UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: June 30, ~~2020~~

2021

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

For the transition period from ~~to_____~~

___________ to ___________

Commission file number: 001-35922

~~PEDEVCO Corp.~~

~~(Exact name of registrant as specified in its charter)~~

~~Texas~~		~~22-3755993~~ PEDEVCO Corp.
(Exact name of registrant as specified in its charter)

Texas

22-3755993

(State or other jurisdiction of

incorporation or organization)

(~~IRS~~I.R.S. Employer

Identification No.)

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

~~575 N. Dairy Ashford, Suite 210~~, ~~Houston, Texas 77079~~

~~(Address of Principal Executive Offices)~~

(713) 221-1768

(Registrant’s ~~Telephone Number, Including Area Code)~~

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 August ~~12, 2020,~~13, 2021, there were ~~72,125,328~~79,461,603 shares of the Registrant’s common stock outstanding.

PEDEVCO CORP.

TABLE OF CONTENTS

		Page
Cautionary Note About Forward-Looking Statements		3

PART I – FINANCIAL INFORMATION		~~Page~~

Item 1.	Financial Statements	3 4

	Consolidated Balance Sheets as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (Unaudited)	3 4

	Consolidated Statements of Operations for the ~~Three and~~ Six Months Ended June 30, 2021 and 2020 ~~and 2019~~ (Unaudited)	4 5

	Consolidated Statements of Cash Flows for the ~~Three and~~ Six Months Ended June 30, 2021 and 2020 ~~and 2019~~ (Unaudited)	5 6

	Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020 ~~and 2019~~ (Unaudited)	6 7

	Notes to Unaudited Consolidated Financial Statements	7 8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14 15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	26 25

PART II – OTHER INFORMATION		27

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31 27

Item 3.	Defaults Upon Senior Securities	32 27

Item 4.	Mine Safety Disclosures	32 27

Item 5.	Other Information	27

Item 6.	Exhibits	28

Signatures		29


~~Item 5.~~	~~Other Information~~	322

Table of Contents

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 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, including ‘stay-at-home’ and other orders, 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.


~~Item 6.~~	~~Exhibits~~		323

~~Signatures~~Table of Contents		33

~~Exhibit Index~~			34

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~PEDEVCO~~

PEDEVCO CORP.

CONSOLIDATED B~~ALANCE~~BALANCE SHEETS

(Unaudited)

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

June 30,

December 31,

2020

2019

Assets

Current assets:

Cash
$10,209
$22,415
Accounts receivable – oil and gas
  646
  4,602
Prepaid expenses and other current assets
  33
  73
Total current assets
  10,888
  27,090



Oil and gas properties:


Oil and gas properties, subject to amortization, net
  83,744
  76,952
Oil and gas properties, not subject to amortization, net
  8,090
  14,896
Total oil and gas properties, net
  91,834
  91,848



Operating lease – right-of-use asset
  316
  360
Other assets
  3,557
  3,598
Total assets
$106,595
$122,896



Liabilities and Shareholders’ Equity


Current liabilities:


Accounts payable
$2,729
$12,099
Accrued expenses
  299
  1,972
Revenue payable
  799
  827
PPP loan – current
  165
  -
Operating lease liabilities – current
  101
  97
Asset retirement obligations – current
  -
  225
Total current liabilities
  4,093
  15,220



Long-term liabilities:


PPP loan
  205
  -
Operating lease liabilities
  248
  300
Asset retirement obligations
  1,973
  1,874
Total liabilities
  6,519
  17,394



Commitments and contingencies





Shareholders’ equity:


Common stock, $0.001 par value, 200,000,000 shares authorized; 72,125,328 and 71,061,328 shares issued and outstanding, respectively
  72
  71
Additional paid-in capital
  202,598
  201,027
Accumulated deficit
  (102,594)
  (95,596)
Total shareholders’ equity
  100,076
  105,502
Total liabilities and shareholders’ equity
$106,595
$122,896

	June 30, 2021			December 31, 2020
Assets
Current assets:
Cash	$	19,335		$	8,027
Accounts receivable – oil and gas		1,537			660
Prepaid expenses and other current assets		27			66
Total current assets		20,899			8,753

Oil and gas properties:
Oil and gas properties, subject to amortization, net		65,152			66,994
Oil and gas properties, not subject to amortization, net		4			4
Total oil and gas properties, net		65,156			66,998

