGENCIES
In March 2013, the Company licensed certain
seismic data pursuant to two agreements. With respect to the first agreement, as of December 31, 2016, the Company has paid
$6,135,500 in cash, with no additional amount due. With respect to the second agreement, as of December 31, 2016, the Company
has paid $3,009,195 in cash and is obligated to pay $1,003,065 during fiscal 2017.
In October 2016, the Company purchased
a directors and officers’ insurance policy for $170,850 and financed $155,010 of the premium by executing a note payable. The balance
of the note payable at December 31, 2016 is $124,496.
NOTE 9 – SUBSEQUENT EVENTS
The company entered into a promissory
note with John Seitz in January 2017 whereby it borrowed a total of $56,500. The note is due on demand, bears interest at the
rate of 5% per annum, and the principal amount is convertible at the option of the holder into securities issued by the Company
in a future offering, at the same price and terms received by investors.
The Company awarded 33.5 million stock
options to certain employees and directors on January 1, 2017 from the Company’s 2014 Omnibus Incentive Plan. The stock options
vested 50% on January 1, 2017 and the remaining 50% will vest on January 1, 2018. The stock options have an exercise price of $0.0278
per share and a term of seven years.