The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements. Please see "Forward-Looking Statements" above for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared on the accrual basis of accounting, whereby revenues are recognized when earned, and expenses are recognized when incurred. You should read this management's discussion and analysis of our financial condition and results of operations in conjunction with our historical financial statements included elsewhere in this Annual Report. Our future results could differ materially from our historical results due to a variety of factors, many of which are out of our control.





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 Overview

GulfSlope Energy, Inc. is an independent crude oil and natural gas exploration and production company whose interests are concentrated in the United States Gulf of Mexico federal waters. We are a technically driven company, and we use our licensed 2.2 million acres of advanced three-dimensional ("3-D") seismic data to identify, evaluate, and acquire assets with attractive economic profiles. GulfSlope Energy commenced commercial operations in March 2013. GulfSlope Energy was originally organized as a Utah corporation in 2004 and became a Delaware corporation in 2012.

We have focused our operations in the United States Gulf of Mexico because we believe this area provides us with favorable geologic and economic conditions, including multiple reservoir formations, comprehensive geologic databases, extensive infrastructure, relatively favorable royalty regime, and an attractive acquisition market and because our management and technical teams have significant experience and technical expertise in this geologic province. Additionally, we licensed 2.2 million acres of advanced 3-D seismic data, a significant portion of which has been enhanced by new, state-of-the-art reprocessing and noise attenuation techniques including reverse time migration depth imaging. We have used our broad regional seismic database and our reprocessing efforts to generate and high-grade oil and natural gas prospects. The use of our extensive seismic database, coupled with our ability, knowledge, and expertise to effectively reprocess this seismic data, allows us to further optimize our drilling operations and to effectively evaluate acquisition and joint venture opportunities. We consistently assess opportunities for drilling and producing property acquisitions in order to deploy capital as efficiently as possible. We have given preference to areas with water depths of 450 feet or less where production infrastructure already exists, which will allow for any discoveries to be developed rapidly and cost effectively with the goal to reduce economic risk while increasing returns. We also continue to evaluate attractive opportunities in deeper water.





Recent Developments

During the past fiscal year, the Company has conducted engineering, geotechnical and economic evaluations on a total of 10 producing property acquisitions, all located in the Gulf of Mexico. The Company submitted bids on four of those opportunities, one of which was deemed non-competitive by the seller. The Company is currently engaged in seeking debt and equity financing for the remaining opportunities.

Factors Affecting Comparability of Future Results

Success in Acquiring Oil and Gas Leases or Prospects. As a result of our 3-D seismic imaging and reprocessing, we currently hold one lease block in the U.S. Gulf of Mexico, which we believe may potentially contain economically recoverable reserves.

We have No Proved Reserves. We have identified prospects based on available seismic and geological information that indicate the potential presence of oil or gas. Some of our current prospects may require additional seismic data reprocessing and interpretation. Even when properly used and interpreted, seismic data and visualization techniques are only tools used to assist geoscientists in identifying structures and hydrocarbon indicators and do not enable the interpreter to have certainty as to whether hydrocarbons are, in fact, present in those structures. We do not know if any prospect will contain oil or gas in sufficient quantities or quality to recover drilling and completion costs or to be economically viable.

Success in the Discovery and Development of Reserves. Because we have no operating history in the production of oil and gas, our future results of operations and financial condition will be directly affected by our ability to discover and develop reserves through our drilling activities.

Oil and Gas Revenue. We have not yet commenced oil and gas production. If and when we do commence production, we expect to generate revenue from such production. No oil and gas revenue is reflected in our historical financial statements.

General and Administrative Expenses. We expect that our general and administrative expenses will increase in future periods when we commence drilling operations.

Demand and Price. The demand for oil and gas is susceptible to volatility related to, among other factors, the level of global economic activity and may also fluctuate depending on the performance of specific industries. We expect that a decrease in economic activity, in the United States and elsewhere, would adversely affect demand for any oil and gas we may produce. Since we have not generated revenues, these key factors will only affect us if and when we produce and sell hydrocarbons.

Results of Operations for the Year Ended September 30, 2022, compared to September 30, 2021

We had no sales during the year ended September 30, 2022, and 2021. Impairment of oil and gas properties and capitalized exploration costs for the year ended September 30, 2022, was approximately $6.9 million compared to approximately $0.4 million for the year ended September 30, 2021. The impairment of approximately $6.9 million for the year ended September 30, 2022, resulted from the expiration of a lease and the write off of Tau well costs, and the impairment of approximately $0.4 million for the year ended September 30, 2021 resulted from the relinquishment of a lease and the write-off of related capitalized costs. General and administrative expenses were approximately $1.5 million for both of these years ended September 30, 2022 and 2021, as we have remained disciplined with our expenditures while we pursue our development and acquisition strategy. Interest expense was approximately $512,000 for the year ended September 30, 2022, as compared to approximately $554,000 for the year ended September 30, 2021. Loss on extinguishment of debt was approximately $85,000 for the year ended September 30, 2022, compared to a gain on extinguishment of debt of approximately $406,000 for the year ended September 30, 2021. Gain on derivative financial instrument was approximately $242,000 for the year ended September 30, 2022, compared to a loss on derivative financial instrument of approximately $177,000 for the year ended September 30, 2021.