Operating lease – right-of-use asset		222			270
Other assets		3,563			3,543
Total assets	$	89,840		$	79,564

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	652		$	212
Accrued expenses		401			303
Revenue payable		904			836
PPP loan, current		0			288
Operating lease liabilities – current		109			105
Asset retirement obligations – current		189			234
Total current liabilities		2,255			1,978

Long-term liabilities:
PPP loan, net of current portion		0			82
Operating lease liabilities, net of current portion		139			195
Asset retirement obligations, net of current portion		1,795			1,673
Total liabilities		4,189			3,928

Commitments and contingencies

Shareholders’ equity:
Common stock, $0.001 par value, 200,000,000 shares authorized; 79,461,603 and 72,463,340 shares issued and outstanding, respectively		79			72
Additional paid-in capital		213,355			203,850
Accumulated deficit		(127,783	)		(128,286	)
Total shareholders’ equity		85,651			75,636
Total liabilities and shareholders’ equity	$	89,840		$	79,564

See accompanying notes to unaudited consolidated financial statements.

~~PEDEVCO~~

Table of Contents

PEDEVCO CORP.

CONSOLIDATED STATEMENTS OF O~~PERATIONS~~

OPERATIONS

(Unaudited)

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

Three Months Ended

Six Months Ended

June 30,

June 30,

Revenue:

2020

2019

2020

2019

Oil and gas sales
$656
$4,070
$3,488
$5,638





Operating expenses:




Lease operating costs
  750
  2,095
  2,272
  3,065
Exploration expense
  -
  13
  30
  23
Selling, general and administrative expense
  1,422
  1,644
  3,545
  2,972
Depreciation, depletion, amortization and accretion
  1,912
  2,784
  5,349
  5,033
Total operating expenses
  4,084
  6,536
  11,196
  11,093





Gain on sale of oil and gas properties
  -
  -
  -
  920





Operating loss
  (3,428)
  (2,466)
  (7,708)
  (4,535)





Other income (expense):




Interest expense
  -
  -
  -
  (826)
Interest income
  8
  9
  32
  9
Other income (expense)
  679
  (3)
  678
  (103)
Total other income (expense)
  687
  6
  710
  (920)





Net loss
$(2,741)
$(2,460)
$(6,998)
$(5,455)





Loss per common share:




Basic and diluted
$(0.04)
$(0.05)
$(0.10)
$(0.14)





Weighted average number of common shares outstanding:




Basic and diluted
  72,125,328
  49,198,625
  72,060,812
  38,572,537

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Revenue:	2021			2020			2021			2020
Oil and gas sales	$	3,740		$	656		$	7,271		$	3,488

Operating expenses:
Lease operating costs		1,455			750			2,741			2,272
Exploration expense		0			0			0			30
Selling, general and administrative expense		1,330			1,422			3,097			3,545
Depreciation, depletion, amortization and accretion		1,602			1,912			3,163			5,349
Total operating expenses		4,387			4,084			9,001			11,196

Gain on sale of oil and gas properties		0			0			1,805			0

Operating income (loss)		(647	)		(3,428	)		75			(7,708	)

Other income (expense):
Interest expense		0			0			(1	)		0
Interest income		3			8			7			32
Other income		45			679			48			678
Gain on forgiveness of PPP loan		374			0			374			0
Total other income		422			687			428			710

Net income (loss)	$	(225	)	$	(2,741	)	$	503		$	(6,998	)

Income (loss) per common share:
Basic	$	(0.00	)	$	(0.04	)	$	0.01		$	(0.10	)
Diluted	$	(0.00	)	$	(0.04	)	$	0.01		$	(0.10	)

Weighted average number of common shares outstanding:
Basic		79,461,603			72,125,328			78,157,942			72,060,812
Diluted		79,461,603			72,125,328			78,233,772			72,060,812

See accompanying notes to unaudited consolidated financial statements.

~~PEDEVCO~~

Table of Contents

PEDEVCO CORP.

