What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-18 compared with 2023-03-29 · 108 added, 107 removed, 552 unchanged (28% of the section changed)

14 unchanged sentences

We have audited the accompanying consolidated balance sheets of PEDEVCO Corp.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the years ended December 31, 2022 and 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years ended December 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income (operations), changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit s .

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

13 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The Impact of Proved Oil and Natural Gas Reserves on Proved Oil and Gas Properties, Net

The Impact of Proved Developed Oil Reserves on Proved Oil and Gas Properties, Net

As described in Notes 3 and 6 to the consolidated financial statements, a significant portion of the Company’s properties and equipment, net balance of $91.6 million as of December 31, 2023, and depreciation, depletion and amortization (“DD&A”) expense of $10.9 million for the year ended December 31, 2023 relate to proved oil and gas properties.

2 unchanged sentences

In estimating proved oil and natural gas reserves, management relies on interpretations and judgment of available geological, geophysical, engineering and production data.

The process also requires certain economic assumptions related to, among other things, oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds.

Additional assumptions include drilling and operating expenses, capital expenditures, taxes and availability of funds.

The estimates of oil and natural gas reserves have been developed by specialists, specifically petroleum engineers.

The principal considerations for our determination that performing procedures relating to the impact of proved oil and natural gas reserves on proved oil and gas properties is a critical audit matter are (i) the significant judgment by management, including the use of specialists, when developing the estimates of proved oil and natural gas reserves, which in turn led to (ii) a high degree of auditor judgment and effort in performing procedures and evaluating the audit evidence related to the data, methods, and assumptions used by management and its specialists in developing the estimates of proved oil and natural gas reserves.

The principal considerations for our determination that performing procedures relating to the impact of proved developed oil reserves on proved oil and gas properties, net is a critical audit matter are (i) the significant judgment by management, including the use of specialists, when developing the estimates of proved developed oil reserves, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the audit evidence related to the data, methods, and assumptions used by management and its specialists in developing the estimates of proved developed oil reserves.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

The work of management’s specialists was used in performing the procedures to evaluate the reasonableness of the proved oil and natural gas reserves.

The work of management’s specialists was used in performing the procedures to evaluate the reasonableness of the proved developed oil reserves.

As a basis for using this work, the specialists’ qualifications were understood and the Company’s relationship with the specialists was assessed.

The procedures performed also included evaluation of the methods and assumptions used by the specialists, tests of the completeness and accuracy of the data used by the specialists, and an evaluation of the specialists’ findings.

The procedures performed also included evaluating the methods and assumptions used by the specialists, tests of the completeness and accuracy of the data used by the specialists, testing the completeness and accuracy of the data used by the specialists, and evaluating the specialists’ findings.

/s/ Marcum llp

6 unchanged sentences

Current assets:

Cash and cash equivalents

Accounts receivable – oil and gas

Note receivable, current

Prepaid expenses and other current assets

4 unchanged sentences

Total oil and gas properties, net

Note receivable

Operating lease – right-of-use asset

29 unchanged sentences

Total operating expenses

Gain on sale of oil and gas properties

Loss on sale of oil and gas properties

Operating income (loss)

Other income (expense):

Interest expense

Other income:

Interest income

Gain on forgiveness of PPP loan

Total other income

Net Income (loss)

Loss per common share:

5 unchanged sentences

Cash Flows From Operating Activities:

Net income (loss)

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, depletion and amortization

Share-based compensation expense

Gain on sale of oil and gas properties

Gain on forgiveness of PPP loan

Loss on sale of oil and gas properties

Amortization of right-of-use asset

1 unchanged sentence

Accounts receivable – oil and gas

Note receivable

Prepaid expenses and other current assets

7 unchanged sentences

Proceeds from the sale of oil and gas property

Cash paid for security deposit

Cash paid for issuance of note receivable

Cash received (paid) for security deposit

Net cash used in investing activities

2 unchanged sentences

Net cash provided by financing activities

Net increase in cash and restricted cash

Net (decrease) increase in cash and restricted cash

Cash and restricted cash at beginning of year

15 unchanged sentences

Issuance of restricted common stock

Rescinded restricted common stock

Issuance of common stock to non-affiliate

Cashless exercise of stock options

Stock-based compensation

1 unchanged sentence

Issuance of restricted common stock

Issuance of common stock to non-affiliate

Stock-based compensation

12 unchanged sentences

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-Julesberg 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.”

