U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE
ACT
Commission file number 0-26321
GASCO ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 98-0204105
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14 Inverness Drive East, Suite H-236, Englewood, Colorado 80112
(Address of principal executive offices)
(303) 483-0044
(Issuer's telephone number)
No Change
(Former name, former address and former fiscal year,
if changed since last report)
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
during the preceding 12 months (or for such shorter period that the Registrant
was require to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of common shares outstanding as of November 13, 2002: 41,688,800 shares
1
ITEM I - FINANCIAL INFORMATION
PART 1 - FINANCIAL STATEMENTS
GASCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2002 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $5,449,764 $ 12,296,585
Restricted cash 250,000 -
Accounts receivable and prepaid expenses 75,493 157,099
------ ----------
Total 5,775,257 12,453,684
--------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Oil and gas properties (full cost method)
Proved mineral interests 7,668,086 -
Unproved mineral interests 13,901,906 9,152,740
Furniture, fixtures and other 144,291 59,445
------- ---------
Total 21,714,283 9,212,185
---------- ---------
Less accumulated depreciation, depletion,
amortization and property impairment (744,264) (7,344)
--------- ---------
Total 20,970,019 9,204,841
---------- ---------
TOTAL ASSETS $ 26,745,276 $ 21,658,525
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,367,859 $ 593,100
----------- ---------
REDEEMABLE COMMON STOCK 1,400,000
--------- --------
STOCKHOLDERS' EQUITY
Series A Convertible Redeemable Preferred stock - $.001 par value; 5,000,000
shares authorized; 1,000 shares issued and outstanding
in 2001 - 1
Common stock - $.0001 par value; 100,000,000 shares authorized;
41,762,500 shares issued and 41,688,800 shares outstanding in
2002; and 27,252,500 shares issued and 27,178,800 shares
outstanding in 2001 4,176 2,725
Additional paid in capital 44,958,453 38,569,923
Deferred compensation (147,812) (261,375)
Accumulated deficit (21,707,105) (17,115,554)
Less cost of treasury stock of 73,700 common shares (130,295) (130,295)
--------- ----------
Total 22,977,417 21,065,425
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,745,276 $ 21,658,525
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
2
GASCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
-------------------------------------------
2002 2001
REVENUES
Oil and gas $ 43,611 $ -
Interest 19,198 111,639
------ -------
Total 62,809 111,639
------ -------
OPERATING EXPENSES
General and administrative 1,461,377 845,802
Lease operating 32,742 -
Depletion, depreciation and amortization 51,157 348
Interest 10,005
-------- ------
Total 1,545,276 856,155
--------- -------
NET LOSS (1,482,467) (744,516)
----------- ---------
Preferred Stock deemed distribution (11,400,000)
----------- ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1,482,467) $ (12,144,516)
============= ==============
NET LOSS PER COMMON SHARE BASIC AND DILUTED $ (0.04) $ (0.45)
========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 40,502,336 26,860,708
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
3
GASCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
------------------------------------------
2002 2001
REVENUES
Oil and gas $ 95,543 $ -
Interest 62,362 137,206
------ -------
Total 157,905 137,206
------- -------
OPERATING EXPENSES
General and administrative 3,936,479 2,412,271
Lease operating 76,057 -
Depletion, depreciation and amortization 195,795 2,848
Impairment 541,125 -
Interest 67,363
--------- ------
-
Total 4,749,456 2,482,482
--------- ---------
NET LOSS (4,591,551) (2,345,276)
----------- -----------
Preferred Stock deemed distribution (11,400,000)
------------- ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (4,591,551) $ (13,745,276)
============= ==============
NET LOSS PER COMMON SHARE BASIC AND DILUTED $ (0.13) $ (0.57)
========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 35,389,349 24,011,625
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
4
GASCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-------------------------------------------
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,591,551) $ (1,560,760)
Adjustment to reconcile net loss to net cash used in operating activities
Depreciation, depletion and impairment expense 736,920 2,501
Value of stock options issued - 336,342
Amortization of deferred compensation 113,563 -
Changes in assets and liabilities provided (used) cash
Accounts receivable and prepaid expenses 81,606 6,988
Accounts payable and accrued expenses 1,774,759 (242,627)
Deferred offering costs (32,281)
------------- --------
Net cash used in operating activities (1,884,703) (1,489,837)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for furniture, fixtures and other (84,846) (27,440)
Cash paid for oil and gas properties (10,601,252) (4,335,115)
------------ -----------
Net cash used in investing activities (10,686,098) (4,362,555)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash designated as restricted (250,000) -
Proceeds from sale of common stock 6,500,000 6,825,000
Cash paid for offering costs (526,020) (574,835)
Repayment of short-term borrowings - (315,265)
Cash received upon recapitalization and merger - 265,029
Distribution of Rubicon Oil and Gas, Inc. (247,969)
------------- ---------
Net cash provided by financing activities 5,723,980 5,951,960
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (6,846,821) 99,568
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 12,296,585 874,433
---------- -------
END OF PERIOD $ 5,449,764 $ 974,001
=========== =========
The accompanying notes are an integral part of the
consolidated financial statements.
5
GASCO ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
NOTE 1 - ORGANIZATION
Gasco Energy, Inc. ("Gasco" or the "Company") (formerly known as San Joaquin
Resources Inc. ("SJRI")) is an independent energy company engaged in the
exploration, development and acquisition of crude oil and natural gas reserves
in the western United States.
The unaudited financial statements included herein were prepared from the
records of the Company in accordance with generally accepted accounting
principles in the United States and reflect all adjustments which are, in the
opinion of management, necessary to provide a fair statement of the results of
operations and financial position for the interim periods. Such financial
statements generally conform to the presentation reflected in the Company's Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 2001. Prior to January 1, 2002, the Company was considered a
development stage enterprise as defined by Statement of Financial Accounting
Standards No. 7. The current interim period reported herein should be read in
conjunction with the Company's Form 10-K for the year ended December 31, 2001.