CONSOLIDATED STATEMENTS OF C~~ASH~~CASH FLOWS

(Unaudited)

(amounts in thousands)

Six Months Ended June 30,

2020

2019

Cash Flows From Operating Activities:

Net loss
$(6,998)
$(5,455)
Adjustments to reconcile net loss to net cash provided by operating activities:


Depreciation, depletion, amortization and accretion
  5,349
  5,033
Share-based compensation expense
  1,572
  697
Loss on disposal of fixed asset
  24
  -
Amortization of right-of-use asset
  44
  -
Gain on sale of oil and gas properties
  -
  (920)
Amortization of debt discount
  -
  161
Changes in operating assets and liabilities:


Accounts receivable – oil and gas
  3,956
  (539)
Prepaid expenses and other current assets
  40
  142
Accounts payable
  (2,199)
  4,373
Accrued expenses
  (1,673)
  (450)
Accrued expenses – related parties
  -
  (943)
Revenue payable
  (28)
  (14)
Net cash provided by operating activities
  87
  2,085



Cash Flows From Investing Activities:


Cash paid for the acquisition of oil and gas properties
  -
  (1,056)
Cash paid for property and equipment
  -
  (47)
Cash paid for drilling and completion costs
  (12,663)
  (24,269)
Proceeds from the sale of oil and gas property
  -
  1,175
Net cash used in investing activities
  (12,663)
  (24,197)



Cash Flows From Financing Activities:


Proceeds from PPP loan
  740
  -
Repayment of PPP loan
   (370)
   -
Proceeds from the issuance of shares
  -
  18,000
Proceeds from notes payable – related parties
  -
  15,000
Net cash provided by financing activities
  370
  33,000






Net (decrease) increase in cash and restricted cash
  (12,206)
  10,888
Cash and restricted cash at beginning of period
  25,712
  5,779
Cash and restricted cash at end of period
$13,506
$16,667






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
$7,261
$6,039
Changes in estimates of asset retirement costs
$230
$129
Issuance of restricted common stock
$1
$-
Acquisition of asset retirement obligations
$-
$33
Common stock issued for debt conversion
$-
$55,075

	Six Months Ended June 30,
	2021			2020
Cash Flows From Operating Activities:
Net income (loss)	$	503		$	(6,998	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion		3,163			5,349
Gain on sale of oil and gas properties		(1,805	)		0
Loss on disposal of fixed asset		0			24
Amortization of right-of-use asset		48			44
Share-based compensation expense		1,275			1,572
Gain on forgiveness of PPP loan		(374	)		0
Changes in operating assets and liabilities:
Accounts receivable – oil and gas		(877	)		3,956
Prepaid expenses and other current assets		39			40
Accounts payable		331			(2,199	)
Accrued expenses		102			(1,673	)
Revenue payable		68			(28	)
Net cash provided by operating activities		2,473			87

Cash Flows From Investing Activities:
Cash paid for property and equipment		(35	)		0
Cash paid for drilling and completion costs		(1,238	)		(12,663	)
Proceeds from the sale of oil and gas property		1,871			0
Net cash provided by (used in) investing activities		598			(12,663	)

Cash Flows From Financing Activities:
Proceeds from PPP loan		0			740
Repayment of PPP loan		0			(370	)
Proceeds from issuance of shares, net of offering costs		8,237			0
Net cash provided by financing activities		8,237			370

Net increase (decrease) in cash and restricted cash		11,308			(12,206	)
Cash and restricted cash at beginning of period		11,324			25,712
Cash and restricted cash at end of period	$	22,632		$	13,506

Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest	$	0		$	0
Income taxes	$	0		$	0

Noncash investing and financing activities:
Change in accrued oil and gas development costs	$	16		$	7,261
Changes in estimates of asset retirement costs, net	$	54		$	230
Issuance of restricted common stock	$	1		$	1

See accompanying notes to unaudited consolidated financial statements.

~~PEDEVCO~~

Table of Contents

PEDEVCO CORP.

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~SHAREHOLDERS'~~ E~~QUITY~~

SHAREHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, ~~2020~~2021 AND ~~2019~~

2020

(Unaudited)

(amounts in thousands, except share amounts)

Common Stock

Shares

Amount

Additional Paid-in
Capital

Accumulated Deficit

Totals

Balances at January 1, 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)
  -
  -
  -
  -
Share-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
Share-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

