Business Context and Reporting Period
Company: Blast Energy Services, Inc. (PEDEVCO CORP)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 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.
Going Concern Status: The filing includes a "Going Concern" warning. With a cash balance of only $27,075 and an accumulated deficit of approximately $71.9 million, there is substantial doubt about the company's ability to continue operations without raising additional capital.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenue | $202,332 | $151,625 |
| Net Loss | $(1,082,423) | $10,364 (Net Income) |
| Loss from Continuing Operations | $(1,082,423) | $(1,678,978) |
| Cash and Cash Equivalents | $27,075 | $741,222 |
| Total Assets | $5,064,770 | $5,683,213 |
| Total Liabilities | $1,833,536 | $1,378,856 |
| Stockholders' Equity | $3,231,234 | $4,304,357 |
| Net Cash Used in Operating Activities | $(608,378) | $(2,741,624) |
Debt and Liquidity: Current liabilities increased to $696,012 from $258,856 in the prior year, driven by accounts payable and new notes payable. The company holds a $1.12 million long-term note payable to a related party.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 33.4% year-over-year to $202,332, driven primarily by the Satellite Communications segment ($182,332). The Down-hole Solutions segment generated only $20,000 in revenue.
- Profitability: The company reported a net loss of $1.08 million for the six months ended June 30, 2009, compared to a net income of $10,364 in the same period in 2008. The 2008 income was significantly boosted by a $1.65 million gain from discontinued operations (debt forgiveness from Hallwood Energy), which did not recur in 2009.
- Operating Expenses: Selling, General, and Administrative (SG&A) expenses decreased significantly by $764,000 (from $1.46 million to $698,000) due to lower legal fees post-bankruptcy and reduced non-cash stock-based compensation. However, costs for the Down-hole Solutions segment increased due to rig deployment and testing.
- Cash Position: Cash reserves plummeted from $731,631 at year-end 2008 to $27,075 at June 30, 2009, primarily due to cash expenditures for field testing and deploying the AFJ rig.
Guidance, Outlook, and Risks
Management Commentary & Cost Cutting: On June 12, 2009, the Board implemented severe cost-cutting measures, including furloughing the President and CEO (John O'Keefe) without pay and reducing the CFO and VP of Business Development to half pay. Michael L. Peterson was appointed Interim President and CEO.
Outlook: The company plans to expand Satellite Communications and Down-hole Solutions but explicitly states it may need to raise additional capital through debt or equity sales. There is no assurance that financing will be available.
Material Risks & Contingencies:
- Going Concern: The company has an accumulated deficit of $71.9 million and minimal cash, creating uncertainty about its ability to continue as a going concern.
- Legal Proceedings (Hallwood): A settlement with Hallwood Energy involved equity interests valued at $7.6 million. However, Hallwood filed for Chapter 11 bankruptcy, and the company believes its equity position may be eliminated, currently carrying a zero value.
- Legal Proceedings (Quicksilver): A $10 million settlement with Quicksilver Resources is ongoing. $5 million was received; the remaining $5 million is recorded as a receivable but is contingent on future payments.
- Legal Proceedings (Alberta Energy): An appeal regarding a Technology Purchase Agreement is pending with oral arguments scheduled for September 1, 2009.
Investor Verification Checklist
- Cash Runway: Verify the company's ability to operate with only $27,075 in cash and the status of any new financing arrangements (e.g., the $60,000 note issued in August 2009).
- Quicksilver Receivables: Confirm the collectability of the remaining $5 million due from Quicksilver Resources, which is a significant portion of current assets.
- Hallwood Equity Value: Monitor the resolution of the Hallwood Energy bankruptcy to determine if the potential $7.6 million equity interest is truly worthless or recoverable.
- Executive Compensation: Review the status of the furloughed CEO and the potential $100,000 severance liability if he is not retained.
- Down-hole Technology Viability: Assess the commercial success of the AFJ rig, which has incurred significant costs ($274,000 loss in six months) with minimal revenue ($20,000).