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We had a net loss of approximately $8.7 million for the year ended September 30, 2022, compared to a net loss of approximately $2.2 million for the year ended September 30, 2021.

The basic loss per share for the year ended September 30, 2022, was $0.01, compared to a net loss per share of $0.00 for the year ended September 30, 2021.

For the year ended September 30, 2022, cash used in operating activities totaled approximately $1.4 million compared to approximately $1.6 million used in operating activities in fiscal 2021.

For the year ended September 30, 2022, cash provided by investing activities was approximately $0.014 million compared to $0.2 million provided by investing activities in fiscal 2021.

For the year ended September 30, 2022, and 2021 cash used in financing activities was approximately nil and $0.3 million, respectively.

As of September 30, 2022, the Company's cash balance was approximately $0.14 million compared to approximately $1.5 million cash balance as of September 30, 2021. The Company's fiscal 2022 cash decrease of approximately $1.4 million was primarily due to its net cash used in operating activities of approximately $1.4 million, cash received in investing activities of approximately $0.014 million and no cash used in financing activities.

Liquidity and Capital Resources

The Company has incurred accumulated losses for the period from inception to September 30, 2022, of approximately $68.9 million and has negative working capital of approximately $13.8 million. For the year ended September 30, 2022, the Company has generated losses of approximately $8.7 million and negative cash flows from operations of approximately $1.4 million. As of September 30, 2022, we had $0.14 million of cash on hand. The Company estimates that it will need to raise a minimum of $10 million to meet its obligations and planned expenditures through December 2023. The $10 million is comprised primarily of capital expenditures for prospect development and the pursuit of acquisition targets as well as general and administrative expenses. It does not include any amounts due under outstanding debt obligations, which amount to $12.5 million of current principal and interest as of September 30, 2022. The Company plans to finance its operations through equity and/or debt financings, and strategic transactions to include farm-outs, asset sales or mergers. Our policy has been to periodically raise funds through the sale of equity securities on a limited basis, to avoid undue dilution while at the early stages of execution of our business plan. Short term needs have been historically funded through loans from executive management. There are no assurances that financing will be available with acceptable terms, if at all. If the Company is not successful in obtaining financing, operations would need to be curtailed or ceased. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

For the year ended September 30, 2022, the Company used approximately $1.4 million of net cash in operating activities, compared with approximately $1.6 million of net cash used in operating activities for the year ended September 30, 2021. For the year ended September 30, 2022, cash provided by investing activities was approximately $0.014 million compared to approximately $0.21 million of cash provided by investing activities for the year ended September 30, 2021. For the year ended September 30, 2022, no cash was used in financing activities, compared with approximately $0.3 million used in financing activities for year ended September 30, 2021.

We will need to raise additional funds to cover expenditures planned for 2023, as well as any additional, unexpected expenditures that we may encounter. Future equity financings may be dilutive to our stockholders. Alternative forms of future financings may include preferences or rights superior to our common stock. Debt financings may involve a pledge of assets and will rank senior to our common stock. We have historically financed our operations through private equity and debt financings. We do not have any credit or equity facilities available with financial institutions, stockholders, or third-party investors, and will continue to rely on best efforts financings. The failure to raise sufficient capital could cause us to cease operations, or the Company would need to sell assets or consider alternative plans up to and including restructuring.

We do not have any material contractual obligations. Other immaterial obligations may be reflected in our accompanying consolidated financial statements.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of September 30, 2022 and 2021, respectively.





Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The critical accounting estimates include impairment considerations of long-lived assets including oil and natural gas properties and assumptions used in valuing our derivative financial instruments.





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Recently Adopted Accounting Pronouncements

In May 2021, Financial Accounting Standards Board ("FASB") issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 provides clarification and reduces diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. An issuer measures the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company has elected to early adopt this standard and in accordance with this standard was accounted for prospectively as of the beginning of the year. The early adoption of this standard impacted the accounting for the modification of investor warrants discussed in Note 7 and resulted in the recording of a loss on debt extinguishment of approximately $85,000. Historically the cost associated with the warrant modification was capitalized to deferred loan cost and amortized over the debt extension period.

Recent Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS), which is consistent with the Company's accounting treatment under the current standard. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020. ASU No. 2020-06 can be adopted on either a fully retrospective or modified retrospective basis. The adoption of ASU 2020-06 is not expected to have a material impact on the Company's financial statements or disclosures.

The Company has evaluated all other recent accounting pronouncements and believes either they are not applicable or that none of them will have a significant effect on the Company's financial statements.

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