ped_10qa.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ______

Commission file number: 001-35922

PEDEVCO Corp.

(Exact name of registrant as specified in its charter)

Texas		22-3755993
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

575 N. Dairy Ashford, Suite 210, Houston, Texas		77079
(Address of principal executive offices)		(Zip Code)

(713) 221-1768

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	PED	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒

At November 12, 2021, there were 84,210,203 shares of the Registrant’s common stock outstanding.

EXPLANATORY NOTE

PEDEVCO Corp. (the “Company”, “we” and “us”) is filing this Amendment No. 1 (“Amendment No. 1”) to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (the “Original Report”), as filed with the Securities and Exchange Commission on November 15, 2021 (the “Original Filing Date”), for the sole purpose of correcting a technical error with the software of the Company’s Edgar service provider, which caused Exhibits 31.1, 31.2, 32.1 and 32.2, which were executed by the Registrant, to be inadvertently omitted from the Original Report. Such exhibits have been included in this amended filing.

Except as described above, no changes have been made to the Original Report and this Amendment No. 1 does not modify, amend or update in any way any of the financial or other information contained in the Original Report. This Amendment No. 1 does not reflect events that may have occurred subsequent to the Original Filing Date.

PEDEVCO CORP.

TABLE OF CONTENTS

		Page
Cautionary Note About Forward-Looking Statements		3

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited)	4

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)	6

	Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	26

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

Signatures		30

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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Quarterly Report on Form 10-Q (this “Report”) include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995. These forward-looking statements discuss future expectations, contain projections of results of operations or financial conditions. The words “believe,” “intend,” “plan,” “expect,” “anticipate,” “estimate,” “project,” “goal” and similar expressions identify such a statement was made, although not all forward-looking statements contain such identifying words. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and is derived using numerous assumptions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, the risks discussed in this and our other Securities and Exchange Commission (SEC) filings. We do not promise to or take any responsibility to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements except as required by law. Future events and actual results could differ materially from those expressed in, contemplated by, or underlying such forward-looking statements.

Forward-looking statements may include statements about our:

	●	business strategy;
	●	reserves;
	●	technology;
	●	cash flows and liquidity;
	●	financial strategy, budget, projections and operating results;
	●	oil and natural gas realized prices;
	●	timing and amount of future production of oil and natural gas;
	●	availability of oil field labor;
	●	the amount, nature and timing of capital expenditures, including future exploration and development costs;
	●	drilling of wells;
	●	government regulation and taxation of the oil and natural gas industry;
	●	marketing of oil and natural gas;
	●	exploitation projects or property acquisitions;
	●	costs of exploiting and developing our properties and conducting other operations;
	●	general economic conditions in the United States and around the world, including the effect of regional or global health pandemics (such as, for example, COVID-19);
	●	the continued effect of COVID-19 on the U.S. and global economy, the effect of U.S. and global efforts to reduce the spread of the virus, and the resulting effect of such pandemic and governmental responses thereto on the market for oil and gas and the U.S. and global economy in general;
	●	competition in the oil and natural gas industry;
	●	effectiveness of our risk management activities;
	●	environmental liabilities;
	●	counterparty credit risk;
	●	developments in oil-producing and natural gas-producing countries;
	●	future operating results;
	●	future acquisition transactions;
	●	estimated future reserves and the present value of such reserves; and
	●	plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.

All forward-looking statements speak only at the date of the filing of this Quarterly Report. The reader should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we provide no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk Factors“ and “Management’s Discussion and Analysis of Financial Condition and Results of Operations“ and elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 23, 2021. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. We do not undertake any obligation to update or revise publicly any forward-looking statements except as required by law, including the securities laws of the United States and the rules and regulations of the SEC.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PEDEVCO CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(amounts in thousands, except share and per share data)

	September 30, 2021			December 31, 2020
Assets
Current assets:
Cash	$	19,926		$	8,027
Accounts receivable – oil and gas		1,520			660
Prepaid expenses and other current assets		361			66
Total current assets		21,807			8,753

Oil and gas properties:
Oil and gas properties, subject to amortization, net		64,789			66,994
Oil and gas properties, not subject to amortization, net		4			4
Total oil and gas properties, net		64,793			66,998