(“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, and Laramie County, Wyoming, through its wholly-owned subsidiary, PRH Holdings LLC, and which asset the Company refers to as its “D-J Basin Asset.” During the current year, the Company assigned all of its oil and gas assets held in its wholly-owned subsidiary Red Hawk Petroleum LLC, to PRH Holdings LLC.

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.”).

6 unchanged sentences

(ii) PEDCO, a Nevada corporation;

(iii) Red Hawk, a Nevada limited liability company;

(iv) Ridgeway Arizona Oil Corp., an Arizona corporation (“RAOC”);

(v) EOR Operating Company, a Texas corporation (“EOR”);

and (vi) SRPT Acquisition, LLC, a Texas limited liability company.

(iii) Red Hawk Petroleum LLC, a Nevada limited liability company;

(iv) Ridgeway Arizona Oil Corp., an Arizona corporation (“RAZO”);

(v) EOR Operating Company, a Texas corporation (“EOR”) (sold on November 9, 2023);

(vi) SRPT Acquisition, LLC, a Texas limited liability company, and (vii) PRH Holdings LLC, a Nevada limited liability company.

All significant intercompany accounts and transactions have been eliminated.

5 unchanged sentences

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

As of December 31, 2022 and 2021, cash equivalents consisted of money market funds and cash on deposit.

As of December 31, 2023 and 2022, cash equivalents consisted of money market funds and cash on deposit of $5,188,000 and $-0-, respectively.

The Company includes restricted cash within cash and cash equivalents on the consolidated statements of cash flows.

2 unchanged sentences

The Company periodically assesses the financial condition of its financial institutions and considers any possible credit risk to be minimal.

Sales to two customers comprised 63 % and 20 %, respectively, of the Company’s total oil and gas revenues for the year ended December 31, 2022.

Sales to three customers comprised 42 %, 35 % and 18 %, respectively, of the Company’s total oil and gas revenues for the year ended December 31, 2023 compared to sales to two customers comprising 63% and 20%, respectively, of the Company's total oil and gas revenues for the year ended December 31, 2022.

The Company believes that, in the event that its primary customers are unable or unwilling to continue to purchase the Company’s production, there are a substantial number of alternative buyers for its production at comparable prices.

4 unchanged sentences

To date, no allowances have been recorded.

Included in accounts receivable - oil and gas are $ 116,000 related to receivables from joint interest owners.

Included in accounts receivable – oil and gas are $ 3.8 million related to receivables from joint interest owners.

Bad Debt Expense.

67 unchanged sentences

The Company has opted to use the simplified method for estimating expected term, which is generally equal to the midpoint between the vesting period and the contractual term.

Earnings (Loss) per Common Share.

Earnings per Common Share.

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.

2 unchanged sentences

Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive.

For the year ended December 31, 2022, potentially dilutive securities related to options ( 1,407,667 ) were not included in the calculation of diluted net loss per share because to do so would be anti-dilutive.

For the year ended December 31, 2023, potentially dilutive securities related to options ( 1,632,334 ) were excluded from the computation of diluted net income per share as the inclusion of such shares would be anti-dilutive.

Recently Adopted 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.

On January 1, 2023, we adopted Accounting Standards Update (ASU) No.

2016-13, Measurement of Credit Losses on Financial Instruments , as issued by the FASB.

This standard established the current expected credit loss model, a new impairment model for certain financial instruments, based on expected rather than incurred losses.

Adoption of this standard is on a modified retrospective basis and had no impact on the Company’s financial position, results of operations, cash flows or net income per share.

