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
March 31, 2018
(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 and production company whose interests are concentrated in the United States Gulf of Mexico (“GOM”)
federal waters offshore Louisiana. The Company currently has under lease twelve federal Outer Continental Shelf blocks (referred
to as “prospect,” “portfolio” or “leases” in this Report).
As of March 31, 2018, we have 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, 2017, which were included in the Company’s
Annual Report on Form 10-K for the fiscal year ended September 30, 2017 and filed with the Securities and Exchange Commission on
December 29, 2017.
Cash
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.
Liquidity/Going Concern
The Company has incurred accumulated losses
as of March 31, 2018 of $40.3 million. Further losses are anticipated in developing our business. As a result, there exists substantial
doubt about our ability to continue as a going concern. As of March 31, 2018, we had $2.4 million of unrestricted cash on hand.
The Company estimates that it will need to raise a minimum of $7.5 million to meet its obligations and planned expenditures through
May 2019. The Company plans to finance its operations through the issuance of equity and debt offerings. 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 adequate financing, operations would need to be curtailed or ceased, including those associated with being a public
reporting company. 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 March 31, 2018, the Company’s
oil and gas properties consisted of wells in process, 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 months ended March 31, 2018 and 2017, the potentially dilutive shares are anti-dilutive and are thus not added into the
loss per share calculations. As of March 31, 2018 and 2017, there were 179,062,176 and 159,353,071 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 in
August 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 is evaluating the effect that amended ASU No. 2014-09 will have on its financial statements and related disclosures.
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.
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.
Recent Tax and Financial Legislation
The Tax Cuts and Jobs Act of 2017 was signed
into law on December 22, 2017 by
President Donald J. Trump. The law includes
significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35% to 21%, limitations
on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide
tax system to a territorial tax system. We are in the process of analyzing the final legislation and determining an estimate of
the financial impact.
NOTE 3 – OIL AND NATURAL GAS PROPERTIES
In January 2018, the Company entered into
a strategic partnership with Delek Group Ltd. (“Delek”), and Texas 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 “Initial
Phase”) with Delek having the option to participate 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. In addition, Delek will pay the Company approximately $1.1 million in cash for each Prospect
when the respective 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 become the Operator. Delek will have
the right to terminate this Agreement at the conclusion of any drilling Phase. Delek will also have the option to purchase up to
5% of the Company’s common 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 Company 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 was capitalized to unproved properties.
The Company, as the operator of two wells
being drilled in the Gulf of Mexico, has incurred 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 is expected to spud in
mid-2018 with the second well to be drilled shortly thereafter.
The Company paid $632,665 in gross annual
lease rental payments to the BOEM for the year ended September 30, 2017. The Company’s share of these amounts are included
in unproved properties.
In August 2017, the Company competitively bid on one block
in the Central Gulf of Mexico Lease Sale 249 conducted by BOEM. The Company was the high bidder on the block and paid
$26,398, which represents 20% of the total lease bonus amount. On September
29, 2017 t
he
Company’s bid was accepted. After payment in October 2017 of $140,591, which represents the remaining 80% lease bonus and
first year rentals, the Company was awarded the lease block in October 2017.
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 the transaction as an adjustment to the capitalized costs of its oil and gas properties with no gain
or loss recognition.
In October 2017, the Company executed the
second amendment to the March 2014 farm-out agreement with Texas South under which Texas South will acquire 20% of Gulfslope’s
interest in two prospects for $329,062. Of this amount, $250,000 has been paid through March 31, 2018, and the remaining balance
of $79,062 has been recorded as an account receivable at March 31, 2018.
On January 1, 2018, the Company executed
the third amendment to the March 2014 farm-out agreement with Texas South under which Texas South will acquire 20% of GulfSlope’s
interest in two prospects for $225,000.
