===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 1
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-26321
Gasco Energy, Inc.
(Exact name of registrant as specified in its charter)
Nevada 98-0204105
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Inverness Drive East, Building H, Suite 236, Englewood, CO 80112
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (303) 483-0044
Securities Registered Pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
- -------------------------------------- -------------------------------------
Common Stock, par value $.0001 per share American Stock Exchange
Securities Registered Pursuant to Section 12 (g) of the Act: None
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
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |X| No [ ]
As of June 30, 2004, approximately 45,344,954 shares of Common Stock, par value
$0.0001 per share were outstanding, and the aggregate market value of the
outstanding shares of Common Stock of the Company held by non-affiliates was
approximately $88,422,660. As of March 15, 2005, approximately 70,517,209 Common
Stock, par value $0.0001 per share were outstanding.
================================================================================
EXPLANATORY NOTE
In reliance upon the Order of the Securities and Exchange Commission
issued under Section 36 of the Securities Exchange Act of 1934 (Release No.
50754, November 30, 2004), Gasco Energy, Inc. (the "Company") omitted from Item
9A of its Annual Report on Form 10-K for the fiscal year ended December 31, 2004
(the "Original Report") both the annual report of its management on internal
control over financial reporting, as required by Item 308(a) of Regulation S-K,
as well as the related attestation report of a registered public accounting
firm, as required by Item 308(b) of Regulation S-K. The Company is filing this
Amendment No. 1 to Annual Report on Form 10-K (the "Amendment") to provide the
information that was omitted from Item 9A of the Original Report. The
information contained herein restates in its entirety the information provide
under Item 9A in the Original Report. No other information is being amended by
the Amendment and the Company has not updated disclosures in this Amendment to
reflect any event subsequent to the Company's filing of the Original Report.
ITEM 9A - CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2004. Our disclosure controls and
procedures are designed to provide us with a reasonable assurance that the
information required to be disclosed in reports filed with the SEC is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. The disclosure controls and procedures are also designed
to provide reasonable assurance that such information is accumulated and
communicated to our management as appropriate to allow such persons to make
timely decisions regarding required disclosures.
Our management does not expect that our disclosure controls and
procedures will prevent all errors and all fraud. The design of a control system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Based on the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple errors or mistakes. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events. Therefore, a control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Our disclosure controls and procedures
are designed to provide such reasonable assurances of achieving our desired
control objectives, and our CEO and CFO have concluded, as of December 31, 2004,
that our disclosure controls and procedures are effective in achieving that
level of reasonable assurance.
2
Internal control over financial reporting
Our internal controls over financial reporting are designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of our financial statements in accordance with GAAP. These internal
controls over financial reporting were designed under the supervision of our
management and include policies and procedures that: (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of our assets, (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that our receipts and
expenditures are being made only in accordance with authorizations of our
management and directors and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial statements.
In accordance with Item 308 of SEC Regulation S-K, management is
required to provide an annual report regarding internal controls over our
financial reporting. This report, which includes management's assessment of the
effectiveness of our internal controls over financial reporting, is found below.
Management of the Company conducted an evaluation of the effectiveness of
its internal control over financial reporting as of December 31, 2004. This
evaluation was based on the framework in "Internal Control - Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP. During the course of our evaluation we
identified the following material weaknesses:
1. Insufficient segregation of duties with respect to the review of the
bank reconciliation of an account used for general and administrative
expenses and the review of certain other general corporate accounts,
such as prepaid and other assets. The individual responsible for
generating checks from our accounting system was also responsible for
reconciling this bank account.
2. Insufficient documentation with respect to the review of non-standard
journal entries. The Chief Financial Officer reviewed each of the
transactions that were recorded in non-standard journal entries,
however, the documentation of the review by our Chief Financial
Officer of the non-standard journal entries themselves did not exist
in all cases.
3. Insufficient documentation of our quarterly closing procedures. During
2004 we did not maintain a written checklist of procedures to be
carried out each quarter to close our accounting records for the
reporting period. We conducted procedures appropriate to properly
close our books, however; the documentation of the physical inventory
count at December 31, 2004 and the documentation of the review of the
calculations of the asset retirement obligation and equity
compensation does not exist.
4. Insufficient documentation of the controls with respect to the input
and output of transactions recorded by our outsourced accounting
function with respect to the revenue and joint interest billing
processes. We outsourced our accounting function during the third
quarter of 2004. Due to the timing of this change of accounting
procedures there were an insufficient number of transactions during
available for testing.
3
Based on the material weaknesses described above, management of the Company
concluded that the Company did not maintain effective internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control- Integrated Framework issued by the COSO.
These material weaknesses were identified in the fourth quarter of 2004 and
the first quarter of 2005 during the audit of our management's report on
internal control over financial reporting both by our Chief Financial Officer
and our outside auditors. We believe that these weaknesses have been present in
our financial controls for an extended period of time. The material weaknesses
identified by management with respect to its internal controls over financial
reporting existed because of either an insufficient segregation of duties or
insufficient documentation of controls. However, the certifying officers believe
that these weaknesses were mitigated by other informal procedures carried out by
management with respect to the oversight of financial reporting. These informal
procedures include the review by management of certain reports and the active
participation by management in the preparation and review of our financial
statements. Additionally, the relatively small volume of transactions and low
pace of activity during 2004 afforded management the opportunity to be
intimately familiar with the Company's activities and operations, even to the
transaction level, that would not have been possible in a larger company. As
such, the certifying officers concluded that the identified weaknesses did not
prevent the information required to be disclosed by the Company in its filings
with the Commission from being recorded, processed, summarized and reported
within the required time periods. Therefore, despite the identification of
weaknesses, the certifying officers were able to conclude that the Company's
disclosure controls and procedures were effective.