Subsequent Events.

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

NOTE 4 - CASH

NOTE 4 – CASH AND CASH EQUIVALENTS

The following table provides a reconciliation of cash and restricted cash reported within the balance sheets on December 31, 2023 and 2022, which sum to the total of such amounts shown in the accompanying consolidated statements of cash flows (in thousands):

1 unchanged sentence

Total cash and restricted cash as shown in the consolidated statements of cash flows

Total restricted cash increased $ 250,000 during the current period due to an additional $ 200,000 collateralized deposit related to an increase in a plugging and abandonment bond with the State of New Mexico, and a $ 50,000 escrow account established with Zions Bancoporation, as the escrow agent, in accordance with a compliance agreement between the Company and the New Mexico Oil Conversation Division (the “OCD”) on November 10, 2022 which, among other things, requires that the Company restore to production, or plug and abandon, 49 legacy wells in its Permian Basin Asset by no later than December 31, 2024, and that the Company maintain financial assurance for the wells and place $ 50,000 cash in an escrow account in New Mexico designating the OCD as beneficiary, which escrowed funds will be forfeit in the event the Company fails to meet any well plugging deadline.

Total restricted cash decreased $ 1,347,000 during the current period due to the transfer of collateralized deposits related to plugging and abandonment bonds with the State of New Mexico to Tilloo Exploration and Production LLC (“Tilloo”) in connection with the sale of our wholly-owned subsidiary EOR and related assets to Tilloo in November 2023.

See Note 6 below.

NOTE 5 – REVENUE FROM CONTRACTS WITH CUSTOMERS

6 unchanged sentences

NOTE 6 – OIL AND GAS PROPERTIES

The following tables summarize the Company’s oil and gas activities by classification for the years ended December 31, 2022 and 2021, respectively (in thousands):The following tables summarize the Company’s oil and gas activities by classification for the years ended December 31, 2022 and 2021, respectively (in thousands):

The following tables summarize the Company’s oil and gas activities by classification for the years ended December 31, 2023 and 2022, respectively (in thousands):

Oil and gas properties, subject to amortization

8 unchanged sentences

Total oil and gas assets

For the year ended December 31, 2023, the Company incurred $ 21,573,000 of capital costs primarily related to non-operated drilling and completion costs related to the Company’s participation in 13 new non-operated wells in the D-J Basin Asset in which the Company participated and the Company’s drilling of three operated wells with Evolution Petroleum Corporation (“Evolution”), noted below, together with costs related to certain workovers for lift conversions and cleanouts in the Company’s Permian Basin Asset.

The Company also acquired approximately 282 net mineral acres, and 6,465 net lease acres, in and around its existing footprint in the D-J Basin through multiple transactions with total acquisition and due diligence costs of $493,000 for the net mineral acres and $5,211,000 for the net lease acres .

On September 12, 2023, the Company and Evolution entered into a Participation Agreement for the joint development of approximately 16,000 gross leasehold acres divided into twelve “Development Blocks” within the Company’s Permian Basin Asset, in which the parties may jointly develop by drilling and completion of up to nine horizontal San Andres wells in each Development Block.

The Company received net proceeds of $366,000 and serves as the operator.

Evolution acquired a 50% working interest share in existing leases, covering the initial two Development Blocks (which equals Evolution’s share of the acreage portion for nine drilling locations therein), and upon completion of the wells in each Development Block, Evolution will have the right, but not the obligation, to acquire a 50% working interest share in the next Development Block in exchange for the payment of $450 per net acre of existing leases held by the Company in such block, and participate on a 50% working interest share basis in the drilling and completion of up to nine horizontal San Andres wells in such Development Block.

On November 9, 2023, the Company entered into a Purchase and Sale Agreement and a Stock Purchase Agreement with Tilloo, pursuant to which we sold our wholly-owned subsidiary EOR and approximately 8,035 gross leasehold acres, current operated production, and all of PEDCO’s and EOR’s leases and related rights, oil and gas and other wells, equipment, easements, contract rights, and production located in the Milnesand and Sawyer Fields of the San Andres play in the Permian Basin situated in eastern New Mexico, which assets included approximately 80 legacy vertical oil and gas wells (53 producers and 27 injectors).