Operating lease – right-of-use asset		198			270
Other assets		3,553			3,543
Total assets	$	90,351		$	79,564

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	752		$	212
Accrued expenses		483			303
Revenue payable		960			836
PPP loan, current		-			288
Operating lease liabilities – current		111			105
Asset retirement obligations – current		173			234
Total current liabilities		2,479			1,978

Long-term liabilities:
PPP loan, net of current portion		-			82
Operating lease liabilities, net of current portion		110			195
Asset retirement obligations, net of current portion		1,844			1,673
Total liabilities		4,433			3,928

Commitments and contingencies

Shareholders’ equity:
Common stock, $0.001 par value, 200,000,000 shares authorized; 79,751,603 and 72,463,340 shares issued and outstanding, respectively		80			72
Additional paid-in capital		213,946			203,850
Accumulated deficit		(128,108	)		(128,286	)
Total shareholders’ equity		85,918			75,636
Total liabilities and shareholders’ equity	$	90,351		$	79,564

See accompanying notes to unaudited consolidated financial statements.

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PEDEVCO CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(amounts in thousands, except share and per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Revenue:	2021			2020			2021			2020
Oil and gas sales	$	4,069		$	2,417		$	11,340		$	5,905

Operating expenses:
Lease operating costs		1,423			1,054			4,164			3,326
Exploration expense		-			1			-			31
Selling, general and administrative expense		1,337			1,281			4,434			4,826
Depreciation, depletion, amortization and accretion		1,666			2,974			4,829			8,323
Total operating expenses		4,426			5,310			13,427			16,506

Gain on sale of oil and gas properties		-			-			1,805			-

Operating loss		(357	)		(2,893	)		(282	)		(10,601	)

Other income (expense):
Interest expense		-			(1	)		(1	)		(1	)
Interest income		4			4			11			36
Other income		28			597			76			1,275
Gain on forgiveness of PPP loan		-			-			374			-
Total other income		32			600			460			1,310

Net income (loss)	$	(325	)	$	(2,293	)	$	178		$	(9,291	)

Income (loss) per common share:
Basic	$	(0.00	)	$	(0.03	)	$	0.00		$	(0.13	)
Diluted	$	(0.00	)	$	(0.03	)	$	0.00		$	(0.13	)

Weighted average number of common shares outstanding:
Basic		79,533,016			72,250,014			78,628,077			72,124,339
Diluted		79,533,016			72,250,014			78,700,140			72,124,339

See accompanying notes to unaudited consolidated financial statements.

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PEDEVCO CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)

	Nine Months Ended September 30,
	2021			2020
Cash Flows From Operating Activities:
Net income (loss)	$	178		$	(9,291	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion, amortization and accretion		4,829			8,323
Gain on sale of oil and gas properties		(1,805	)		-
Loss on disposal of fixed asset		-			24
Amortization of right-of-use asset		72			67
Share-based compensation expense		1,867			2,073
Gain on forgiveness of PPP loan		(374	)		-
Changes in operating assets and liabilities:
Accounts receivable – oil and gas		(860	)		3,658
Prepaid expenses and other current assets		(295	)		(146	)
Accounts payable		51			(3,087	)
Accrued expenses		184			(1,647	)
Revenue payable		124			2
Net cash provided by (used in) operating activities		3,971			(24	)

Cash Flows From Investing Activities:
Cash paid for property and equipment		(35	)		-
Cash paid for drilling and completion costs		(2,145	)		(14,379	)
Proceeds from the sale of oil and gas property		1,871			-
Net cash used in investing activities		(309	)		(14,379	)

Cash Flows From Financing Activities:
Proceeds from PPP loans		-			740
Repayment of PPP loan		-			(370	)
Proceeds from issuance of shares, net of offering costs		8,237			-
Net cash provided by financing activities		8,237			370

Net increase (decrease) in cash and restricted cash		11,899			(14,033	)
Cash and restricted cash at beginning of period		11,324			25,712
Cash and restricted cash at end of period	$	23,223		$	11,679

Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest	$	-		$	-
Income taxes	$	-		$	-

Noncash investing and financing activities:
Change in accrued oil and gas development costs	$	287		$	8,581
Changes in estimates of asset retirement costs, net	$	51		$	247
Issuance of restricted common stock	$	2		$	1

See accompanying notes to unaudited consolidated financial statements.

