PEDEVCO CORP. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated July 30, 2018, details material events occurring on August 1, 2018, for PEDEVCO Corp. (PEDEVCO), an oil and gas exploration and development company. The filing covers significant capital raising activities, asset acquisitions, executive leadership changes, and a relocation of the company's principal executive offices from Danville, California, to Houston, Texas.
Key Financial Metrics and Capital Structure
- Debt Financing: Raised $23,600,000 through the sale of Convertible Promissory Notes due August 1, 2021.
- Interest Rate: Notes accrue interest at 8.5% per annum (increasing to 10% upon default).
- Conversion Terms: Notes are convertible into common stock at a price of at least $2.13 per share (based on the $2.03 Book/Market Price plus $0.10), subject to volume-weighted average price (VWAP) adjustments. Up to 11,079,812 shares are potentially issuable.
- Acquisition Costs:
- Hunter Oil Assets: $18,500,000 (subject to adjustments and a $500,000 holdback).
- Stock Purchase (RAOC and EOR): Net cost of $500,000 (gross price $2,815,636 less $2,315,636 restricted cash).
- Condor Energy Technology: $545,000.
- Liquidity/Deposits: Paid $500,000 into escrow as a deposit for the Hunter Oil acquisition.
Material Changes and Transactions
The filing reports three primary material definitive agreements entered into on August 1, 2018:
- Convertible Notes Issuance: The majority of the $23.6 million was purchased by SK Energy LLC (wholly-owned by CEO Dr. Simon Kukes) and other affiliated parties, with $400,000 from unaffiliated parties. Conversion is subject to beneficial ownership limitations (49.9% for SK Energy; 4.99% for others).
- Hunter Oil Acquisition: PEDEVCO agreed to acquire approximately 23,000 net leasehold acres in the San Andres play (Permian Basin) via a Purchase and Sale Agreement and a Stock Purchase Agreement. Closing is anticipated on August 31, 2018, with an effective date of September 1, 2018.
- Condor Acquisition: PEDEVCO's subsidiary, Red Hawk Petroleum, LLC, acquired 100% of Condor Energy Technology LLC for $545,000, gaining control of 2,340 net leasehold acres in Colorado. This resolves a prior settlement where PEDEVCO had sold its 20% interest in Condor in 2015.
Management Commentary, Risks, and Unusual Items
- Executive Changes: J. Douglas Schick was appointed President, replacing Frank C. Ingriselli, who remains Chairman. Mr. Schick's compensation includes a monthly salary of $20,833, a potential 40% annual bonus, and severance provisions (12 months' salary) if terminated without "Cause."
- Accountant Change: GBH CPAs, PC resigned effective July 1, 2018, due to a practice combination with Marcum, LLP. Marcum is now the independent registered public accounting firm. Previous audit reports contained explanatory paragraphs regarding uncertainty about the company's ability to continue as a going concern.
- Operational Shift: The company relocated its headquarters to Houston, Texas, and hired five new employees to support operations.
- Risks: The Hunter Oil acquisition is contingent on shareholder approval and closing conditions. The Convertible Notes contain standard events of default and conversion limitations that may restrict dilution or liquidity for specific holders.
Investor Verification Checklist
- Verify the closing of the Hunter Oil acquisition on August 31, 2018, and the receipt of required shareholder approvals.
- Monitor the final calculation of the VWAP conversion price for the Convertible Notes, which could alter the number of shares issuable.
- Review the impact of the $23.6 million debt on the company's leverage and cash flow, noting the 8.5% interest obligation.
- Confirm the integration of the new Houston office and the operational status of the acquired Condor and Hunter Oil assets.
- Assess the implications of the prior "going concern" qualification in the 2016 and 2017 audit reports in light of the new capital raised.