Aggregate consideration received by the Company for the sale, which was effective August 1, 2023, was $1,122,436, subject to customary adjustments, which is to be paid by Tilloo through entry into a five-year secured promissory note (see Note 7 below).

As a result of the transaction, the Company has sold all of its operated oil and gas interests in the non-core Milnesand and Sawyer Fields, including the 52 inactive legacy wells that the Company would otherwise be required to plug and abandon, thereby successfully reducing its asset retirement obligations with respect to these assets and reducing its estimated aggregate plugging and abandoning liabilities by over $3.2 million.

The Company recognized a receivable of $56,000 due from Tilloo in post-closing adjustments, and as a result of the transaction, the Company recognized a $4.3 million loss on sale of oil and gas properties as reflected in the Statement of Operations for the year ended December 31, 2023 .

For the year ended December 31, 2022, the Company incurred $ 23,131,000 of capital costs primarily related to drilling operations, completion and facility construction for the two new wells started at the end of 2021 and production enhancement cleanouts in our Permian Basin Asset for approximately $ 8.4 million and the acquisition and development of assets in the D-J Basin, which also includes our participation in the drilling and completion of six wells by a third-party operator for approximately $ 12.5 million in the latter part of the period.

3 unchanged sentences

As of December 31, 2022, the Company also acquired approximately 480 net mineral acres and 787 net lease acres in and around its existing footprint in the D-J Basin through multiple transactions at total acquisition and due diligence costs of $ 607,000 and $ 688,000 , respectively.

For the year ended December 31, 2021, the Company incurred $ 7,009,000 in capital costs related to capital workovers for our Permian Basin Asset, which included four clean outs, converting three wells from ESPs 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 D-J Basin Asset, the Company incurred capital costs related to converting a well from gas lift to rod pump.

In the D-J Basin Asset, the Company also participated in the drilling and completion of four non-operated wells and began drilling operations for two new wells and construction of a new production facility began in our Permian Basin Asset.

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 year ended December 31, 2021 .

The depletion recorded for production on proved properties for the year ended December 31, 2023 and 2022, amounted to $ 10,265,000 and $ 10,069,000 , respectively.

NOTE 7 – NOTE RECEIVABLE

On November 9, 2023, in accordance with the sale of our wholly-owned subsidiary EOR to Tilloo (see Note 6 above), the Company entered into a five-year secured promissory note (the “Note”) with Tilloo, bearing interest at 10 % per annum, with no payments due during the first twelve months, and fully-amortized payments due monthly over the remaining four years of the term thereafter until maturity.

The Note contains customary events of default and is secured by a lien over all the assets and capital shares of EOR created under a Security Agreement, a Security Agreement (Pledge of Corporate Securities), and a Mortgage entered into by and between the Company and Tilloo.

As of December 31, 2023, the Company recognized $ 42,000 of the Note in Current Assets, with the remaining balance of $ 1,099,000 (including $ 16,000 of accrued interest) in Other Assets on the Company’s balance sheet.

NOTE 8 – ASSET RETIREMENT OBLIGATION

2 unchanged sentences

Accretion expense

Disposition of liabilities

Liabilities settled

5 unchanged sentences

Lease Agreements

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

Currently, the Company has one operating sublease for office space that requires ASC Topic 842 treatment, discussed below.

The Company’s leases typically do not provide an implicit rate.

1 unchanged sentence

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 .

In December 2022, the Company entered into a new lease agreement for its existing office space that will commence on September 1, 2023, and expire on February 28, 2027 .

However, the Company currently maintains no debt, and in order to apply an appropriate discount rate, the Company used a borrowing rate obtained from a financial institution at which it maintains banking accounts.

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

In December 2022, the Company entered into a new lease agreement for its existing office space that commenced on September 1, 2023, which expires on February 28, 2027 .