The results of operations for the nine months ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002.
On February 1, 2001, SJRI, a Nevada corporation, and Pannonian Energy, Inc.
("Pannonian"), a Delaware corporation, entered into an Agreement and Plan of
Reorganization (the "Pannonian Agreement") whereby a subsidiary of SJRI merged
into Pannonian and SJRI issued 14,000,000 shares of its common stock to the
former stockholders of Pannonian in exchange for all of the outstanding shares
and warrants of Pannonian. Certain stockholders of SJRI surrendered for
cancellation 2,438,930 common shares of the Company's capital in connection with
the transaction, and as a result the existing stockholders of Pannonian acquired
control of the combined company. For financial reporting purposes this business
combination is accounted for as a reverse acquisition with Pannonian as the
accounting acquirer.
The reverse acquisition was valued at $572,344 and was allocated as follows:
Oil and gas properties $ 265,836
Receivables, prepaid and other, net 41,479
Cash 265,029
------------------
Net assets acquired $ 572,344
==================
Under the terms of the Pannonian Agreement, Pannonian was required, prior to
closing of the merger on March 30, 2001, to divest itself of all assets not
associated with its "Riverbend" area of interest (the non-Riverbend assets). The
"spin-offs" were accounted for at the recorded amounts. The net book value of
the non-Riverbend assets in the United States transferred, including cash of
$1,000,000 and liabilities of $555,185, was approximately $1,850,000. The
non-Riverbend assets located outside the United States were held by Pannonian
International Ltd. ("PIL"), the shares of which were distributed to the
Pannonian stockholders. The book value of PIL as of the date of distribution was
approximately $174,000.
6
The following unaudited pro forma information presents the financial information
of the Company as if the consolidation of Gasco and Pannonian had taken place on
January 1, 2001. The pro forma results, which are the same as the actual results
for the quarter and nine months ended September 30, 2002 and for the quarter
ended September 30, 2001 are not indicative of future results.
For the Nine Months Ended September 30, 2001
As Reported Pro Forma
Oil and gas revenue $ - $ -
Net loss (2,345,276) (2,544,903)
Net loss per common
share basic and diluted $ (0.57) $ (0.58)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include Gasco and its wholly
owned subsidiaries, Pannonian and San Joaquin Oil and Gas, Ltd. for all periods
subsequent to February 1, 2001. Periods prior to February 1, 2001 include
Pannonian and its wholly owned subsidiary PIL. All significant intercompany
transactions have been eliminated upon consolidation.
All share and per share amounts included in these financial statements have been
restated to show the retroactive effect of the conversion of Pannonian shares
into SJRI/Gasco shares.
Cash and Cash Equivalents
All highly liquid investments purchased with an initial maturity of three months
or less are considered to be cash equivalents.
Restricted Cash
In connection with its drilling projects, the Company entered into a $2,000,000
letter of credit during February 2002, which was amended to $250,000 during May
2002. The letter of credit is collateralized with cash and terminates in January
2003. The portion of the Company's cash that collateralizes this letter of
credit is classified as restricted cash in the accompanying financial
statements.
Property, Plant and Equipment
The Company follows the full cost method of accounting whereby all costs related
to the acquisition and development of oil and gas properties are capitalized
into a single cost center ("full cost pool"). Such costs include lease
acquisition costs, geological and geophysical expenses, overhead directly
related to exploration and development activities and costs of drilling both
7
productive and non-productive wells. Proceeds from property sales are generally
credited to the full cost pool without gain or loss recognition 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.
Depletion of exploration and development costs and depreciation of production
equipment is computed using the units of production method based upon estimated
proved oil and gas reserves. The costs of unproved properties are withheld from
the depletion base until such time as they are either developed or abandoned.
The properties are reviewed periodically for impairment. Total well costs are
transferred to the depletable pool even when multiple targeted zones have not
been fully evaluated. For depletion and depreciation purposes, relative volumes
of oil and gas production and reserves are converted at the energy equivalent
rate of six thousand cubic feet of natural gas to one barrel of crude oil.
Under the full cost method of accounting, capitalized oil and gas property costs
less accumulated depletion and net of deferred income taxes may not exceed an
amount equal to the present value, discounted at 10%, of estimated future net
revenues from proved oil and gas reserves plus the cost, or estimated fair
value, if lower of unproved properties. Should capitalized costs exceed this
ceiling, an impairment is recognized. The present value of estimated future net
revenues is computed by applying current prices of oil and gas to estimated
future production of proved oil and gas reserves as of period-end, less
estimated future expenditures to be incurred in developing and producing the
proved reserves assuming the continuation of existing economic conditions.
Computation of Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss)
attributable to the common stockholders by the weighted average number of common
shares outstanding during the reporting period. Diluted net income per common
share includes the potential dilution that could occur upon exercise of the
options to acquire common stock computed using the treasury stock method which
assumes that the increase in the number of shares is reduced by the number of
shares which could have been repurchased by the Company with the proceeds from
the exercise of the options (which were assumed to have been made at the average
market price of the common shares during the reporting period). The options
described in Note 10 have not been included in the computation of diluted net
income (loss) per share during all periods because their inclusion would have
been anti-dilutive.
Use of Estimates
The preparation of the financial statements for the Company in conformity with
generally accepted accounting principles 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 these estimates.
8
Recent Accounting Pronouncements
In June 2001, SFAS No. 141, "Business Combinations" was issued by the FASB. SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. The Company's adoption of SFAS No.
141 on July 1, 2001 had no impact on its financial position or results of
operations.
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was issued by
the FASB. SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, ceased upon adoption of this
statement. Goodwill and certain intangible assets will remain on the balance
sheet and not be amortized. On an annual basis, and when there is reason to
suspect that their values have been diminished or impaired, these assets must be
tested for impairment, and write-downs may be necessary. The Company's
implementation of SFAS No. 142 on January 1, 2002 had no impact on its financial
position or results of operations.