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PEDEVCO CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

(amounts in thousands, except share amounts)

	Common Stock					Additional Paid-in			Accumulated
	Shares			Amount		Capital			Deficit			Totals
Balances at December 31, 2020		72,463,340		$	72	$	203,850		$	(128,286	)	$	75,636
Issuance of restricted common stock		960,000			1		(1	)		-			-
Rescinded restricted common stock		(16,667	)		-		-			-			-
Issuance of common stock to non-affiliate		5,968,500			6		8,297			-			8,303
Cashless exercise of stock options		86,430			-		-			-			-
Share-based compensation		-			-		684			-			684
Net income		-			-		-			728			728
Balances at March 31, 2021		79,461,603			79		212,830			(127,558	)		85,351
Offering costs incurred for issuance of common stock to non-affiliate		-			-		(66	)		-			(66	)
Share-based compensation		-			-		591			-			591
Net income		-			-		-			(225	)		(225	)
Balances at June 30, 2021		79,461,603			79		213,355			(127,783	)		85,651
Issuance of restricted common stock		240,000			1		(1	)		-			-
Issuance of common stock to a non-affiliate		50,000			-		-			-			-
Share-based compensation		-			-		592			-			592
Net loss		-			-		-			(325	)		(325	)
Balances at September 30, 2021		79,751,603		$	80	$	213,946		$	(128,108	)	$	85,918

	Common Stock					Additional Paid-in			Accumulated
	Shares			Amount		Capital			Deficit			Totals
Balances at December 31, 2020		71,061,328		$	71	$	201,027		$	(95,596	)	$	105,502
Issuance of restricted common stock		1,119,000			1		(1	)		-			-
Rescinded restricted common stock		(55,000	)		-		-			-			-
Stock-based compensation		-			-		853			-			853
Net loss		-			-		-			(4,257	)		(4,257	)
Balances at March 31, 2020		72,125,328			72		201,879			(99,853	)		102,098
Stock-based compensation		-			-		719			-			719
Net loss		-			-		-			(2,741	)		(2,741	)
Balances at June 30, 2020		72,125,328			72		202,598			(102,594	)		100,076
Issuance of restricted common stock		240,000			-		-			-			-
Rescinded restricted common stock		(74,000	)		-		-			-			-
Issuance of restricted common stock to non-affiliate		70,000			-		-			-			-
Issuance of restricted common stock to affiliate		70,000			-		-			-			-
Cashless exercise of stock options		32,012			-		-			-			-
Stock-based compensation		-			-		501			-			501
Net loss		-			-		-			(2,293	)		(2,293	)
Balances at September 30, 2020		72,463,340		$	72	$	203,099		$	(104,887	)	$	98,284

See accompanying notes to unaudited consolidated financial statements.

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PEDEVCO CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying interim unaudited consolidated financial statements of PEDEVCO Corp. (“PEDEVCO” or the “Company”), have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in PEDEVCO’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate disclosures contained in the audited financial statements for the most recent fiscal year, as reported in the Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 23, 2021 (the “2020 Annual Report”), have been omitted.

The Company’s consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and subsidiaries in which the Company has a controlling financial interest. All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company’s future financial condition and liquidity will be impacted by, among other factors, the success of our drilling program, the number of commercially viable oil and natural gas discoveries made and the quantities of oil and natural gas discovered, the speed with which we can bring such discoveries to production, the actual cost of exploration, appraisal and development of our prospects, the prevailing prices for, and demand for, oil and natural gas.