The base monthly rent is approximately $ 9,200 for the first 18 months and increases to approximately $9,500 thereafter.

The Company paid both a security deposit and prepaid rent for $ 14,700 , respectively.

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

14 unchanged sentences

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 2022 (net to our direct ownership interest only).

Leases acquired in 2022 representing 792 gross acres will expire in 2025.

In the Permian Basin Asset, 66, 40 and 0 net acres are set to expire for the years ending December 31, 2023, 2024, 2025, respectively, and 1,358 thereafter, without meeting drilling commitments or term assignment extensions (net to our direct ownership interest only).

In the D-J Basin Asset, no net acres expire during 2024 (net to our direct ownership interest only), with 1,721 and 4,108 net acres set to expire for the years ending December 31, 2025 and 2026 respectively, and 1,578 net acres thereafter, if we fail to meet drilling commitments or obtain term assignment extensions (net to our direct ownership interest only).

In the Permian Basin Asset, 40, 0 and 0 net acres are set to expire for the years ending December 31, 2024, 2025, 2026, respectively, and 798 net acres thereafter , if we fail to meet drilling commitments or obtain term assignment extensions (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.

7 unchanged sentences

During the year ended December 31, 2023, the Company granted an aggregate of 1,460,000 restricted stock awards to various employees and board members of the Company (see Note 11 below).

During the year ended December 31, 2022, the Company granted an aggregate of 1,440,000 restricted stock awards to various employees and board members of the Company (see Note 11 below).

On June 10, 2022, the Company sold 87,121 shares of common stock at a sales price of $ 1.66 per share via an ongoing “at the market offering” (the “ATM Offering”) for net proceeds of $ 141,000 , which includes $ 4,000 in commission fees.

1 unchanged sentence

The ATM Offering was made pursuant to the terms of that certain November 17, 2021, Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth Capital”, or the “Agent”).

The Company will pay the sales agent a commission of 3.0 % of the gross sales price of any shares sold under the Sales Agreement, less reimbursement of the first $ 40,000 of such gross proceeds.

The Company has also provided the Agent with customary indemnification rights and has agreed to reimburse the sales agent for certain specified expenses up to $ 25,000 .

The Company currently has $3.5 million remaining available in securities which it may sell in the future under the Sales Agreement, subject to availability under the Company’s shelf-registration, which limits the maximum amount of securities which can be sold in any 12 month period to 1/3 of the Company’s then public float.

During the year ended December 31, 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.

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.

Pursuant to the Sales Agreement the Company agreed to pay the sales agent a commission of 3.0 % of the gross sales price of any shares sold under the Sales Agreement, less reimbursement of the first $ 40,000 of such gross proceeds.

The Company also provided the Agent with customary indemnification rights and has agreed to reimburse the sales agent for certain specified expenses up to $ 25,000 .

Sales under the Sales Agreement were to be made under the Company’s Form S-3 shelf registration statement, which has now expired, and as such, the Company is not currently eligible to sell any additional securities under the Sales Agreement and, accordingly, was terminated by the Company effective March 15, 2024.

NOTE 11 – SHARE-BASED COMPENSATION

1 unchanged sentence

On September 1, 2021, the shareholders of the Company approved the 2021 Equity Incentive Plan (the “2021 Incentive Plan”), which was previously approved by the Board of Directors on July 11, 2021 and authorizes the issuance of various forms of stock-based awards, including incentive or non-qualified options, restricted stock awards, performance shares and other securities as described in greater detail in the 2021 Incentive Plan, to the Company’s employees, officers, directors and consultants.

A total of 8,000,000 shares of common stock are eligible to be issued under the 2021 Incentive Plan.

A total of a maximum of 8,000,000 shares of common stock are eligible to be issued under the 2021 Incentive Plan.

As of December 31, 2023, 2,900,000 shares have been issued as restricted stock, and 990,000 shares are subject to issuance upon exercise of issued and outstanding options.