Common Stock

Additional

Shares

Amount

Paid-in
Capital

Accumulated Deficit

Totals

Balances at January 1, 2019
  15,808,445
$16
$101,450
$(84,494)
$16,972
Issuance of common stock for debt conversion
  29,480,383
  29
  55,046
  -
  55,075
Share-based compensation
  -
  -
  299
  -
  299
Net loss
  -
  -
  -
  (2,995)
  (2,995)
Balances at March 31, 2019
  45,288,828
  45
  156,795
  (87,489)
  69,351
Issuance of restricted common stock
  160,000
  -
  -
  -
  -
Issuance of common stock to non-affiliates
  1,500,000
  1
  2,999
  -
  3,000
Issuance of common stock to affiliate
  6,818,181
  7
  14,993
  -
  15,000
Warrants exercised
  60,056
  -
  -
  -
  -
Share-based compensation
  -
  -
  398
  -
  398
Net loss
  -
  -
  -
  (2,460)
  (2,460)
Balances at June 30, 2019
  53,827,065
$53
$175,185
$(89,949)
$85,289

	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	)		0			0
Rescinded restricted common stock		(16,667	)		0		0			0			0
Issuance of common stock to non-affiliate		5,968,500			6		8,297			0			8,303
Cashless exercise of stock options		86,430			0		0			0			0
Share-based compensation		-			0		684			0			684
Net income		-			0		0			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		-			0		(66	)		0			(66	)
Share-based compensation		-			0		591			0			591
Net loss		-			0		0			(225	)		(225	)
Balances at June 30, 2021		79,461,603		$	79	$	213,355		$	(127,783	)	$	85,651

	Common Stock					Additional Paid-in			Accumulated
	Shares			Amount		Capital			Deficit			Totals
Balances at December 31, 2019		71,061,328		$	71	$	201,027		$	(95,596	)	$	105,502
Issuance of restricted common stock		1,119,000			1		(1	)		0			0
Rescinded restricted common stock		(55,000	)		0		0			0			0
Share-based compensation		-			0		853			0			853
Net loss		-			0		0			(4,257	)		(4,257	)
Balances at March 31, 2020		72,125,328			72		201,879			(99,853	)		102,098
Share-based compensation		-			0		719			0			719
Net loss		-			0		0			(2,741	)		(2,741	)
Balances at June 30, 2020		72,125,328		$	72	$	202,598		$	(102,594	)	$	100,076

See accompanying notes to unaudited consolidated financial statements.

~~PEDEVCO~~

Table of Contents

PEDEVCO CORP.

N~~OTES~~

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, ~~2019,~~2020, filed with the SEC on March ~~30, 2020,~~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~~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~~“Permian Basin”) and in the ~~Denver-Julesberg~~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.

The outbreak of COVID-19 and decreases in commodity prices resulting from oversupply, government-imposed travel restrictions and other constraints on economic activity have caused a significant decrease in the demand for oil and has created disruptions and volatility in the global marketplace for oil and gas beginning in the first quarter of 2020, which negatively affected our results of operations and cash flows. These conditions persisted throughout the second quarter and continue to negatively affect our results of operations and cash flows. While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed in future quarters. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic; governmental, business, and individuals’ actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market instability. These factors may adversely impact the supply and demand for oil and gas and our ability to produce and transport oil and gas and perform operations at and on our properties. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions, including investments, receivables, and forward-looking guidance. Refer to “Risk Factors” of this Form 10-Q) for a discussion of these factors and other risks.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company has provided a discussion of significant accounting policies, estimates and judgments in its ~~2019~~2020 Annual Report. There have been no changes to the Company’s significant accounting policies since December 31, ~~2019.~~

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 June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Oil sales
$605
$4,037
$3,307
$5,490
Natural gas sales
  41
  26
  131
  135
Natural gas liquids sales
  10
  7
  50
  13
Total revenue from customers
$656
$4,070
$3,488
$5,638

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Oil sales	$	3,505	$	605	$	6,938	$	3,307
Natural gas sales		210		41		285		131
Natural gas liquids sales		25		10		48		50
Total revenue from customers	$	3,740	$	656	$	7,271	$	3,488

There were no significant contract liabilities or transaction price allocations to any remaining performance obligations as of June 30, ~~2020.~~

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 ~~as of June 30, 2020 and December 31, 2019~~in the periods indicated (in thousands):

June 30,
2020

December 31,
2019

Cash
$10,209
$22,415
Restricted cash included in other assets
3,297
3,297
Total cash and restricted cash
$13,506
$25,712

	June 30, 2021		December 31, 2020
Cash	$	19,335	$	8,027
Restricted cash included in other assets		3,297		3,297
Total cash and restricted cash	$	22,632	$	11,324

NOTE 6 – OIL AND GAS PROPERTIES

The following table summarizes the Company’s oil and gas activities by classification for the six months ended June 30, ~~2020~~2021 (in thousands):

