PEDEVCO CORP. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2012. The registrant, formerly Blast Energy Services, Inc., is an independent oil and gas producer with a secondary focus on applied fluid jetting (AFJ) technology. The financial statements presented reflect the Company's operations prior to a merger with Pacific Energy Development Corp. (PEDCO) that closed on July 27, 2012. Following the merger, the Company changed its name to PEDEVCO Corp. and underwent a 1:112 reverse stock split. The PEDCO merger is accounted for as a reverse acquisition, with PEDCO deemed the accounting acquirer.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2012 | Six Months Ended June 30, 2011 |
|---|---|---|
| Revenues | $226,589 | $243,070 |
| Net Loss | $(654,613) | $(1,039,221) |
| Net Loss Attributable to Common Shareholders | $(774,285) | $(1,158,235) |
| Net Cash Used in Operating Activities | $(385,769) | $(150,666) |
| Cash and Cash Equivalents (End of Period) | $2,186 | $59,367 |
| Total Assets | $1,796,903 | $1,882,430 |
| Total Liabilities | $2,560,182 | $3,627,349 |
| Stockholders' Deficit | $(763,279) | $(1,744,919) |
Debt and Liquidity: The Company reported negative working capital of approximately $2.5 million. Significant debt obligations included notes payable (net of discount) of $1,376,783 and advances from PEDCO of $488,330. The Company had an accumulated deficit of $78.9 million.
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased by approximately 7% year-over-year (from $243,070 to $226,589) primarily due to lower production volumes from the North Sugar Valley Field.
- Reduced Net Loss: Net loss improved significantly, decreasing by approximately 37% (from $1.04 million to $655,000). This improvement was driven largely by the absence of stock-based compensation expenses in 2012 that were present in 2011, and a reduction in interest expense.
- Operating Expenses: Selling, general, and administrative (SG&A) expenses decreased by $303,000, primarily due to the elimination of stock option expenses and reduced payroll costs, partially offset by higher legal fees related to the pending merger.
- Other Income: The Company recognized a one-time gain of $62,030 from the settlement of a placement fee dispute with Trident Partners, reducing the payable from $119,990 to $47,960.
Outlook, Risks, and Unusual Items
- Merger Completion: The merger with PEDCO closed on July 27, 2012. PEDCO raised approximately $11.5 million in a Series A Preferred Stock offering to fund assets in the Eagle Ford and Niobrara shale plays. Post-merger, the Company plans to focus on oil and gas exploration in the U.S. and the Pacific Rim.
- Debt Conversions: In connection with the merger, the Company converted significant debt obligations into common stock. This included $1.64 million in principal and interest owed to Berg McAfee Companies and Clyde Berg, converted into 730,470 shares. Additional debt totaling approximately $567,608 (accrued compensation and salaries) was also scheduled for conversion.
- Project Status: The Guijarral Hills exploration project in California failed to produce oil. The Company agreed to assign its interest in the well to the lessor (Vintage Production California LLC) to avoid plugging and abandonment costs. The lease for this field expires September 30, 2012.
- Liquidity Risk: Prior to the merger, the Company had minimal cash ($2,186) and relied on advances from PEDCO to fund operations and merger expenses. The Company's ability to continue operations post-merger depends on the success of PEDCO's assets and future capital raises.
- Legal Proceedings: A $10 million settlement with Quicksilver Resources was fully received, with the final payment of $2 million received in September 2011. No other material pending litigation was disclosed.
Investor Verification Checklist
- Merger Accounting: Verify the pro forma financial impact of the PEDCO reverse acquisition, as the current 10-Q excludes PEDCO's assets and liabilities.
- Dilution Impact: Assess the total share count increase resulting from the merger, debt conversions, and the issuance of warrants and options to PEDCO stakeholders.
- Debt Obligations: Confirm the status of the remaining Centurion Credit Funding LLC notes (approx. $1.3 million principal) and the terms of the 18% interest rate and exit fees.
- Asset Valuation: Review the valuation of the acquired Eagle Ford and Niobrara assets to ensure they support the Company's future production plans.
- Cash Runway: Evaluate the combined entity's cash position post-merger to determine the timeline for additional capital requirements.