NOTE 2 – DESCRIPTION OF BUSINESS

PEDEVCO is an oil and gas company focused on the development, acquisition and production of oil and natural gas assets where the latest in modern drilling and completion techniques and technologies have yet to be applied. In particular, the Company focuses on legacy proven properties where there is a long production history, well defined geology and existing infrastructure that can be leveraged when applying modern field management technologies. The Company’s current properties are located in the San Andres formation of the Permian Basin situated in West Texas and eastern New Mexico (the “Permian Basin”) and in the Denver-Julesburg Basin (“D-J Basin”) in Colorado. The Company holds its Permian Basin acres located in Chaves and Roosevelt Counties, New Mexico, through its wholly-owned operating subsidiary, Pacific Energy Development Corp. (“PEDCO”), which asset the Company refers to as its “Permian Basin Asset,” and it holds its D-J Basin acres located in Weld and Morgan Counties, Colorado, through its wholly-owned operating subsidiary, Red Hawk Petroleum, LLC (“Red Hawk”), which asset the Company refers to as its “D-J Basin Asset.”

The Company believes that horizontal development and exploitation of conventional assets in the Permian Basin and development of the Wattenberg and Wattenberg Extension in the D-J Basin represent among the most economic oil and natural gas plays in the United States (“U.S.”). Moving forward, the Company plans to optimize its existing assets and opportunistically seek additional acreage proximate to its currently held core acreage, as well as other attractive onshore U.S. oil and gas assets that fit the Company’s acquisition criteria, that Company management believes can be developed using its technical and operating expertise and be accretive to shareholder value.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company has provided a discussion of significant accounting policies, estimates and judgments in its 2020 Annual Report. There have been no changes to the Company’s significant accounting policies since December 31, 2020.

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Recently Issued Accounting Pronouncements

The Company does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows.

Subsequent Events

The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

NOTE 4 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue from Contracts with Customers. The following table disaggregates revenue by significant product type in the periods indicated (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Oil sales	$	3,697	$	2,262	$	10,635	$	5,569
Natural gas sales		319		91		604		221
Natural gas liquids sales		53		64		101		115
Total revenue from customers	$	4,069	$	2,417	$	11,340	$	5,905

There were no significant contract liabilities or transaction price allocations to any remaining performance obligations as of September 30, 2021.

NOTE 5 – CASH

The following table provides a reconciliation of cash and restricted cash reported within the balance sheets, which sum to the total of such amounts in the periods indicated (in thousands):

	September 30, 2021		December 31, 2020
Cash	$	19,926	$	8,027
Restricted cash included in other assets		3,297		3,297
Total cash and restricted cash	$	23,223	$	11,324

NOTE 6 – OIL AND GAS PROPERTIES

The following table summarizes the Company’s oil and gas activities by classification for the nine months ended September 30, 2021 (in thousands):

	Balance at December 31, 2020			Additions			Disposals			Transfers		Balance at September 30, 2021
Oil and gas properties, subject to amortization	$	146,950		$	2,432		$	(66	)	$	-	$	149,316
Oil and gas properties, not subject to amortization		4			-			-			-		4
Asset retirement costs		1,108			(46	)		(5	)		-		1,057
Accumulated depreciation, depletion and impairment		(81,064	)		(4,520	)		-			-		(85,584	)
Total oil and gas assets	$	66,998		$	(2,134	)	$	(71	)	$	-	$	64,793

For the nine-month period ended September 30, 2021, the Company incurred $2,432,000 in capital costs related to capital workovers for our Permian Basin Asset, which included four clean outs, converting two wells from electric submersible pumps (“ESP”) to rod pumps, installation of a new ESP, and purchase in place of ESP systems that were previously rentals. The Company incurred additional capital costs upon implementation of a recompletions and reactivation program for our existing vertical wells in the Permian Basin Asset, and in our DJ-Basin Asset, the Company incurred capital costs related to converting a well from gas lift to rod pump.

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On March 18, 2021, the Company, through its wholly-owned subsidiary Red Hawk, consummated the sale of certain assets and associated liabilities located in its D-J Basin Asset to third parties pursuant to a Purchase and Sale Agreement. The Company received net cash at closing of $1.9 million. The final purchase price was further subject to customary post-closing adjustments, resulting in an additional $52,000 paid by Red Hawk in July 2021. As a result of the transaction, the Company recognized a $1.8 million gain on sale of oil and gas properties on the Statement of Operations for the nine months ended September 30, 2021.

