Business Context and Reporting Period
This Form 8-K, filed on January 20, 2012, reports on events occurring on January 13, 2012, involving Blast Energy Services, Inc. (the "Company"). The Company entered into a definitive Merger Agreement to acquire Pacific Energy Development Corp. ("PEDCO"). Upon consummation, the Company will change its name to "PEDEVCO Corp." and PEDCO will become the surviving entity and a wholly-owned subsidiary. The transaction is structured as a tax-free reorganization.
Key Financial Metrics and Capital Structure
The filing details significant capital restructuring rather than operational financial performance metrics such as revenue or cash flow.
- Debt Conversion (BMC): Approximately $1,556,969 in principal and accrued interest owed to Berg McAfee Companies, LLC and Clyde Berg will convert into 77,848,450 shares of pre-Reverse Split Common Stock at $0.02 per share.
- Debt Conversion (Other): Approximately $579,557 in accrued compensation, loans, salaries, and finders' fees will convert into approximately 28,977,850 shares of pre-Reverse Split Common Stock at $0.02 per share.
- Debt Modification (Centurion): The Company holds debt obligations with Centurion Credit Funding, LLC. The original principal was $2,522,111, with approximately $1,306,078 owed as of the amendment date. Up to 50% of this amount may be converted to post-Reverse Split Common Stock at $0.75 per share at the Lender's option after June 9, 2012.
- Interest Rate Change: Interest on the Centurion Promissory Notes increases from 10% to 18% per annum commencing February 2, 2012.
- Exit Fee: The Exit Fee on Centurion notes was increased by an aggregate of $30,000.
Material Changes and Transaction Terms
The filing outlines a comprehensive restructuring of the Company's equity and debt to facilitate the merger:
- Reverse Stock Split: The Company will effectuate a reverse stock split to limit fully-diluted shares to 2,400,000 prior to the Merger. The estimated split ratio ranges from 90-for-1 to 110-for-1.
- Preferred Stock Conversion: All Series A and Series B Preferred Stock will convert to Common Stock on a one-to-one basis prior to the reverse split.
- Ownership Structure: Post-merger, PEDCO shareholders are anticipated to own approximately 95% of the Company's outstanding capital stock, while pre-merger Company shareholders will own approximately 5%.
- Share Issuance: PEDCO shareholders will receive one share of post-Reverse Split Common Stock (or Series A Preferred Stock) for each share of PEDCO stock held. PEDCO is capped at 45 million shares issued and outstanding on a fully-diluted basis at the time of the Merger.
- Transaction Expenses: PEDCO agreed to advance transaction fees to the Company. Unreimbursed advances will reduce the Company's share count limit by one share for every $1.00 advanced.
Guidance, Risks, and Contingencies
The consummation of the Merger is subject to several conditions precedent and risks:
- Conditions Precedent: Includes shareholder approval, board approval, satisfactory due diligence, and the completion of the Certificate of Formation amendments (conversion of preferred stock and reverse split).
- Termination Rights: The BMC Debt Conversion Agreement and Voting Agreements may be terminated if the shareholder meeting record date has not occurred by June 1, 2012, or if the Board withdraws its recommendation of the Merger.
- Debt Maturity Extension: The maturity of Centurion Promissory Notes (originally due February 2, 2012) has been extended to various dates depending on the status of the Merger, potentially up to August 2, 2012.
- Uncertainty: The Company explicitly states it cannot guarantee the Merger will be consummated on reasonable terms or at all.
- Unregistered Securities: Shares issued to PEDCO shareholders and debt holders will be unregistered, relying on Section 4(2) of the Securities Act of 1933.
Key Facts for Investor Verification
- Verify the final ratio of the reverse stock split, which is estimated between 90-for-1 and 110-for-1, as this directly impacts share count and ownership percentage.
- Confirm the total amount of unreimbursed transaction advances from PEDCO, as this will reduce the pre-merger shareholder equity block.
- Monitor the shareholder vote on the Amendment, Reverse Split, name change, and Merger, as these are required conditions for closing.
- Review the specific terms of the Centurion Credit Funding debt modification, particularly the 18% interest rate and the 50% conversion cap, to assess future cash flow obligations.
- Check for any updates regarding the June 1, 2012 deadline for the BMC Debt Conversion and Voting Agreements.