Balance at December 31,

Balance at June 30,

2019

Additions

Disposals

Transfers

2020

Oil and gas properties, subject to amortization
$107,164
$4,924
$-
$7,284
$119,372
Oil and gas properties, not subject to amortization
  14,896
  478
  -
  (7,284)
  8,090
Asset retirement costs
  1,547
  (230)
  -
  -
  1,317
Accumulated depreciation and depletion
  (31,759)
  (5,186)
  -
  -
  (36,945)
Total oil and gas assets
$91,848
$(14)
$-
$-
$91,834

	Balance at December 31, 2020			Additions			Disposals			Transfers		Balance at June 30, 2021
Oil and gas properties, subject to amortization	$	146,950		$	1,222		$	(66	)	$	0	$	148,106
Oil and gas properties, not subject to amortization		4			0			0			0		4
Asset retirement costs		1,108			(49	)		(5	)		0		1,054
Accumulated depreciation, depletion and impairment		(81,064	)		(2,944	)		0			0		(84,008	)
Total oil and gas assets	$	66,998		$	(1,771	)	$	(71	)	$	0	$	65,156

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For the six-month period ended June 30, ~~2020,~~2021, the Company incurred ~~$5,402,000~~$1,222,000 in capital costs primarily related to ~~the drilling of a salt water disposal well (“SWD”) in~~capital workovers for our Permian Basin Asset, which included three clean outs, converting two wells from electric submersible pumps (“ESP”) to rod pumps, installation of a new ESP, and purchase in ~~order~~place of ESP systems that were previously rentals.

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 ~~increase the produced water injection capacity for the Company’s Chaveroo field~~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 ~~turn, increase production~~an additional $52,000 paid by Red Hawk subsequently in July 2021. As a result of the ~~corresponding wells therein. The drilling and completion~~transaction, the Company recognized a $1.8 million gain on sale of ~~the SWD was postponed due to the downturn in the economic conditions in the~~ oil and gas ~~industry during~~properties on the ~~first quarter~~Statement of 2020, but with the recent increases in oil prices, the Company now plans to complete the SWD in September 2020. The Company will continue to monitor the environment for future completion opportunities.

Also, the Company transferred $7,284,000 in capital costs from three recently completed wells, for which production had not commenced, from unproved properties to proved properties, when production began during the early part of 2020. Additionally, drilling and completion costs of $8,090,000, the majority of which were incurred in the prior year andOperations for the ~~uncompleted SWD noted above, and one well in the Permian Asset, for which production had not yet commenced; were therefore included in the amount not subject to amortization at~~six months ended June 30, ~~2020.~~

2021.

The depletion recorded for production on proved properties for the three and six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, amounted to ~~$1,808,000~~$1,511,000 compared to ~~$2,715,000,~~$1,808,000, and ~~$5,186,000,~~$2,944,000, compared to ~~$4,855,000,~~$5,186,000, respectively.

NOTE 7 – PPP ~~LOAN~~

LOANS

On April 22, 2020, the Company received loan proceeds of $370,000 (the “Original PPP Loan”) under the ~~U. S.~~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 onon 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 toTexas Capital Bank, N.A.

~~Upon the issuance of further guidance from the SBA,~~ on

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. ~~No payments of principal or interest are due during~~

Effective May 20, 2021, the ~~six-month period beginning on~~Company received notification from Texas Capital Bank, N.A. that the ~~date of~~SBA had fully forgiven the ~~Note. The~~Company’s New PPP Loan principal and accrued interest ~~under the Note are forgivable after eight weeks if~~of $370,000 and $4,000, respectively. Therefore, as of June 30, 2021, the Company ~~uses~~recognized no debt or accrued interest related to the New PPP Loan ~~proceeds~~on the balance sheet and a gain on forgiveness of PPP Loan of $374,000 for ~~eligible purposes, including payroll, benefits, rent~~the three and ~~utilities, and otherwise complies with PPP requirements, with the full principal and accrued interest expected to be forgiven in full by the Company. As of~~six months ended June 30, ~~2020, the Company has accrued $300~~2021 in ~~interest.~~

connection with such forgiveness.