The depletion recorded for production on proved properties for the three and nine months ended September 30, 2021 and 2020, amounted to $1,576,000 compared to $2,890,000, and $4,520,000, compared to $8,076,000, respectively.

NOTE 7 – PPP LOANS

On April 22, 2020, the Company received loan proceeds of $370,000 (the “Original PPP Loan”) under the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), and on April 23, 2020, the SBA issued guidance that cast doubt on the ability of public companies to qualify for a PPP loan. As a result, out of an abundance of caution, on May 1, 2020, the Company repaid the full amount of the Original PPP Loan to Texas Capital Bank, N.A.

On June 2, 2020, the Company again received loan proceeds of $370,000 (the “New PPP Loan”) under the SBA PPP. The New PPP Loan is evidenced by a promissory note, dated as of May 28, 2020 (the “Note”), between the Company and Texas Capital Bank, N.A. The Note has a two-year term, bears interest at the rate of 1.00% per annum, and may be prepaid at any time without payment of any premium.

Effective May 20, 2021, the Company received notification from Texas Capital Bank, N.A. that the SBA had fully forgiven the Company’s New PPP Loan principal and accrued interest of $370,000 and $4,000, respectively. Therefore, as of September 30, 2021, the Company recognized no debt or accrued interest related to the New PPP Loan on the balance sheet, and a gain on forgiveness of PPP Loan of $374,000 for the nine months ended September 30, 2021 in connection with such forgiveness.

NOTE 8 – ASSET RETIREMENT OBLIGATIONS

Activity related to the Company’s asset retirement obligations is as follows (in thousands):

	Nine Months Ended September 30, 2021
Balance at the beginning of the period ⁽¹⁾	$	1,907
Accretion expense		284
Liabilities settled		(123	)
Changes in estimates, net		(51	)
Balance at end of period ⁽²⁾	$	2,017

(1)	Includes $234,000 of current asset retirement obligations at December 31, 2020.

(2)	Includes $173,000 of current asset retirement obligations at September 30, 2021.

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NOTE 9 – COMMITMENTS AND CONTINGENCIES

Lease Agreements

Currently, the Company has one operating lease for office space that requires Accounting Standards Codification (“ASC”) Topic 842 treatment, discussed below.

The Company’s leases typically do not provide an implicit rate. Accordingly, the Company is required to use its incremental borrowing rate in determining the present value of lease payments based on the information available at the commencement date. The Company’s incremental borrowing rate would reflect the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. However, the Company currently maintains no debt, and in order to apply an appropriate discount rate, the Company used an average discount rate of eight publicly traded peer group companies similar to it based on size, geographic location, asset types, and/or operating characteristics.

The Company has a sublease for its corporate offices in Houston, Texas on approximately 5,200 square feet of office space that expires on August 31, 2023 and has a base monthly rent of approximately $10,000.

Supplemental cash flow information related to the Company’s operating lease is included in the table below (in thousands):

Nine Months

Ended

September 30,

2021

Cash paid for amounts included in the measurement of lease liabilities

Supplemental balance sheet information related to operating leases is included in the table below (in thousands):

	September 30, 2021
Operating lease – right-of-use asset	$	198

Operating lease liabilities - current	$	111
Operating lease liabilities - long-term		110
Total lease liability	$	221

The weighted-average remaining lease term for the Company’s operating lease is 1.9 years as of September 30, 2021, with a weighted-average discount rate of 5.35%.

Lease liability with enforceable contract terms that have greater than one-year terms are as follows (in thousands):

Remainder of 2021	$	29
2022		121
2023		82
Thereafter		-
Total lease payments		232
Less imputed interest		(11	)
Total lease liability	$	221

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Leasehold Drilling Commitments

The Company’s oil and gas leasehold acreage is subject to expiration of leases if the Company does not drill and hold such acreage by production or otherwise exercises options to extend such leases, if available, in exchange for payment of additional cash consideration. In the D-J Basin Asset, no net acres expire during the remainder of 2021, and no significant net acres expire thereafter (net to our direct ownership interest only). In the Permian Basin Asset, 522 net acres are due to expire during the remainder of 2021 and 1,331 net acres expire thereafter (net to our direct ownership interest only). The Company plans to hold significantly all of this acreage through a program of drilling and completing producing wells. If the Company is not able to drill and complete a well before lease expiration, the Company may seek to extend leases where able.

