Business Context and Reporting Period
Company: Blast Energy Services, Inc. (PEDEVCO CORP)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Blast is an emerging technology company in the energy sector operating two primary divisions: Satellite Communications (providing broadband data and voice services to remote oilfield locations) and Down-hole Solutions (developing Applied Fluid Jetting or "AFJ" technology to stimulate production in existing wells). The company emerged from Chapter 11 bankruptcy in February 2008. As of the filing date, the company faces significant going concern uncertainties due to operating losses and limited cash reserves.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenue | $330,908 | $432,012 |
| Net Loss (Continuing Ops) | $(1,677,915) | $(2,285,352) |
| Net Income (Loss) (Including Discontinued) | $(1,677,915) | $7,011,000 |
| Cash and Cash Equivalents (Year End) | $261,164 | $731,631 |
| Total Assets | $4,338,889 | $5,683,213 |
| Total Liabilities | $1,676,687 | $1,378,856 |
| Stockholders' Equity | $2,662,202 | $4,304,357 |
| Accumulated Deficit | $(72,542,471) | $(70,864,556) |
Segment Performance (2009):
- Satellite Communications: Revenue of $310,908; Operating Profit of $30,640.
- Down-hole Solutions: Revenue of $20,000; Operating Loss of $(365,255).
Debt and Liquidity: The company holds a secured $1.12 million note with Berg McAfee Companies (related party) bearing 8% interest. Cash flow from operating activities was negative $984,337. The company reported a cash balance of approximately $122,907 as of March 31, 2010, raising substantial doubt about its ability to continue as a going concern.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by approximately 23% ($101,104) compared to 2008. Satellite revenue dropped 21%, while Down-hole revenue fell 44% due to limited commercial activity.
- Operating Loss Improvement: Loss from continuing operations decreased by $607,437 (from $2.29M to $1.68M), primarily driven by a significant reduction in Selling, General, and Administrative (SG&A) expenses ($888,000 decrease) due to executive furloughs and reduced stock-based compensation.
- Discontinued Operations: 2008 included $9.3 million in income from discontinued operations (drilling assets sold in bankruptcy), whereas 2009 had zero income from discontinued operations. This explains the shift from net income in 2008 to net loss in 2009.
- Asset Impairment: The company recorded a $50,479 impairment charge in 2009 for IPSM equipment due to legal uncertainties with a subcontractor.
- Receivables: Current assets increased due to a $1.4 million current portion of a long-term receivable from the Quicksilver Resources lawsuit settlement.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Guidance: Management does not provide specific financial guidance. The company states it will need to raise additional capital through debt or equity to fund operations and avoid running out of cash. It plans to maximize value from litigation proceeds receivable in 2010 and 2011.
Management Commentary:
- AFJ Technology: The Down-hole Solutions segment is not yet commercialized. Mechanical failures in 2009 prevented lateral jetting in field tests. The rig is currently in storage pending funds to resolve mechanical issues.
- Cost Cutting: In June 2009, the company furloughed the former CEO and reduced salaries of other executives by 50% to conserve cash.
- Capital Needs: The company explicitly states it has no current commitment from officers or shareholders to supplement operations and may be forced to restructure or seek creditor protection if funding is not secured.
Risks and Contingencies:
- Going Concern: The auditor's report includes an emphasis of matter regarding the company's ability to continue as a going concern due to the accumulated deficit and operating losses.
- Litigation:
- Hallwood: Equity component of a settlement was written down to zero value after Hallwood filed for bankruptcy and control was transferred to a third party.
- Quicksilver: $7.2 million remains receivable from a $10 million settlement (net of legal fees), with payments due through 2011.
- Alberta Energy Partners: A settlement was reached in February 2010 (subsequent to year-end) resolving a dispute over Abrasive Fluid Jetting technology, requiring Blast to transfer 50% of the technology back to Alberta.
- Customer Concentration: Three customers (BP America, Dow Chemical, Apache) accounted for 79% of satellite revenues in 2009.
Investor Verification Checklist
- Cash Runway: Verify the current cash balance and burn rate to assess the immediate risk of insolvency, given the $122,907 cash balance reported as of March 31, 2010.
- Quicksilver Receivables: Confirm the status of the remaining $7.2 million receivable from Quicksilver Resources and the likelihood of collection in 2010-2011.
- AFJ Commercialization: Assess the technical progress of the Applied Fluid Jetting rig and the timeline for resolving mechanical failures to generate revenue.
- Capital Raising: Monitor for any new equity or debt offerings, noting the potential for significant dilution given the existing capital structure and the $1.12 million related-party note.
- Related Party Transactions: Review the terms of the $1.12 million note with Berg McAfee Companies and the 8% dividend arrearages on Series A Preferred Stock held by related parties.