New or additional control procedures were implemented by management during
the first quarter of 2005 with the intent to eliminate each of the material
weaknesses described above. These include assigning the responsibility of
checking account reconciliation to an employee not responsible for generating
checks, documenting the Chief Financial Officer's review of non-standard journal
entries and utilizing a written checklist of procedures for closing our
accounting records for each reporting period.
Changes in internal control over financial reporting during the fourth quarter
of 2004. There have been no changes in our internal controls over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act) or in other
factors that occurred during the fiscal quarter ended December 31, 2004, that
have materially affected or are reasonably likely to materially affect our
internal controls over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. The Company's internal control over
financial reporting is designed, under the supervision of the Company's chief
executive and chief financial officers, to provide reasonable assurance
4
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America (GAAP). The
Company's internal control over financial reporting includes those policies and
procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the financial statements.
Management of the Company conducted an evaluation of the effectiveness of
its internal control over financial reporting as of December 31, 2004. This
evaluation was based on the framework in "Internal Control - Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP. During the course of our evaluation we
identified the following material weaknesses:
1. Insufficient segregation of duties with respect to the review of the
bank reconciliation of an account used for general and administrative
expenses and the review of certain other general corporate accounts,
such as prepaid and other assets. The individual responsible for
generating checks from our accounting system was also responsible for
reconciling this bank account.
2. Insufficient documentation with respect to the review of non-standard
journal entries. The Chief Financial Officer reviewed each of the
transactions that were recorded in non-standard journal entries,
however, the documentation of the review by our Chief Financial
Officer of the non-standard journal entries themselves did not exist
in all cases.
3. Insufficient documentation of our quarterly closing procedures. During
2004 we did not maintain a written checklist of procedures to be
carried out each quarter to close our accounting records for the
reporting period. We conducted procedures appropriate to properly
close our books, however; the documentation of the physical inventory
count at December 31, 2004 and the documentation of the review of the
calculations of the asset retirement obligation and equity
compensation does not exist.
4. Insufficient documentation of the controls with respect to the input
and output of transactions recorded by our outsourced accounting
function with respect to the revenue and joint interest billing
processes. We outsourced our accounting function during the third
quarter of 2004. Due to the timing of this change of accounting
procedures there were an insufficient number of transactions during
2004 available for testing.
Based on the material weaknesses described above, management of the Company
concluded that the Company did not maintain effective internal control over
5
financial reporting as of December 31, 2004, based on criteria established in
Internal Control- Integrated Framework issued by the COSO.
The Company's assessment of the effectiveness of the Company's internal
control over financial reporting as of December 31, 2004 has been audited by
Hein & Associates LLP, an independent registered public accounting firm, as
stated in their report which appears elsewhere in this report.
Pursuant to the requirements of Rules 13a-15(f) and 15d-15(f) of the
Securities Exchange Act of 1934, as amended, this Annual Report on Internal
Control Over Financial Reporting has been signed below by the following persons
on behalf of the registrant and in the capacities indicated below on April 28,
2005.
Mark A. Erickson
President & Chief Executive Officer
W. King Grant
Chief Financial Officer
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Gasco Energy, Inc.:
We have audited management's assessment, included in the accompanying
Managements' report on internal controls over financial reporting, that Gasco
Energy, Inc. (the "Company") did not maintain effective internal control over
financial reporting as of December 31, 2004, because of the effect of material
weaknesses identified in management's assessment, based on criteria established
in Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
6
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. A material weakness is a
control deficiency, or combination of control deficiencies, that results in more
than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The following material
weaknesses have been identified and included in management's assessment:
1. Lack of segregation of duties with respect to the review of the bank
reconciliation of an account used for general and administrative
purposes.
2. Insufficient documentation with respect to the review of non-standard
journal entries.
3. Insufficient documentation by the Company of its quarterly closing
procedures, including lack of a closing checklist, inventory counts,
and review of calculations used to support amounts recorded as asset
retirement obligations and equity compensation.
4. Insufficient documentation of the controls with respect to the input
and output of transactions recorded by the outsourced accounting
function for the Company for the revenue and joint interest billing
processes.
These material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2004 financial statements, and
this report does not affect our report dated March 15, 2005 on those financial
statements.
In our opinion, management's assessment that the Company did not maintain
effective internal control over financial reporting as of December 31, 2004 is
fairly stated, in all material respects, based on criteria established in
Internal Control--Integrated Framework issued by COSO. Also, in our opinion,
because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control--Integrated
Framework issued by COSO.
/s/Hein & Associates LLP
HEIN & ASSOCIATES LLP
Denver, Colorado
April 29, 2005
7
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) (1) and (2) Financial Statements and Financial Statement Schedules
None
(a) (3) Exhibits
*23.1 Consent of Hein & Associates LLP
*31.1 Rule 13a-14(a)/15d-14(a) Certifications
* Filed herewith
8
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Gasco Energy, Inc.
By: /s/ W. King Grant
-----------------------
W. King Grant
Executive Vice President and Chief Financial Officer
9