NOTE 8 – ASSET RETIREMENT OBLIGATIONS

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

	~~Six Months Ended~~ ~~June 30, 2020~~
Balance at the beginning of the period *	$~~2,099~~
~~Accretion expense~~	~~146~~
~~Liabilities settled~~	~~(42~~)
~~Changes in estimates~~	~~(230~~)
~~Balance at end of period~~	$~~1,973~~

	Six Months Ended June 30, 2021
Balance at the beginning of the period ⁽¹⁾	$	1,907
Accretion expense		204
Liabilities settled		(73	)
Changes in estimates, net		(54	)
Balance at end of period ⁽²⁾	$	1,984

(1) Includes ~~$225,000~~$234,000 of current asset retirement obligations at December 31, ~~2019.~~ ~~There were no~~2020.

(2) Includes $189,000 of current asset retirement obligations ~~due within the 12 months from~~at June 30, ~~2020.~~

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~~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.

The Company also has a lease for 187 square feet of office space located in Danville, California for the Company’s Executive Vice President and General Counsel. The monthly rent is $1,200, and the lease expires on August 28, 2020. The Company does not plan to renew this lease upon expiration in an effort to further reduce Company expenses. The Company did not apply ASC Topic 842 to this lease, as the lease term and extension period are for 12-months or less, and we cannot currently conclude if the lease will be renewed or extended beyond a 12-month period. In April 2020, the Company was granted a 20% discount on the remaining lease term. Therefore, the total current obligation for the remainder of this lease through August 2020 is $1,000.

~~For the six months ended June 30, 2020, the Company incurred lease expense of $55,000, for the combined leases.~~

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

	~~Six Months Ended~~
	~~June 30, 2020~~
~~Cash paid for amounts included in the measurement of lease liabilities~~	$58

Six Months

June 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):

	~~June 30, 2020~~
~~Operating lease – right-of-use asset~~	$~~316~~

~~Operating lease liabilities - current~~	$~~101~~
~~Operating lease liabilities - long-term~~	~~248~~
~~Total lease liability~~	$~~349~~

	June 30, 2021
Operating lease – right-of-use asset	$	222

Operating lease liabilities - current	$	109
Operating lease liabilities - long-term		139
Total lease liability	$	248

The weighted-average remaining lease term for the Company’s operating lease is ~~3.2~~2.2 years as of June 30, ~~2020,~~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 2020
$58
2021
  118
2022
  121
2023
  82
Thereafter
  -
Total lease payments
  379
Less imputed interest
  (30)
Total lease liability
$349

~~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, 170 net acres expire during the remainder of 2020, and no significant net acres expire thereafter (net to our direct ownership interest only). In the Permian Basin Asset, 12 acres are due to expire in 2020 and 4,940 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.

Although the Company provides no assurance about the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on the Company’s financial condition or results of operations.

Remainder of 2021	$	59
2022		121
2023		82
Thereafter		0
Total lease payments		262
Less imputed interest		(14	)
Total lease liability	$	248

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NOTE 10 – SHAREHOLDERS’ EQUITY

Common Stock

During the six months ended June 30, ~~2020,~~2021, the Company granted an aggregate of ~~1,119,000~~960,000 restricted stock awards to various employees ~~and a consultant~~ of the Company. Additionally, ~~55,000~~16,667 shares of restricted common stock were forfeited to the Company and ~~cancelled~~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 six months ended June 30, ~~2020, no warrants were granted, exercised or cancelled, and as of June 30, 2020, the Company had~~2021, warrants to purchase 150,329 shares of common stock outstanding, with an exercise price of $0.32 per share ~~and a~~expired unexercised on June 25, ~~2021 expiration date. The intrinsic value~~2021. As of ~~these outstanding, as well as exercisable, warrants on~~ June 30, ~~2020 was $73,000.~~

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.

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Common Stock

On January ~~13, 2020,~~19, 2021, restricted stock awards were granted to ~~various employees and one consultant~~officers of the Company for an aggregate of ~~1,049,000 (including 924,000 restricted stock awards to officers of the Company) and 70,000 shares, respectively,~~940,000 of the Company’s common stock, under the Company’s Amended and Restated 2012 Equity Incentive Plan. The grant offor the ~~1,049,000~~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 ~~$1,172,000,~~$1,307,000 based on the market price on the issuance date. ~~The grant~~

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 ~~70,000 shares of restricted stock vest as follows: 100% on~~underwriter’s over-allotment option, for net proceeds (after deducting the ~~one-year anniversary~~underwriters’ discount equal to 6% of the ~~grant date, subject to the recipient’s continued service~~public offering price and expenses associated with the ~~Company. These consultant shares have a total fair value~~offering) of ~~$118,000, based on the market price on the issuance date.~~

Inapproximately $8.2 million.