3 unchanged sentences

As of December 31, 2023, 6,449,503 shares have been issued as restricted stock, and 642,234 shares are subject to issuance upon exercise of issued and outstanding options.

The Company does not plan to grant any additional awards under the 2012 Incentive Plan.

The Company is not eligible to grant any additional awards under the 2012 Incentive Plan.

PEDCO 2012 Equity Incentive Plan

2 unchanged sentences

As of December 31, 2023, there were no outstanding options, and 55,168 shares of the Company’s restricted common stock have been granted under this plan (all of which were granted by PEDCO prior to the closing of the merger with the Company, with such grants being assumed by the Company and remaining subject to the PEDCO Incentive Plan following the consummation of the merger).

The Company does not plan to grant any additional awards under the PEDCO Incentive Plan.

The Company is not eligible to grant any additional awards under the PEDCO Incentive Plan.

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.

2 unchanged sentences

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 $ 1,404,000 based on the market price on the issuance date.

On August 25, 2022, restricted stock awards were granted to three board members for an aggregate of 240,000 shares of the Company’s restricted common stock, under the Company’s 2021 Equity Incentive Plan.

These shares had a total fair value of $ 1,363,000 based on the market price on the issuance date.

On August 31, 2023, an aggregate of 210,000 restricted stock awards were granted to two board members under the Company’s 2021 Equity Incentive Plan.

The grant of the 210,000 shares of restricted common stock vest as follows:

1 unchanged sentence

These shares have a total fair value of $ 200,000 based on the market price on the grant date.

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.

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.

On January 25, 2022, an aggregate of 1,200,000 shares of restricted common stock were granted to officers of the Company, under the Company’s 2021 Equity Incentive Plan.

The grant of the 1,200,000 shares of restricted common 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 (of which the first tranche has fully vested).

These shares have a total fair value of $ 1,404,000 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.

100% of 170,000 shares and 100% of 70,000 shares vesting on July 12, 2023 and September 27, 2023, respectively , contingent upon each recipient’s continued service with the Company (all of which have vested).

These shares have a total fair value of $ 280,000 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.

The awarded shares above are subject to trading restrictions, and forfeiture, subject to the vesting terms described above.

2 unchanged sentences

The remaining amount of unamortized stock-based compensation expense related to restricted stock at December 31, 2023 and 2022 was $ 819,000 and $ 878,000 , respectively.

On January 25, 2022, the Company granted options to purchase an aggregate of 520,000 shares of common stock to various Company employees at an exercise price of $ 1.17 per share.

The options have a term of five years and fully vest on January 2025, with 33.3% vesting each subsequent year from the date of grant, contingent upon the recipient’s continued service with the Company .

On January 23, 2023, the Company granted options to purchase an aggregate of 540,000 shares of common stock to various Company employees at an exercise price of $ 1.09 per share under the Company’s 2021 Equity Incentive Plan.

The options have a term of five years and fully vest in January 2026, with 33.3% vesting each subsequent year from the date of grant, contingent upon the 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 $ 429,000 .

1 unchanged sentence

(1) a discount rate of 3.61 % based on the applicable US Treasury bill rate, (2) expected term of 3.5 years, (3) expected volatility of 113 % based on the trading history of the Company, and (4) zero expected dividends.

During the period ended December 31, 2022, 190,000 options were rescinded due to an employee termination.

As a result, these options once again became eligible for future awards under the Company’s Amended and Restated 2012 and 2021 Equity Incentive Plans.

An additional 45,768 options expired unexercised.

During the period ended December 31, 2023, 315,333 options expired unexercised.

On January 25, 2022, the Company granted options to purchase an aggregate of 520,000 shares of common stock to various Company employees at an exercise price of $ 1.17 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 $ 454,000 .

1 unchanged sentence

(1) a discount rate of 1.56 % based on the applicable US Treasury bill rate, (2) expected term of 3.5 years, (3) expected volatility of 120 % 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.