For the year ended September 30, 2017,
the Company incurred $172,094 in consulting fees, salaries and benefits, $195,125 in stock option costs associated with geoscientists,
and $53,014 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 capitalized amounts when added
to the amount paid in 2017 for lease rental and lease acquisition payments of $402,766 and netted with the 2017 receipts from working
interest portion of annual rentals of $118,679 and the amount received through September 30, 2017 for sale of working interest
of $26,400 as well as the relinquished leases impairment amount of $3,316,212 results in unproved oil and gas properties of $1,887,879
reflected on the Company’s balance sheet at September 30, 2017.
For the six months ended March
31, 2018, the Company incurred $160,702 in consulting fees, salaries and benefits associated with geoscientists, and
$20,948 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, 2017 and netted with the receipts from the sale of working interests and the amount paid
for the lease that was acquired in October 2017, and the capitalized consulting services of $4,880,000 paid for with the
issuance of stock and the wells in process results in unproved properties of $5,431,362 at March 31, 2018.
NOTE 4 – RELATED PARTY TRANSACTIONS
During April 2013 through September 2017,
the Company entered into convertible promissory notes whereby it borrowed a total of $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 $5,300,000 of the notes 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). As of March 31, 2018 the total amount owed to John Seitz, our CEO, is $8,675,500. There
was a total of $1,420,583 of unpaid interest associated with these loans included in accrued interest within our balance sheet
as of March 31, 2018.
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 March 31, 2018, the total amount owed to Dr. Bain and his affiliate was $267,000. There was
a total of $34,920 of accrued interest associated with these loans included within our balance sheet as of March 31, 2018. In June
of 2016, 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).
During March 2016, the Company entered
into a promissory note for a total of $80,000 with the Morris Family Partnership, L.P., an affiliate of Mr. Paul Morris, a director
of the Company. The $80,000 promissory note was converted into the Bridge Financing (see Note 5).
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 month period ended March 31, 2018, the services provided
were valued at $5,915. The Company has accrued these amounts, and they have been reflected in the March 31, 2018 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.
Kevin Bain, son of Dr. Bain, is a geoscientist
and an employee of the Company.
NOTE 5 – BRIDGE FINANCING – CONVERTIBLE
PROMISSORY NOTES WITH ASSOCIATED WARRANTS
Between June and November 2016, the Company
issued eleven convertible promissory 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 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 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 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 $452,422 to the warrants and $384,368 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 $384,368. Accordingly, the debt discount associated with these
notes was $836,790. Such discount was amortized using the effective interest rate method over the term (one year) of the convertible
notes. For the quarter ended March 31, 2018 the amortization of this discount and the discount associated with the extension warrants
(see below) totaled $26,970, and is included in interest expense in the statement of operations. Accrued interest expense for the
quarter ended March 31, 2018 was $16,740. Cumulative accrued interest at March 31, 2018 was $98,804.
Upon maturity of eight of the eleven promissory
notes in June 2017, the Company issued 3,225,000 extension warrants (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 $50,701 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, are 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, $38,946, was determined using the Black-Scholes option
pricing model.
Upon maturity on January 15, 2018 of the
eleven promissory notes, the Company issued 2,790,000 extension warrants (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 $217,141 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.
On October 16, 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 $250,000 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 $21,287 to the restricted stock, $20,175 to the warrants and $58,538 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 $58,538. Accordingly,
at October 16, 2017, the debt discount associated with these notes was $110,000. Such discount will be amortized using the effective
interest rate method over the term (seven months) of the convertible note. For the quarter ended March 31, 2018 amortization of
this discount totaled $46,698 and is included in interest expense in the statement of operations. Accrued interest expense for
the six months ended March 31, 2018 is $6,600.
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 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 $27,807 to the restricted stock, $27,212 to the warrants and $44,981 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 $44,981. Accordingly,
at December 15, 2017, the debt discount associated with these notes was $110,000. Such discount will be amortized using the effective
interest rate method over the term (seven months) of the convertible note. For the quarter ended March 31, 2018 amortization of
this discount totaled $46,698 and is included in interest expense in the statement of operations. Accrued interest expense for
the six months March 31, 2018 is $6,600.