On February ~~2020, 55,000~~28, 2021, 16,667 shares of restricted common stock were ~~forfeited to the Company and cancelled~~ rescinded due to an employee termination. As a result, these shares ~~are~~were canceled and the shares once again became eligible ~~to be awarded~~for future awards under the Company’s Amended and Restated 2012 Equity Incentive Plan.

~~Share-based~~

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.

Stock-based compensation expense recorded related to the vesting of restricted stock for the six months ended June 30, ~~2020~~2021 was ~~$1,282,000.~~$1,034,000. The remaining unamortized ~~share-based~~stock-based compensation expense at June 30, ~~2020~~2021 related to restricted stock was ~~$1,492,000.~~

$1,418,000.

Options

During the six months ended June 30, 2020, no options were exercised, options to purchase 733,000 shares of common stock were granted (discussed below), options to purchase 34,000 shares of common stock expired, and options to purchase 90,000 shares of common stock were cancelled.

On January ~~13, 2020,~~19, 2021, the Company granted options to purchase an aggregate of ~~733,000~~550,000 shares of common stock to various Company employees at an exercise price of ~~$1.68~~$1.39 per share. The options have a term of five years and fully vest in January ~~2023,~~2024, with 33.3% ~~of each grant~~ 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 ~~$1,053,000.~~$654,000. Variables used in the Black-Scholes option-pricing model for the options issued include: (1) a discount rate of ~~1.63%,~~0.45% based on the applicable US Treasury bill rate, (2) expected term of 3.5 years, (3) expected volatility of ~~155%,~~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 six months ended June 30, ~~2020,~~2021, the Company recognized stock option expense of ~~$290,000.~~$241,000. The remaining amount of unamortized stock options expense at June 30, ~~2020,~~2021, was ~~$655,000.~~

$583,000.

The intrinsic value of outstanding and exercisable options onat June 30, ~~2020~~2021 was ~~$56,000.~~

$125,000.

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Option activity during the six months ended June 30, ~~2020~~2021 was:

Number of Options

Weighted Average Exercise Price

Weighted Average Remaining Contract Term (Years)

Outstanding at December 31, 2019
  753,349
$3.30
  2.4
Granted
  733,000
$1.68

Expired/Canceled
  (124,000)
$2.23

Outstanding at June 30, 2020
  1,362,349
$2.32
  3.3
Exercisable at June 30, 2020
  686,016
$2.97
  2.1

	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 June 30, 2021		1,278,436		$	1.70		3.3
Exercisable at June 30, 2021		456,435		$	2.04		1.8

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.

	Three Months Ended June 30,						Six Months Ended June 30,
Numerator:	2021			2020			2021		2020
Net income (loss)	$	(225	)	$	(2,741	)	$	503	$	(6,998	)

Denominator:
Weighted average common shares– basic		79,461,603			72,125,328			78,157,942		72,060,812

Dilutive effect of common stock equivalents:
Options and Warrants		0			0			75,830		0

Denominator:
Weighted average common shares – diluted		79,461,603			72,125,328			78,233,772		72,060,812

Earnings (loss) per share – basic	$	(0.00	)	$	(0.04	)	$	0.01	$	(0.10	)
Earnings (loss) per share – diluted	$	(0.00	)	$	(0.04	)	$	0.01	$	(0.10	)

For the three and six month periods ended June 30, 2021 and 2020, share equivalents related to options and warrants to purchase 1,278,436 compared to 262,829, and 1,126,769 compared to 262,829, 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 ~~2020~~2021 and ~~2019~~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 six months ended June 30, 2021 and 2020, ~~and 2019.~~

~~NOTE 13 – SUBSEQUENT EVENTS~~

The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19, or other public health epidemic poses the risk that the Company or its employees, vendors, and other partners may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the full impact that COVID-19 will have on the Company’s business, the continued spread of COVID-19 and the measures taken by the governments of countries affected and in which the Company operates has disrupted, and may continue to disrupt, the operation of the Company’s business for a prolonged period of time. The COVID-19 outbreak and mitigation measures have also had an adverse impact on global economic conditions, as well as an adverse effect on the Company’s business and financial condition, and may continue to have an adverse effect on the Company, including on its potential to conduct financings on terms acceptable to the Company, if at all. In addition, the Company has taken temporary precautionary measures intended to help minimize the risk of the virus to its employees, vendors and guests, including limiting the number of occupants at the Company’s Houston headquarters and requiring all others to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s business. The extent to which the COVID-19 outbreak will continue to impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus, the availability and efficacy of vaccines, and the actions to contain its impact.

respectively.