In June 2001 the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations, " which requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
The asset retirement liability will be allocated to operating expense by using a
systematic and rational method. The statement is effective for fiscal years
beginning June 15, 2002. The Company has not yet determined the impact of the
adoption of this statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets be
measured at the lower of carrying amount or fair value less costs to sell,
whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. The
Company's adoption of SFAS No. 144 on January 1, 2002 had no impact on its
financial position or results of operations.
In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
FASB No. 4 required all gains or losses from extinguishment of debt to be
classified as extraordinary items net of income taxes. SFAS No. 145 requires
that gains and losses from extinguishment of debt be evaluated under the
provisions of Accounting Principles Board Opinion No. 30, and be classified as
ordinary items unless they are unusual or infrequent or meet the specific
criteria for treatment as an extraordinary item. This statement is effective
January 1, 2003. The Company does not anticipate that the adoption of this
statement will have a material effect on its financial position or results of
operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". This Statement requires recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred, as opposed to when the entity commits to an exit plan
under EITF No. 94-3. SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The Company has not yet
determined the impact of the adoption of this statement.
9
Reclassifications
Certain reclassifications have been made to prior years' amounts to conform to
the classifications used in the current year.
NOTE 3 - SALE OF COMMON STOCK
On August 14, 2002, the Company issued 6,500,000 shares of common stock for net
proceeds of approximately $6.0 million in a private offering. These shares were
subsequently registered for resale on a Form S-1 Registration Statement filed on
August 27, 2002. The Company intends to use the net proceeds from this offering
to fund its remaining 2002 capital budget.
NOTE 4 - REPURCHASE OF COMMON AND PREFERRED STOCK
On July 16, 2002, Gasco executed and closed a purchase agreement with Brek
Energy Corporation ("Brek"), and certain other Gasco stockholders (the "Other
Stockholders"), pursuant to which Brek and the Other Stockholders purchased from
Gasco an undivided 25% of Gasco's working interests in all undeveloped acreage
owned by Gasco in exchange for 6,250,000 shares of Gasco common stock and 500
shares of Gasco preferred stock held by Brek and the Other Stockholders. The
Other Stockholders assigned their right to receive their share of such working
interests to Brek, so that Brek acquired title to all of the working interests
conveyed by Gasco in the transaction. Brek also has the option to acquire an
additional 5% undivided interest in Gasco's undeveloped acreage by paying a
total of $10.5 million in two equal installments on or before January 1, 2004
and January 1, 2005, respectively. A 2.5% interest will be conveyed to Brek upon
receipt of each installment. Brek must make timely payment of the first
installment in order to maintain the option to acquire the additional 2.5%
interest with the second installment.
The transaction was previously estimated to be valued at $22,000,000 based on an
average price of $2.00 per common share when the letter of intent was signed.
The transaction was valued at $16,709,000 based on the average trading price of
the Company's common stock when the transaction was executed. In accordance with
Securities and Exchange Commission Regulation S-X rule 4.10, the transaction was
recorded as a reduction to the Company's unproved properties and a reduction to
the Company's additional paid in capital, preferred stock and common stock.
The transaction, previously announced as a letter of intent on May 24, 2002,
simplifies the Company's capital structure by eliminating all preferred stock
(which was convertible into 4,750,000 common shares) and the associated
preferential voting rights.
NOTE 5 - PROPERTY ACQUISITION
On May 1, 2002, the Company issued 9,500,000 shares of its common stock to the
Shama Zoe Limited Partnership ("Shama Zoe"), a private oil and gas company, for
the acquisition of 53,095 gross (47,786 net) acres in the Greater Green River
Basin in Sublette County Wyoming plus other assets and consideration. The
acquisition was valued at $18,525,000 using a price of $1.95 per common share,
which represented the closing price of the Company's common stock on April 23,
2002, the date the agreement was executed. This transaction replaced the
previously described cash option structure and eliminated the $300,000 per month
option payment as referred to in the Company's Form 10-K for the year ended
December 31, 2001.
10
In connection with this transaction, the Board of Directors of the Company
authorized the payment to an employee of the Company who was instrumental in
securing the Company's agreement with Shama Zoe, of $300,000 in cash and the
issuance of options to purchase 250,000 shares of Gasco common stock at an
exercise price of $1.95 per share, which is equal to the fair market of the
common stock on April 23, 2002. The cash payment was accrued in the accompanying
financial statements as of September 30, 2002.
NOTE 6 - REDEEMABLE COMMON STOCK
The original Property Purchase Agreement governing the Shama Zoe transaction
described in Note 5 prevented the Company from issuing additional shares of its
common stock at prices below $1.80 per share and from granting registration
rights in connection with the issuance of shares of its common stock. In
connection with the August 14, 2002 issuance of 6,500,000 shares of common
stock, as described in Note 3, the original Property Purchase Agreement was
amended to allow for the issuance of these shares at a price of $1.00 per share
and Shama Zoe was granted an option to sell to the Company 1,400,000 shares of
the Gasco common stock that it acquired in the transaction at $1.00 per share at
any time prior to December 31, 2002. This option is recorded as redeemable
common stock as of September 30, 2002 in the accompanying financial statements.
Additionally, the value of this option, using the Black Scholes model, of
$250,000 has been recorded as additional noncash offering costs associated with
the Company's sale of common stock as described in Note 3.
NOTE 7 - SUSPENDED LEASES
During February 2002, the Company was notified by the Bureau of Land Management
("BLM") in Wyoming that several environmental agencies filed a protest against
the BLM offering numerous parcels of land for oil and gas leasing. Approximately
9,726 net acres valued at approximately $1,428,000 which were purchased by the
Company are being held in suspense pending the resolution of this protest. If
the protest is deemed to have merit, the lease purchases will be rejected and
the money paid for the leases will be returned to the Company. If the protest is
deemed to be without merit, the leases will be released from suspense. Effective
July 16, 2002, the Company assigned 25% of its interest in these suspended
leases to Brek resulting in the Company's total net acres being reduced to 7,295
net acres. As of September 30, 2002, the BLM has released from suspension and
issued leases covering 5,700 gross acres representing 1,924 net acres to the
Company. The value of the remaining suspended leases is recorded as unproved
mineral interests in the accompanying financial statements.