Other Commitments

Although the Company may, from time to time, be involved in litigation and claims arising out of its operations in the normal course of business, the Company is not currently a party to any material legal proceeding. In addition, the Company is not aware of any material legal or governmental proceedings against it or contemplated to be brought against it.

As part of its regular operations, the Company may become party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters.

NOTE 10 – SHAREHOLDERS’ EQUITY

Common Stock

During the nine months ended September 30, 2021, the Company granted an aggregate of 1,250,000 restricted stock awards to various employees, board members and a non-affiliated advisor of the Company. Additionally, 16,667 shares of restricted common stock were forfeited to the Company and canceled due to an employee termination (see Note 11 below).

On February 5, 2021, the Company closed an underwritten public offering of 5,968,500 shares of common stock at a public offering price of $1.50 per share, which included the full exercise of the underwriter’s over-allotment option, for net proceeds (after deducting the underwriters’ discount equal to 6% of the public offering price and expenses associated with the offering) of approximately $8.2 million.

Warrants

During the nine months ended September 30, 2021, warrants to purchase 150,329 shares of common stock outstanding, with an exercise price of $0.32 per share expired unexercised on June 25, 2021. As of September 30, 2021, the Company has no warrants outstanding.

NOTE 11 – SHARE-BASED COMPENSATION

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award over the vesting period.

Common Stock

On January 19, 2021, restricted stock awards were granted to officers of the Company for an aggregate of 940,000 of the Company’s common stock, under the Company’s Amended and Restated 2012 Equity Incentive Plan. The grant for the 940,000 shares of restricted stock vest as follows: 33.3% vest each subsequent year from the date of grant contingent upon the recipient’s continued service with the Company. These shares have a total fair value of $1,307,000 based on the market price on the issuance date.

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On February 28, 2021, 16,667 shares of restricted common stock were rescinded due to an employee termination. As a result, these shares were canceled and the shares once again became eligible for future awards under the Company’s Amended and Restated 2012 Equity Incentive Plan.

On March 31, 2021, 20,000 restricted stock awards were granted to a new employee of the Company, under the Company’s Amended and Restated 2012 Equity Incentive Plan. The grant for the 20,000 shares of restricted stock vest as follows: 100% vest on March 22, 2022, contingent upon the recipient’s continued service with the Company. These shares have a total fair value of $29,000 based on the market price on the issuance date.

On September 1, 2021, restricted stock awards were granted to three board members and an advisor for an aggregate of 240,000, and 50,000 shares, respectively, of the Company’s restricted common stock, under the Company’s Amended and Restated 2012 Equity Incentive Plan. The grant of the 240,000 shares of restricted common stock vest as follows: 100% of 170,000 shares and 100% of 70,000 shares vesting on July 12, 2022 and September 27, 2022, respectively, contingent upon each recipient’s continued service with the Company. These shares have a total fair value of $276,000, based on the market price on the grant date. The grant of the remaining aggregate of 50,000 shares of restricted common stock vest as follows: 100% on the six-month anniversary of the grant date, subject to recipient’s continued service with the Company. These advisor shares have a total fair value of $58,000, based on the market price on the grant date.

Stock-based compensation expense recorded related to the vesting of restricted stock for the nine months ended September 30, 2021 was $1,486,000. The remaining unamortized stock-based compensation expense at September 30, 2021 related to restricted stock was $1,297,000.

Options

On January 19, 2021, the Company granted options to purchase an aggregate of 550,000 shares of common stock to various Company employees at an exercise price of $1.39 per share. The options have a term of five years and fully vest in January 2024, with 33.3% vesting each subsequent year from the date of grant, contingent upon each recipient’s continued service with the Company. The aggregate fair value of the options on the date of grant, using the Black-Scholes model, was $654,000. Variables used in the Black-Scholes option-pricing model for the options issued include: (1) a discount rate of 0.45% based on the applicable US Treasury bill rate, (2) expected term of 3.5 years, (3) expected volatility of 156% based on the trading history of the Company, and (4) zero expected dividends.