NOTE 6 – COMMON STOCK/PAID IN
CAPITAL
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. 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 issuance of 25%
additional warrants. The warrants have an exercise price of $0.03 and the same expiration date (three years from original transaction)
as the original warrants. On January 15, 2018 the maturity date of the Bridge Financing Notes was extended to April 16, 2018 in
exchange for the issuance of 10% additional warrants. The warrants have an exercise price of $0.10 per share and the same expiration
date (three years from original transaction) as the original 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
|
|
|
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 (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
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
2 years
|
|
|
|
2 years
|
|
|
|
2 years
|
|
|
|
1.5 years (2)
|
|
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.
During the period December 2016
through December 2017 the Company issued 3,500,000 shares of restricted stock to an investor as part of financing
transactions (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. In March 2017, the Company issued 1,100,000
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 $14,051 was allocated to the warrants. In October 2017, the Company issued 1,100,000 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 $20,175
was allocated to the warrants. In December 2017, the Company issued 1,100,000 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 $27,212 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
|
March
2017
|
October
2017
|
December
2017
|
Number of Warrants Issued
|
|
550,000
|
|
1,100,000
|
|
1,100,000
|
|
1,100,000
|
Stock Price:
|
$
|
0.028
|
$
|
0.0279
|
$
|
0.04
|
$
|
0.068
|
Exercise Price:
|
$
|
0.10
|
$
|
0.10
|
$
|
0.10
|
$
|
0.10
|
Term:
|
|
5 years
|
|
5 years
|
|
5 years
|
|
5 years
|
Risk Free Rate:
|
|
2.02%
|
|
2.13%
|
|
1.95%
|
|
2.16%
|
Volatility:
|
|
155%
|
|
127%
|
|
150%
|
|
149%
|
NOTE 7 – STOCK-BASED
COMPENSATION
Stock-based compensation cost is measured
at the grant date, using the estimated fair value of the award, and is recognized over the required vesting period. The Company
recognized zero and $93,381 in stock based compensation during the three and six months ended March 31, 2018 and $466,906 in stock-based
compensation during the three and six months ended March 31, 2017, respectively. A portion of these costs, zero and $27,875
were capitalized to unproved properties for the three and six months ended March 31, 2018 and $139,375 was capitalized to unproved
properties for the three months and six months ended March 31, 2017 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 March 31, 2018:
|
|
Number
of Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual
Term
(In years)
|
|
|
Average Intrinsic Value
|
|
Outstanding at September 30, 2017
|
|
|
35,500,000
|
|
|
|
0.033
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2018
|
|
|
35,500,000
|
|
|
$
|
0.033
|
|
|
|
2.76
|
|
|
|
$1.1 million
|
|
Vested and expected to vest
|
|
|
35,500,000
|
|
|
$
|
0.033
|
|
|
|
2.76
|
|
|
|
$1.1 million
|
|
Exercisable at March 31, 2018
|
|
|
35,500,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
The intrinsic value of the options outstanding
as of March 31, 2018 was $1.1 million. As of March 31, 2018 there was no unrecognized stock-based compensation.
NOTE 8 – COMMITMENTS AND
CONTINGENCIES
In March 2013, the Company licensed certain
seismic data pursuant to an agreement for $4,012,260. As of March 31, 2018, the Company has paid $3,009,195 in cash and is
obligated to pay $1,003,065 during fiscal 2018.
In October 2017, the Company purchased
a directors and officers’ insurance policy for $171,360 and financed $156,718 of the premium by executing a note payable.
The balance of the note payable at March 31, 2018 is $86,459.
NOTE 9 – SUBSEQUENT EVENTS
In April 2018, the Company received
$329,062 from Texas South as payment in full for the account receivable for their purchase of working interests.
In April 2018, an investor converted
the October 2017 note, accrued interest and OID into approximately 5.8 million shares of stock in accordance with the terms
of the loan documents. The October 2017 note has been paid in full.
The Company is working on the extension
of the eleven Bridge Notes.
Upon filing the exploration plan for
Tau in May 2018, the Company received a funding obligation payment from Delek in accordance with the Participation Agreement.