NOTE 8 - PROPERTY IMPAIRMENT
During the nine months ended September 30, 2002, the Company drilled a well in
the Southwest Jonah field located in the Greater Green River Basin in Sublette
County, Wyoming. The well was drilled to a total depth of 11,000 feet. The well
encountered natural gas, however not of sufficient quantities to be deemed
economic. The well was plugged and abandoned during March of 2002. The costs
associated with this well of $541,125, were charged to impairment expense during
the nine months ended September 30, 2002 because the Company believes that the
total costs for this well exceed the present value, discounted at 10%, of the
future net revenues from its proved oil and gas reserves.
11
NOTE 9 - PROPERTY DISPOSITIONS
On March 30, 2001, the Company divested itself of all assets not associated with
its "Riverbend" area of interest (the non-Riverbend assets), as required by the
Pannonian Agreement described in Note 1. The divestiture is summarized below.
Oil and gas properties $ 1,405,242
Cash 1,000,000
Liabilities transferred (555,185)
---------
$ 1,850,057
The oil and gas properties, cash and liabilities were transferred to a newly
formed entity Rubicon Oil and Gas, Inc. ("Rubicon"). The Pannonian stockholders
were allocated shares in Rubicon on a one for one basis with their Pannonian
shares.
The Company held, through PIL, non-United States oil and gas properties. In
accordance with the Agreement, the Company distributed, as a dividend in kind,
all of the outstanding shares of PIL to the stockholders of the Company on a one
to one basis with their Pannonian shares. The book value of the PIL shares as of
the date of distribution was approximately $174,000.
NOTE 10 - STOCK OPTIONS
During the first quarter of 2002, the Company issued an additional 250,000
options to purchase shares of common stock to employees of the Company, at
exercise prices ranging from $1.58 to $1.73 per share. The exercise prices of
the stock options equaled the trading price of the Company's common stock on the
grant date. The options vest quarterly over a two-year period and expire within
ten years from the grant date.
NOTE 11 - RELATED PARTY TRANSACTION
During the first nine months of 2002, Gasco paid $110,266 in consulting fees to
an unrelated third party. The obligation to pay these fees was a joint and
several liability of Gasco and a company of which two of Gasco's directors have
a combined 66.67% ownership.
NOTE 12 - STATEMENT OF CASH FLOWS
During the nine months ended September 30, 2002, the Company's non-cash
investing activity consisted of the following transactions:
Conversion of 500 shares of Preferred Stock into 4,750,000 shares of common
stock.
Issuance of 9,500,000 shares of common stock, valued at $18,525,000 in
exchange for oil and gas properties.
Repurchase of 500 shares of preferred stock and 6,250,000 shares of common
stock in exchange for an undivided 25% working interest in the Company's
undeveloped acreage valued at $16,709,000.
12
Reclassification of $1,400,000 from additional paid in capital to
redeemable common stock to reflect the option described in Note 6.
Noncash stock offering costs of $250,000 incurred in connection with
redeemable common stock as described in Note 6.
Cash paid for interest during the nine months ended September 30, 2001 was
$67,363. There was no cash paid for interest during the nine months ended
September 30, 2002.
13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of the results of operations of Gasco for the periods
ended September 30, 2002 and 2001 should be read in conjunction with the
consolidated financial statements of Gasco and related notes included therein.
Business Combination
On February 1, 2001, the Company entered into an Agreement and Plan of
Reorganization (the "Pannonian Agreement") whereby it issued 14,000,000 shares
of its common stock and warrants to the former stockholders of Pannonian Energy,
Inc. ("Pannonian"), a private corporation incorporated under the laws of the
State of Delaware, in connection with the merger of Pannonian with a subsidiary
of the Company (the "Pannonian Merger"). Pannonian was an independent energy
company engaged in the exploration, development and acquisition of crude oil and
natural gas reserves in the western United States.
Under the terms of the Pannonian Agreement, Pannonian was required, prior to
closing of the merger transaction on March 30, 2001, to divest itself of all
assets not associated with its "Riverbend" area of interest (the "non-Riverbend
assets"). The "spin-offs" were accounted for at the recorded amounts. The net
book value of the non-Riverbend assets in the United States transferred,
including cash of $1,000,000 and liabilities of $555,185, was approximately
$1,850,000. The net book value of PIL (which owned the non-Riverbend assets
located outside the United States) as of the date of distribution was
approximately $174,000.
Certain stockholders of SJRI surrendered for cancellation 2,438,930 common
shares of the Company's capital stock on completion of the transaction
contemplated by the Pannonian Agreement.
Upon completion of the transaction, Pannonian became a wholly owned subsidiary
of the Company. However, since this transaction resulted in the existing
stockholders of Pannonian acquiring control of the Company, for financial
reporting purposes the business combination is accounted for as a reverse
acquisition with Pannonian as the accounting acquirer. All information presented
for periods prior to March 30, 2001 represents the historical information of
Pannonian.
Critical Accounting Policies
The Company follows the full cost method of accounting whereby all costs related
to the acquisition and development of oil and gas properties are capitalized
into a single cost center ("full cost pool"). Such costs include lease
acquisition costs, geological and geophysical expenses, overhead directly
related to exploration and development activities and costs of drilling both
productive and non-productive wells. Proceeds from property sales are generally
credited to the full cost pool without gain or loss recognition 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.
Depletion of exploration and development costs and depreciation of production
equipment is computed using the units of production method based upon estimated
proved oil and gas reserves. The costs of unproved properties are withheld from
14
the depletion base until such time as they are either developed or abandoned.