On January 28, 2021, the Company issued 86,430 total shares of common stock upon the cashless exercise of stock options to purchase an aggregate of 191,999 shares of common stock with exercise prices ranging between $1.10 and $1.68 per share, based on a then-current market value of $2.89 per share, under the terms of the options. The options had an intrinsic value of $250,000 on the exercise date.

During the nine months ended September 30, 2021, the Company recognized stock option expense of $381,000. The remaining amount of unamortized stock options expense at September 30, 2021, was $443,000.

The intrinsic value of outstanding and exercisable options at September 30, 2021 was $156,000.

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Option activity during the nine months ended September 30, 2021 was:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (Years)
Outstanding at December 31, 2020		1,234,849		$	2.43		2.7
Granted		550,000		$	1.39
Exercised		(191,999	)	$	1.59
Expired/Canceled		(314,414	)	$	4.11
Outstanding at September 30, 2021		1,278,436		$	1.70		3.0
Exercisable at September 30, 2021		456,435		$	2.04		1.5

NOTE 12 – EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share-basic is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Net income (loss) per common share-diluted assumes the conversion of all potentially dilutive securities and is calculated by dividing net (loss) income by the sum of the weighted average number of shares of common stock, as defined above, outstanding plus potentially dilutive securities. Net (loss) income per common share-diluted considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares, as defined above, would have an anti-dilutive effect (amounts in thousands, except share and per share data).

	Three Months Ended September 30,						Nine Months Ended September 30,
Numerator:	2021			2020			2021		2020
Net income (loss)	$	(325	)	$	(2,293	)	$	178	$	(9,291	)

Denominator:
Weighted average common shares – basic		79,533,016			72,250,014			78,628,077		72,124,339

Dilutive effect of common stock equivalents:
Options and Warrants		-			-			72,063		-

Denominator:
Weighted average common shares – diluted		79,533,016			72,250,014			78,700,140		72,124,339

Earnings (loss) per share – basic	$	(0.00	)	$	(0.03	)	$	0.00	$	(0.13	)
Earnings (loss) per share – diluted	$	(0.00	)	$	(0.03	)	$	0.00	$	(0.13	)

For the three and nine-month periods ended September 30, 2021 and 2020, share equivalents related to options and warrants to purchase 1,143,436, compared to 1,234,849, and 1,126,769, compared to 1,234,849, shares of common stock, respectively, were excluded from the computation of diluted net income (loss) per share as the inclusion of such shares would be anti-dilutive.

NOTE 13 – INCOME TAXES

The Company has estimated that its effective tax rate for U.S. purposes will be zero for the 2021 and 2020 fiscal years as a result of net losses and a full valuation allowance against the net deferred tax assets. Consequently, the Company has recorded no provision or benefit for income taxes for the three and nine months ended September 30, 2021 and 2020, respectively.

NOTE 14 – SUBSEQUENT EVENTS

On October 6, 2021, the Company closed a registered direct offering of 4,458,600 shares of common stock at a price of $1.57 per share for net proceeds (after deducting the placement agent’s fees and other estimated offering expenses associated with the offering) of approximately $6.5 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The following is management’s discussion and analysis of the significant factors that affected the Company’s financial position and results of operations during the periods included in the accompanying unaudited consolidated financial statements. You should read this in conjunction with the discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations“ and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, and the unaudited consolidated financial statements included in this quarterly Report.

Certain abbreviations and oil and gas industry terms used throughout this Quarterly Report are described and defined in greater detail under “Glossary of Oil And Natural Gas Terms“ on page 4 of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 23, 2021.

Our fiscal year ends on December 31st. Interim results are presented on a quarterly basis for the quarters ended March 31, June 30, and September 30, the first quarter, second quarter and third quarter, respectively, with the quarter ending December 31st being referenced herein as our fourth quarter. Fiscal 2021 means the year ended December 31, 2021, whereas fiscal 2020 means the year ended December 31, 2020.

Certain capitalized terms used below but not otherwise defined, are defined in, and shall be read along with the meanings given to such terms in, the notes to the unaudited financial statements of the Company for the three and nine months ended September 30, 2021, above.