On December 21, 2021, the Company issued 52,943 total shares of common stock upon the cashless exercise of stock options to purchase an aggregate of 75,000 shares of common stock with an exercise price of $ 0.3088 per share, based on a then-current market value of $ 1.05 per share, under the terms of the options.

The options had an intrinsic value of $ 56,000 on the exercise date.

During the period ended December 31, 2022, 190,000 options were rescinded due to an employee termination.

5 unchanged sentences

Option activity during the years ended December 31, 2023 and 2022 was:

Contract Term

Average Grant

Contract Term

Number of Stock Options

Weighted Average Grant Price

Weighted Average Remaining Contract Term (Years)

Number of Stock Options

Weighted Average Grant Price

Weighted Average Remaining Contract Term (Years)

Outstanding at Beginning of Period

3 unchanged sentences

NOTE 12 – EARNINGS 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.

Earnings per common share-basic is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period.

Net income per common share-diluted assumes the conversion of all potentially dilutive securities and is calculated by dividing net income by the sum of the weighted average number of shares of common stock, as defined above, outstanding plus potentially dilutive securities.

Net 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.

The calculation of earnings per share for the years ended December 31, 2023 and December 31, 2022 were as follows (amounts in thousands, except share and per share data):

Net income (loss)

Weighted average common shares – basic

1 unchanged sentence

Weighted average common shares – diluted

Earnings (loss) per share – basic

Earnings per share – basic

Earnings (loss) per share – diluted

30 unchanged sentences

Utilization of NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code (the “Code”), as amended, as well as similar state provisions.

In general, an “ownership change” as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain shareholders or public groups.

In general, an “ownership change” as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding return stock of a company by certain shareholders or public groups.

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable.

12 unchanged sentences

NOTE 14 – SUBSEQUENT EVENTS

On January 23, 2023, the Company granted options to purchase an aggregate of 540,000 shares of common stock to various Company employees at an exercise price of $ 1.09 per share.

The options have a term of five years and fully vest in January 2026.

33.3 % vest each subsequent year from the date of grant, contingent upon the recipient’s continued service with the Company.

On January 26, 2024, the Company granted options to purchase an aggregate of 460,000 shares of common stock to various Company employees at an exercise price of $ 0.6675 per share under the Company’s 2021 Equity Incentive Plan.

The options have a term of five years and fully vest in January 2027, with 33.3 % vesting each subsequent year from the date of grant, contingent upon the 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 $ 216,000 .

1 unchanged sentence

(1) a discount rate of 4.04 % based on the applicable US Treasury bill rate, (2) expected term of 3.5 years, (3) expected volatility of 104 % based on the trading history of the Company, and (4) zero expected dividends.

Additionally, on January 23, 2023, restricted stock awards were granted to officers of the Company for an aggregate of 1,250,000 shares of the Company’s restricted common stock, under the Company’s 2021 Equity Incentive Plan.

Additionally, on January 26, 2024, restricted stock awards were granted to officers and employees of the Company for an aggregate of 2,105,000 shares of the Company’s restricted common stock, under the Company’s 2021 Equity Incentive Plan.

The grant for the 2,105,000 shares of restricted common stock vest as follows:

1 unchanged sentence

These shares have a total fair value of $ 1,426,000 based on the market price on the grant date.

The Company also acquired approximately 1,118 net lease acres in the D-J Basin in the first quarter of 2023, at total acquisition and due diligence costs of $ 1,000,000 .

In addition, on January 26, 2024, after recommendation by the Compensation Committee of the Company’s Board of Directors, the Board of Directors of the Company, in connection with the Company’s annual compensation review, approved:

(A) a 5% increase of the annual base salaries for (i) Mr.

Paul Pinkston, the Company’s Chief Accounting Officer, from $160,000 to $168,000, (ii) Mr.

Douglas Schick, the President of the Company, from $290,000 to $304,500, and (iii) Mr.

Moore, the Executive Vice President, General Counsel and Secretary of the Company, from $280,000 to $294,000, all effective February 1, 2024 (none of the increases in salary were documented by written agreements or amendments);

and (B) cash bonuses for (i) Mr.