The properties are reviewed periodically for impairment. Total well costs are
transferred to the depletable pool even when multiple targeted zones have not
been fully evaluated. For depletion and depreciation purposes, relative volumes
of oil and gas production and reserves are converted at the energy equivalent
rate of six thousand cubic feet of natural gas to one barrel of crude oil.
Under the full cost method of accounting, capitalized oil and gas property costs
less accumulated depletion and net of deferred income taxes may not exceed an
amount equal to the present value, discounted at 10%, of estimated future net
revenues from proved oil and gas reserves plus the cost, or estimated fair
value, if lower of unproved properties. Should capitalized costs exceed this
ceiling, an impairment is recognized. The present value of estimated future net
revenues is computed by applying current prices of oil and gas to estimated
future production of proved oil and gas reserves as of period-end, less
estimated future expenditures to be incurred in developing and producing the
proved reserves assuming the continuation of existing economic conditions.
Petroleum and Natural Gas Properties
The following is a description of the current status of the Company's projects.
Riverbend Project
In the Uinta Basin of Northeastern Utah, the Riverbend project targets natural
gas production from basin-centered tight sand reservoirs. As of September 30,
2002 the Company held an interest in 96,678 gross acres (30,406 net acres) in
the project area. The Company has earned or acquired an additional 30,449 gross
(17,721 net) acres in this area for which it has not yet received leasehold
assignments. Additionally, the Company has an opportunity to earn approximately
18,566 gross acres (5,672 net acres) by drilling in this project.
During January 2002, Gasco entered into an agreement with Halliburton Energy
Services ("Halliburton") under which Halliburton has the option to earn a
participation interest proportionate to its investment by funding the
completions of wells in the Wasatch, Mesaverde and Mancos formations. The
Company and Halliburton also share technical information through the formation
of a joint technical team.
Gasco drilled its first operated well in this area during February 2002. Gasco
spent approximately $1,000,000 on this well, which began selling gas in early
July 2002. In April 2002, the Company drilled its second operated well in this
immediate area for a total cost of approximately $1,300,000. Sales of production
from this well began during the middle of August 2002. Compressor capacity
limitations on a third party gathering system in this area have caused one of
these wells to be shut-in and have significantly restricted the production rate
of the other well. The Company is considering several options for increasing
compressor capabilities, the most likely of which is to install a new and larger
compressor to the system. As Gasco's production will take up all of the new
compressor's capacity, it is anticipated that Gasco will be responsible for the
full installation cost and most of the operating expenses of the new compressor.
The installation and operation of the new compressor for the next six months is
anticipated to range between $80,000 and $100,000. Gasco began drilling it's
third operated well in this area during September 2002. The well recently
reached total depth and preliminary results indicate that this well will be
completed during the fourth quarter of 2002. The Company's share of the costs
for this well is expected to be approximately $950,000. Gasco also has a 14% to
15
20% working interest in five additional wells that have been drilled by
ConocoPhillips in this area during late 2001 and through the third quarter of
2002. Four of these wells have been completed and are currently selling gas and
one is awaiting completion.
Greater Green River Basin Project
In Wyoming, the Greater Green River Basin project targets natural gas production
from basin-centered tight sand reservoirs. Gasco established an Area of Mutual
Interest ("AMI") with Burlington Resources ("Burlington") covering approximately
330,000 acres in Sublette County, Wyoming within the Greater Green River Basin.
As of September 30, 2002, the Company has leasehold interests in approximately,
115,121 gross acres and 76,555 net acres in this area. The exploration agreement
governing the AMI required Burlington to drill two wells and to shoot 180 miles
of high-resolution 2-D seismic. As of September 30, 2002, Burlington had
completed shooting the 180 miles of 2-D seismic and had drilled and completed
both of the wells, one of which is currently selling gas. The Company
participated in the drilling of a well in Sublette County Wyoming, which was
spudded during September 2002. Gasco has a 31.5% interest in this well, which is
operated by Burlington. The well is currently being completed and the Company's
share of the total cost for this well is expected to be approximately $700,000.
The Company elected to participate in the drilling of another well in this area,
which was spudded during the beginning of October 2002. Preliminary results
indicate that this well will be completed, therefore the Company's share of the
drilling and completion costs are expected to be approximately $900,000.
During February 2002, the Company purchased at a Bureau of Land Management
("BLM") sale a 45% interest in 21,614 gross acres (9,726 net acres) for
approximately $1,428,000. After the sale, the Company was notified by the BLM in
Wyoming that several environmental groups filed a protest against the BLM
offering numerous parcels of land for oil and gas leasing. All of the parcels
(leases) purchased by the Company were placed in suspense pending the resolution
of this protest. If the protest is deemed to have merit, the lease purchases
will be rejected and the money paid for the leases will be returned to the
Company. If the protest is deemed to be without merit, the leases will be
released from suspense and issued to the Company. Effective July 16, 2002, the
Company assigned 25% of this suspended interest to Brek resulting in the
Company's net acres being reduced from 9,726 to 7,295 net acres. As of September
30, 2002, the BLM has released from suspension and issued leases covering 5,700
gross acres representing 1,924 net acres to the Company. These issued leases are
reflected in the Company's total acreage position stated above. To date, 15,914
gross acres (5,371 net acres) remain in suspense and this leasehold interest is
not included in the totals above. The value of the remaining suspended leases is
recorded as unproved mineral interests in the accompanying financial statements.
The Company also purchased additional leasehold interests in Sublette County,
Wyoming covering approximately 18,451 gross acres (16,421 net acres) for a total
purchase price of $1,500,000 on February 19, 2002. Effective July 16, 2002 the
Company assigned 25% of its interest to Brek resulting in the Company's net
acres being reduced from 16,421 to 12,316.