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “PEDEVCO” and “PEDEVCO Corp.” refer specifically to PEDEVCO Corp. and its wholly and majority-owned subsidiaries.

In addition, unless the context otherwise requires and for the purposes of this Report only:

	●	“Bbl” refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this Report in reference to crude oil or other liquid hydrocarbons;

	●	“Boe” refers to barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate or natural gas liquids, to six Mcf of natural gas;

	●	“Bopd” refers to barrels of oil day;

	●	“Mcf” refers to a thousand cubic feet of natural gas;

	●	“NGL” refers to natural gas liquids;

	●	“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

	●	“SEC” or the “Commission” refers to the United States Securities and Exchange Commission;

	●	“SWD” means a saltwater disposal well; and

	●	“Securities Act” refers to the Securities Act of 1933, as amended.

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Available Information

The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act, are filed with the SEC. The Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements and other information with the SEC. Such reports and other information filed by the Company with the SEC are available free of charge at our website (www.pedevco.com) under “Investors” – “SEC Filings”, when such reports are available on the SEC’s website. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The Company periodically provides other information for investors on its corporate website, www.pedevco.com. This includes press releases and other information about financial performance, information on corporate governance and details related to the Company’s annual meeting of shareholders. The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only.

Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. Our MD&A is organized as follows:

	●	General Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of our MD&A.

	●	Strategy. Discussion of our strategy moving forward and how we plan to seek to increase stockholder value.

	●	Results of Operations and Financial Condition. An analysis of our financial results comparing the three and nine months ended September 30, 2021, and 2020, and a discussion of changes in our consolidated balance sheets, cash flows and a discussion of our financial condition.

	●	Critical Accounting Policies. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

General Overview

We are an oil and gas company focused on the development, acquisition and production of oil and natural gas assets where the latest in modern drilling and completion techniques and technologies have yet to be applied. In particular, we focus on legacy proven properties where there is a long production history, well defined geology and existing infrastructure that can be leveraged when applying modern field management technologies. Our current properties are located in the San Andres formation of the Permian Basin situated in West Texas and eastern New Mexico and in the Denver-Julesburg Basin in Colorado. As of September 30, 2021, we held approximately 33,392 net Permian Basin acres located in Chaves, Roosevelt and Lea Counties, New Mexico, through PEDCO and approximately 11,580 net D-J Basin acres located in Weld and Morgan Counties, Colorado, through our wholly-owned operating subsidiary, Red Hawk. As of September 30, 2021, we held interests in 382 gross (303 net) wells in our Permian Basin Asset of which 35 are active producers, 14 are active injectors and two are active Saltwater Disposal Wells (“SWDs”), all of which are held by PEDCO and operated by its wholly-owned operating subsidiaries, and interests in 74 gross (21.0 net) wells in our D-J Basin Asset, of which 18 gross (16.2 net) wells are operated by Red Hawk and currently producing, 35 gross (5.2 net) wells are non-operated, and 21 wells have an after-payout interest.

Strategy

We believe that horizontal development and exploitation of conventional assets in the Permian Basin and development of the Wattenberg and Wattenberg Extension in the D-J Basin, represent among the most economic oil and natural gas plays in the U.S. We plan to optimize our existing assets and opportunistically seek additional acreage proximate to our currently held core acreage, as well as other attractive onshore U.S. oil and gas assets that fit our acquisition criteria, that Company management believes can be developed using our technical and operating expertise and be accretive to stockholder value.

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Specifically, we seek to increase stockholder value through the following strategies:

●

Grow production, cash flow and reserves by developing our operated drilling inventory and participating opportunistically in non-operated projects. We believe our extensive inventory of drilling locations in the Permian Basin and the D-J Basin, combined with our operating expertise, will enable us to continue to deliver accretive production, cash flow and reserves growth. We have identified approximately 150 gross drilling locations across our Permian Basin acreage based on 20-acre spacing. We believe the location, concentration and scale of our core leasehold positions, coupled with our technical understanding of the reservoirs will allow us to efficiently develop our core areas an

SEC Form 10-Q/A filed by Pedevco Corp. (Amendment)