Business Context and Reporting Period
Company: Blast Energy Services, Inc. (PEDEVCO CORP)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: An emerging technology company in the energy sector operating two divisions: Satellite Communications Services and Down-hole Solutions (Applied Fluid Jetting technology). The company emerged from Chapter 11 bankruptcy in 2008.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Revenue | $63,298 | $265,630 |
| Net Loss | $(304,187) | $(1,386,609) |
| Net Loss Attributable to Common Shareholders | $(364,680) | $(1,566,116) |
| Operating Loss | $(267,525) | $(1,303,700) |
| Cash and Cash Equivalents | $661,470 (as of Sep 30, 2009) | N/A |
| Total Assets | $4,902,792 | N/A |
| Total Liabilities | $1,952,042 | N/A |
| Stockholders' Equity | $2,950,750 | N/A |
| Accumulated Deficit | $(72,251,165) | N/A |
Cash Flow (Nine Months Ended Sep 30, 2009):
- Net cash used in operating activities: $(740,244)
- Net cash used in investing activities: $(83,031)
- Net cash provided by financing activities: $33,114
- Net cash provided by discontinued operations: $720,000
Material Changes vs. Prior Period
- Revenue Decline: Revenue for the three months ended September 30, 2009, decreased 53% to $63,298 from $135,925 in the prior year period. Satellite Communications revenue dropped 45%, while Down-hole Solutions revenue was $0 due to suspended field testing.
- Operating Loss Improvement: Despite revenue declines, the operating loss for the three months improved by 26% to $(267,525) from $(360,172), driven primarily by a 48% reduction in Selling, General, and Administrative (SG&A) expenses.
- SG&A Reduction: SG&A expenses decreased significantly due to executive furloughs (CEO furloughed without pay, CFO and VP at half pay) and reduced legal fees.
- Depreciation Increase: Depreciation and amortization increased to $35,868 for the quarter (from $2,416) due to the AFJ rig being brought into service in late 2008.
- Discontinued Operations: The prior year period included a $1.7 million gain from discontinued operations (Hallwood settlement), whereas the current period had no activity in discontinued operations.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary & Outlook:
- Management plans to expand Satellite Communications and Down-hole Solutions but may need to raise additional capital through debt or equity sales.
- Down-hole Solutions field testing was suspended in Q3 2009 after unsuccessful attempts to drill laterals.
- Cost-cutting measures implemented in June 2009 include furloughs and salary reductions.
Risks and Contingencies:
- Going Concern: The filing includes a "Going Concern" note. With an accumulated deficit of $72.3 million and a net loss of $1.4 million for the nine months, there is substantial doubt about the company's ability to continue as a going concern without additional financing.
- Litigation:
- Hallwood Energy: A settlement involved equity interests in Hallwood, but Hallwood's subsequent Chapter 11 filing and transfer of control to a third party may eliminate Blast's equity position (currently valued at $0).
- Quicksilver Resources: A $10 million settlement is being paid in installments. $720,000 was received in September 2009. Remaining receivables are recorded on the balance sheet.
- Alberta Energy Partners: Ongoing appeal regarding a Technology Purchase Agreement; no ruling issued as of the filing date.
- Executive Leadership: The CEO was furloughed without pay; an interim CEO (Michael Peterson) was appointed.
Unusual Items:
- Interest expense included $12,498 related to the fair value of warrants granted in connection with a $60,000 related-party note.
- Discontinued operations provided $720,000 in cash flow from the Quicksilver settlement.
Investor Verification Checklist
- Liquidity Runway: Verify if the $661,000 cash balance is sufficient to sustain operations given the $1.4 million nine-month loss and suspended revenue-generating activities in the Down-hole segment.
- Capital Raising: Confirm if the company has secured commitments for the additional debt or equity financing mentioned as necessary for future operations.
- Quicksilver Receivables: Assess the collectability of the remaining $8 million due from Quicksilver Resources, net of legal fees, as this represents a significant portion of current assets.
- Hallwood Equity Value: Monitor the status of the Hallwood bankruptcy proceedings to determine if the equity interest (Class C Interests) will be fully wiped out.
- Executive Stability: Track the status of the furloughed CEO and the effectiveness of the interim leadership in stabilizing operations.