During February 2002, Gasco drilled a well in the Southwest Jonah field located
in the Greater Green River Basin in Sublette County, Wyoming. The well
encountered natural gas, however not of sufficient quantities to be deemed
economic. The well was plugged and abandoned during March 2002. The net dry hole
cost of the well was $541,125 and was recorded as impairment expense during the
nine months ended September 30, 2002 because the Company believes that the total
costs for this well exceed the present value, discounted at 10%, of the future
net revenues from its proved oil and gas reserves.
16
On May 1, 2002, the Company issued 9,500,000 shares of its common stock to the
Shama Zoe Limited Partnership ("Shama Zoe"), a private oil and gas company, for
the acquisition of 53,095 gross (47,786 net) acres plus other assets and
consideration in the Greater Green River Basin in Sublette County Wyoming. The
acquisition is valued at $18,525,000 using a stock price of $1.95 per common
share, which represents the closing price of the Company's common stock on April
23, 2002; the date the agreement was executed. The original Property Purchase
Agreement governing this transaction prevented the Company from issuing
additional shares of its common stock at prices below $1.80 per share and from
granting registration rights in connection with the issuance of shares of its
common stock. In connection with the August 14, 2002 issuance of 6,500,000
shares of common stock, as described below, the original Property Purchase
Agreement was amended to allow for the issuance of these shares at a price of
$1.00 per share and Shama Zoe was granted an option to sell to the Company
1,400,000 shares of the Gasco common stock that it acquired in the transaction
at $1.00 per share at any time prior to December 31, 2002.This transaction
replaced the previously described cash option structure and eliminated the
$300,000 per month option payment as referred to in the Company's Form 10-K for
the year ended December 31, 2001.
In connection with this transaction, the Board of Directors of the Company
authorized the payment to an employee of the Company who was instrumental in
securing the Company's agreement with Shama Zoe, of $300,000 in cash and the
issuance of options to purchase 250,000 shares of Gasco common stock at an
exercise price of $1.95 per share, which is equal to the fair market of the
common stock on April 23, 2002. The cash payment was accrued in the accompanying
financial statements as of September 30, 2002.
During May 2002, the Company elected to participate in a 3D seismic shoot
covering 100 square miles in Sublette County, Wyoming. The Company's share of
the costs for the seismic data was $850,000.
Southern California Project
The Company currently leases approximately 3,032 net acres in the Kern and San
Luis Obispo Counties of southern California. The Company has no drilling or
development plans for this acreage during 2002, but plans to continue paying
leasehold rentals and other minimum geological expenses to preserve the
Company's acreage positions on these three oil prospects. The Company may
consider selling these positions in the future.
Repurchase of Stock for Acreage
On July 16, 2002, Gasco executed and closed a purchase agreement with Brek
Energy Corporation ("Brek"), and certain other Gasco stockholders (the "Other
Stockholders"), pursuant to which Brek and the Other Stockholders purchased from
Gasco an undivided 25% of Gasco's working interests in all undeveloped acreage
owned by Gasco in exchange for 6,250,000 shares of Gasco common stock and 500
shares of Gasco preferred stock held by Brek and the Other Stockholders. The
Other Stockholders assigned their right to receive their share of such working
interests to Brek, so that Brek acquired title to all of the working interests
conveyed by Gasco in the transaction. Brek also has the option to acquire an
additional 5% undivided interest in Gasco's undeveloped acreage by paying a
17
total of $10.5 million in two equal installments on or before January 1, 2004
and January 1, 2005, respectively. A 2.5% interest will be conveyed to Brek upon
receipt of each installment. Brek must make timely payment of the first
installment in order to maintain the option to acquire the additional 2.5%
interest with the second installment.
The transaction was previously estimated to be valued at $22,000,000 based on an
average price of $2.00 per common share when the letter of intent was signed.
The transaction was valued at $16,609,000 based on the average trading price of
the Company's common stock when the transaction was executed. In accordance with
Securities and Exchange Commission Regulation S-X rule 4.10, the transaction was
recorded as a reduction to the Company's unproved properties and a reduction to
the Company's additional paid in capital, preferred and common stock.
The transaction, previously announced as a letter of intent on May 24, 2002,
simplifies the Company's capital structure by eliminating all preferred stock
(which was convertible into 4,750,000 common shares) and the associated
preferential voting rights.
Oil and Gas Acreage
The following table sets forth the undeveloped and developed leasehold acreage,
by area, held by the Company as of September 30, 2002. Undeveloped acres are
acres on which wells have not been drilled or completed to a point that would
permit the production of commercial quantities of oil and gas, regardless of
whether or not such acreage contains proved reserves. Developed acres are acres,
which are spaced or assignable to productive wells. Gross acres are the total
number of acres in which Gasco has a working interest. Net acres are the sum of
Gasco's fractional interests owned in the gross acres. The table does not
include acreage that the Company has a contractual right to acquire or to earn
through drilling projects, or any other acreage for which the Company has not
yet received leasehold assignments. In certain leases, the Company's ownership
is not the same for all depths; therefore, the net acres in these leases are
calculated using the greatest ownership interest at any depth. Generally this
greater interest represents Gasco's ownership in the primary objective
formation.
Undeveloped Acres Developed Acres
--------------------------- ------------------------
Gross Net Gross Net
Utah 96,118 30,145 560 261
Wyoming 115,041 76,502 80 53
California 4,068 3,032
----------- ------------ ------------- -------
Total acres 215,227 109,679 640 314
=========== ============ ========== =======
Approximately 21,614 gross acres (9,726 net acres) that were acquired in
February 2002 in a lease sale held by the Wyoming Bureau of Land Management were
placed in suspense pending the resolution of a protest filed by several
environmental groups and therefore these leases will not be issued to the
Company until the protest is resolved in our favor. Effective July 16, 2002, the
Company agreed to assign 25% of this suspended interest to Brek resulting in the
Company's total net acres being reduced from 9,726 net acres to 7,295 net acres.
As of September 30, 2002, the BLM has released from suspense and issued leases
covering 5,700 gross acres (1,924 net acres) to the Company leaving 15,914 gross
acres (5,371 net acres) remaining in suspense. Only the issued leases are
reflected in the Company's total acreage position stated in the table above.