Paul Pinkston, the Company’s Chief Accounting Officer, in the amount of $35,000, (ii) Mr.

Douglas Schick, the President of the Company, in the amount of $120,000, and (iii) Mr.

Moore, the Executive Vice President, General Counsel and Secretary of the Company in the amount of $110,000 .

The Company also acquired approximately 319 net lease acres in and around its existing footprint in the D-J Basin through multiple transactions in the first quarter 2024, at total acquisition costs of $ 138,000 .

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

44 unchanged sentences

Included in the increase, the Company had a 0.43 MMBoe increase in proved undeveloped reserves (noted below) resulting from the addition of volumes in the D-J Basin due to increased activity.

The Company also had an increase of 0.98 MMBoe in proved developed reserves resulting from wells moving from proved undeveloped to proved developed in the D-J Basin Asset as well as an increase in non-operated volumes in our D-J Basin Asset.

The Company also had an increase of 0.98 MMBoe in proved developed non-producing reserves resulting from wells moving from proved undeveloped to proved developed in the D-J Basin Asset and Permian Basin offset by a 0.35 MMBoe decrease in proved developed reserves related to natural decline in existing production base.

The following table sets forth the Company’s proved developed and undeveloped reserves at December 31, 2023 and 2022, respectively:

25 unchanged sentences

For the year ended December 31, 2022, total proved undeveloped reserves (PUDs) increased by 455 MBoe to 12,942 MBoe, primarily related to the following:

Transfer of 597 MBoe from PUD to proved developed reserves in Chaveroo field based on total capital expenditures during 2021;

Additions related to the development of operated (1,164 MBoe) and non-operated (2,684 MBoe) sections in the D-J Basin;

Revisions related to expected performance decreases of 1,569 MBoe and removal of PUD locations in Chaveroo and Milnesand fields of our Permian Basin Asset outside of the five-year development plan of 1,108 MBoe.

For the year ended December 31, 2022, total proved undeveloped reserves (PUDs) increased by 455 MBoe to 12,942 MBoe, primarily related to the following:

Transfer of 887 MBoe from PUD to proved developed reserves in D-J Basin Asset based on total capital expenditures during 2022;

1 unchanged sentence

Revisions related to expected performance increase of 1,192 MBoe in the D-J Basin Asset based on offset well results and removal of PUD locations in D-J Basin Asset based on revised development activity of 334 MBoe, and removal of PUD locations in Chaveroo and Milnesand fields of our Permian Basin Asset outside of the five-year development plan of 3,134 MBoe.

For the year ended December 31, 2023, total proved undeveloped reserves (PUDs) increased by 430 MBoe to 13,372 MBoe, primarily related to the following:

Transfer of 809 MBoe from PUD to proved developed reserves in D-J Basin (561 MBoe) and Permian Basin Asset (248 MBoe) based on total capital expenditures during 2023;

Additions of 3,592 MBoe related to the development of operated and non-operated sections in the D-J Basin (2,968 MBoe) and operated sections in Permian Basin (624 MBoe);

Revisions related to increase in leasehold and minerals and expected performance increase of 1,447 MBoe in the D-J Basin Asset based on offset well results, and decrease of 3,311 MBoe related to removal of PUD locations in Chaveroo of our Permian Basin Asset outside of the five-year development plan and decrease of 489 Mboe primarily related to reduced working interest in a recently developed unit.

We expect to spend an aggregate of $170–$200 million developing proved undeveloped reserves through December 31, 2028.

1 unchanged sentence

We expect to fund these development costs with cash from operations and cash on hand, supplemented as needed by proceeds from asset sales, private and public offerings, credit availability and equity infusions or loans (which may be convertible) made available from Dr.

Simon Kukes, the Company’s Chief Executive Officer and director, which funding Dr.

Kukes, the Company’s Chief Executive Officer, and director, or entities which he controls, which funding Dr.

Kukes is under no obligation to provide.

52 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data