18
As of September 30, 2002, the Company has purchased or earned 9,637 gross (1,750
net) acres in the Uinta basin in Utah and in Sublette County, Wyoming but has
not yet received leasehold assignments. The Company also has the contractual
right to earn 42,594 gross (21,849 net) acres within the Uinta basin and 3,682
gross (932 net) acres in Sublette County through future drilling projects that
must be completed at various dates through the end of May 2006. All of this
acreage is excluded from the table above.
Sale of Common Stock
On August 14, 2002, the Company issued 6,500,000 shares of common stock for net
proceeds of approximately $6.0 million in a private offering. The Company
intends to use the net proceeds from this offering to fund its remaining 2002
capital budget.
Results of Operations
All information for periods prior to March 30, 2001 represents the historical
information of Pannonian because Pannonian was considered the acquiring entity
for accounting purposes.
The Three and Nine Months Ended September 30, 2002 Compared to the Three and
Nine Months Ended September 30, 2001
During the quarter and nine months ended September 30, 2002, the Company owned
interests in six producing wells, two of which began producing in late October
of 2001 and the remainder began producing during 2002. The oil and gas revenue
and lease operating expense during 2002 relate to these wells and is comprised
of approximately 27,965 mcf of gas at an average price of $1.56 per mcf during
the third quarter of 2002 and 46,465 mcf of gas at an average price of $2.05 per
mcf during the first nine months of 2002. The Company had no producing wells
during the third quarter or the first nine months of 2001.
Interest income during 2002 and 2001 represents the interest earned on the
Company's combined cash and cash equivalents and restricted cash balances.
Interest income decreased $92,441 and $74,844 from the third quarter of 2001 to
the third quarter of 2002 and from the first nine months of 2001 to the first
nine months of 2002, respectively. The decrease is primarily the result of a
higher average cash balance during the third quarter and first nine months of
2001 primarily due to the sale of preferred and common stock during the second
half of 2001.
General and administrative expense increased from $845,802 to $1,461,377 during
the third quarter of 2002 compared to the third quarter of 2001, and from
$2,412,271 to $3,936,479 during the first nine months of 2001 compared to the
first nine months of 2002. The increase in both periods is primarily due to the
increase in staff and professional fees associated with the commencement of its
own operations. General and administrative expense during the third quarter and
the first nine months of 2002 includes $110,266 in consulting fees paid on
behalf of a company of which two of Gasco's directors have a combined 66.67%
ownership.
Depletion, depreciation and amortization expense during the third quarter and
first nine months of 2002 is comprised of $39,325 and $165,255 of depletion
expense related to the Company's proved oil and gas properties and $11,832 and
19
$30,540 of depreciation related to the Company's furniture, fixtures and other
assets, respectively. The corresponding expense during the third quarter and
first nine months of 2001 consists of the depreciation expense related to the
Company's furniture, fixtures and other assets.
The impairment expense during the first nine months of 2002 represents costs
associated with a well drilled in the Southwest Jonah field located in the
Greater Green River Basin in Sublette County, Wyoming during the first quarter
of 2002. The natural gas encountered in this well was not of sufficient
quantities to be deemed economic, therefore, the costs associated with this well
were charged to impairment expense during the nine months ended September 30,
2002 because the Company believes that the total costs for this well exceed the
present value, discounted at 10%, of the future net revenues from its proved oil
and gas reserves.
The interest expense during the three and nine months ended September 30, 2001
represents the interest incurred on the Company's outstanding notes payable,
which were repaid during 2001.
Liquidity and Capital Resources
At September 30, 2002, the Company had cash and cash equivalents of $5,449,764
compared to cash and cash of equivalents of $12,296,585 at December 31, 2001.
The decrease in cash and cash equivalents is primarily attributable to the
following significant items combined with the cash used in operations of
$1,884,703, which was partially offset by the $5,973,980 in net proceeds from
the August 14, 2002 sale of common stock.
- - During February 2002, the Company acquired leasehold interests covering
approximately 18,451 gross acres (16,421 net acres) in the Greater Green
River Basin located in west-central Wyoming for $1,500,000.
- - The Company acquired a 45% interest in 21,614 acres in Sublette County
Wyoming for approximately $1,428,000 during February 2002. Effective July
16, 2002, the Company assigned 25% of its interest to Brek.
- - In connection with its drilling projects, the Company entered into a
$2,000,000 letter of credit during February 2002, which was subsequently
amended during May 2002, to $250,000. The letter is collateralized with
cash, which is classified as restricted cash in the accompanying financial
statements, and terminates in January 2003.
- - The Company drilled three productive operated wells in Uintah County, Utah
for approximately $3,250,000 and one well, which was a dry hole in Sublette
County, Wyoming for $541,125.
- - The Company participated in the drilling of five productive wells in Uintah
County, Utah and one well in Sublette County, Wyoming, all of which are
operated by other companies, for approximately $1,950,000.
- - During the nine months ended September 30, 2002, the Company incurred
unproved property costs comprised of delay rentals and the purchase of
numerous acreage positions in Wyoming and Utah of $1,100,000.
- - During May 2002, the Company elected to participate in 3D seismic shoot
covering 100 square miles in Sublette County, Wyoming for $850,000.
Working capital decreased from $11,860,584 at December 31, 2001 to $3,407,398,
primarily due to the property related expenditures partially offset by the stock
offering proceeds discussed above.
20
In management's view, given the nature of the Company's operations, which
consist of the acquisition, exploration and evaluation of petroleum and natural
gas properties and participation in drilling activities on these properties, the
most meaningful information relates to current liquidity and solvency. The
Company's financial success will be dependent upon the extent to which Gasco can
discover sufficient economic reserves and successfully develop and produce from
the properties containing those reserves. Such development may take years to
complete and the amount of resulting income, if any, is difficult to determine
with any certainty. The sales value of any petroleum or natural gas that is
discovered is largely dependent upon other factors beyond the Company's control.
To date, the Company's capital needs have been met primarily through equity
financings. In order to earn interests in additional acreage and depths in
Riverbend, the Company will need to expend significant additional capital to
drill and complete wells. It will be necessary for Gasco to acquire additional
financing in order to complete its operational plan for 2003. The Company will
use the net proceeds of approximately $6,000,000 from the August 14, 2002
private stock offering to fund the remaining 2002 capital budget. The Company is
also considering several options for raising additional capital to fund its 2003
operational budget such as equity offerings, asset sales, the farm-out of some
of the Company's acreage and other similar type transactions. There is no
assurance that financing will be available to the Company on favorable terms or
at all. Any financing obtained through the sale of Gasco equity will likely
result in substantial dilution to the Company's stockholders.
Cautionary Statement Regarding Forward-Looking Statements
In the interest of providing the stockholders with certain information regarding
the Company's future plans and operations, certain statements set forth in this
Form 10-Q relate to management's future plans and objectives. Such statements
are forward-looking statements within the meanings of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements other than statements of historical
facts included in this report, including, without limitation, statements
regarding the Company's future financial position, business strategy, budgets,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "intend," "project," "estimate," "anticipate,"
"believe," or "continue" or the negative thereof or similar terminology.
Although any forward-looking statements contained in this Form 10-Q or otherwise
expressed by or on behalf of the Company are, to the knowledge and in the
judgment of the officers and directors of the Company, believed to be
reasonable, there can be no assurances that any of these expectations will prove
correct or that any of the actions that are planned will be taken.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted result.
Important factors that could cause actual results to differ materially from the
Company expectations ("Cautionary Statements") include those discussed under the
caption "Risk Factors", in the Company's Form 10-K for the year ended December
31, 2001. All subsequent written and oral forward-looking statements
attributable to the Company, or persons acting on its behalf, are expressly
qualified in their entirety by the Cautionary Statements. The Company assumes no
duty to update or revise its forward-looking statements based on changes in
internal estimates or expectations or otherwise.
21
ITEM 3A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk relates to changes in the pricing applicable
to the sales of gas production in the Uinta Basin of northeastern Utah and the
Greater Green River Basin of west central Wyoming. This risk will become more
significant to the Company as more wells are drilled and begin producing in
these areas. Although the Company is not using derivatives at this time to
mitigate the risk of adverse changes in commodity prices, it may consider using
them in the future.
ITEM 4 - CONTROLS AND PROCEDURE
Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-15. Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective. Disclosure controls and procedures are controls and
procedures that are designed to ensure that information required to be disclosed
in Company reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date this evaluation was conducted.
22
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities and Use of Proceeds
On August 14, 2002, the Company issued 6,500,000 shares of common
stock in a private offering for a price of $1.00 per share,
resulting in net proceeds of approximately $6.0 million. The
Company's financial advisors, Energy Capital Solutions, LLC and
EnerCom, Inc. received advisory fees of $350,000 and $65,000,
respectively, from the gross proceeds of the offering. The
issuance of shares of common stock in this transaction was exempt
from registration under Section 4(2) of the Securities Act of
1933, since the shares were offered and sold to a limited number
of accredited investors as defined in Regulation D under the
Securities Act of 1933, as amended.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Exhibit
2.1 Purchase Agreement dated as of July 16, 2002, among Gasco,
Pannonian Energy Inc., San Joaquin Oil & Gas Ltd., Brek, Brek
Petroleum Inc., Brek Petroleum (California), Inc. and certain
stockholders of Gasco. (incorporated by reference to Exhibit 2.1
to the Company's Form 8-K dated July 16, 2002, filed on July 31,
2002).
2.2 Property Purchase Agreement dated as of April 23, 2002 between
the Company and Shama Zoe Limited Partnership (incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K dated May 1,
2002, filed May 7, 2002).
23
2.3 Amendment No. 1 to Property Purchase Agreement dated as of August
9, 2002 between the Company and Shama Zoe Limited Partnership
(incorporated by reference to Exhibit 10.22 to the Company's Form
S-1, filed on August 27, 2002).
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Form 8-K dated December
31, 1999, filed on January 21, 2000).
3.2 Certificate of Amendment to Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's Form
8-K/A dated January 31, 2001, filed on February 16, 2001).
3.3 Certificate of Designation for Series A Preferred Stock
(incorporated by reference to Exhibit 3.5 to the Company's Form
10-Q for the quarter ended September 30, 2001, filed on November
14, 2001).
3.4 Amended and Restated Bylaws (incorporated by reference to Exhibit
3.4 to the Company's Form 10-Q for the quarter ended March 31,
2002, filed on May 15, 2002).
4.1 1999 Stock Option Plan (incorporated by reference to Exhibit 4.1
to the Company's Form 10-KSB for the fiscal year ended December
31, 1999, filed on April 14, 2000).
(b) Reports on Form 8-K: The following reports on Form 8-K were
filed during the period covered by this report:
Form 8-K dated July 16, 2002 Item 2 - Acquisition or Disposition of Assets
filed July 31, 2002 Item 7 - Exhibit - Purchase Agreement dated
as of July 16, 2002, (see Exhibit 2.3 to the
Form 10-Q Quarterly Report, above)
24
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GASCO ENERGY, INC.
Date: November 13, 2002 By: /s/ W. King Grant
--------------------------------------
W. King Grant, Executive Vice President
Principal Financial and Accounting Officer
25
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Mark A. Erickson, Chief Executive Officer of Gasco Energy, Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Gasco Energy,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Mark A. Erickson
----------------- ---------------------
Mark A. Erickson, President and
Chief Executive Officer
26
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, W. King Grant, Chief Financial Officer of Gasco Energy, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gasco Energy, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ W. King Grant
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W. King Grant, ExecutiveVice President
and Chief Financial Officer
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