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

~~Forward-Looking Statements~~

~~Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial condition, or state other “forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995. 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 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 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, including ‘stay-at-home’ and other orders, 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, 2019, filed with the SEC on March 30, 2020. 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.

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~~“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~”Operations“ and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, and the unaudited consolidated financial statements included in this quarterly ~~report.~~

Report.

Certain abbreviations and oil and gas industry terms used throughout this Quarterly Report are described and defined in greater detail under “~~Glossary~~“Glossary of Oil ~~and~~And Natural Gas ~~Terms~~”Terms“ on page 34 of our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~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 six months ended June 30, ~~2020,~~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~~Report only:

●

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

●

“~~Boe”~~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”~~Bopd” refers to barrels of oil day;

●

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

●

“~~NGL”~~NGL” refers to natural gas liquids;

●

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

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

	●	“SWD” means a saltwater disposal well; and

●

“Securities ~~Act”~~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~~)(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~~. 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. 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 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 six months ended June 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 ~~development~~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 ~~(the~~ “~~Permian Basin~~”) and in the ~~Denver-Julesberg~~Denver-Julesburg Basin (“~~D-J Basin~~”) in Colorado. As of June 30, ~~2020,~~2021, we held ~~37,080~~approximately 33,752 net Permian Basin acres located in Chaves, Roosevelt and ~~Roosevelt~~Lea Counties, New Mexico, through ~~our wholly-owned operating subsidiary, Pacific Energy Development Corp. (“~~PEDCO~~”), which we refer to as our “Permian Basin Asset,~~” and approximately ~~11,948~~11,580 net D-J Basin acres located in Weld and Morgan Counties, Colorado, through our wholly-owned operating subsidiary, Red ~~Hawk Petroleum, LLC (“Red Hawk”), which asset we refer to as our “D-J Basin Asset.~~”Hawk. As of June 30, ~~2020,~~2021, we held interests in ~~379~~382 gross ~~(302~~(303 net) wells in our Permian Basin Asset of which ~~24 were~~34 are active producers, ~~15 were~~14 are active injectors and ~~one well was an~~two are active Saltwater Disposal ~~Well~~Wells (“~~SWD~~SWDs”), all of which are held by PEDCO and operated by its wholly-owned operating subsidiaries, and interests in 7574 gross ~~(21.9~~(21.0 net) wells in our D-J Basin Asset, of which 18 gross (16.2 net) wells are operated by Red Hawk and ~~were~~currently producing, 3635 gross ~~(5.6~~(5.2 net) wells are non-operated, and 21 wells have an after-payout interest.

As a result of the recent COVID-19 outbreak, and the recent sharp decline in oil prices which occurred partially as a result of the decreased demand for oil caused by such outbreak and the actions taken globally to stop the spread of such virus, in mid-April 2020, the Company temporarily shut-in all of its operated producing wells in its Permian Basin Asset and D-J Basin Asset to preserve the Company’s oil and gas reserves for production during a more favorable oil price environment, noting that most of the Company’s acreage is held by production with no drilling obligations, which provides the Company with flexibility to hold back on production and development during periods of low oil and gas prices. Following the partial recovery in oil prices, commencing in early June 2020, the Company reactivated over 90% of its operated wells in the Permian Basin and the D-J Basin that the Company shut-in in mid-April 2020, and is now working to complete several carryover projects from 2019’s Phase II Permian Basin Asset development plan which it had put on hold due to the COVID-19 outbreak. The Company will continue to monitor oil prices with a view to reactivating all of its shut-in production and fully completing its 2019 carryover development plan.

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, provided that, as discussed above, the price of oil recovers.~~

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 and to allocate capital to maximize the value of our resource base.

●

~~Apply modern drilling and completion techniques and technologies.~~ We own and intend to own additional properties that have been historically underdeveloped and underexploited. We believe our attention to detail and application of the latest industry advances in horizontal drilling, completions design, frac intensity and locally optimal frac fluids will allow us to successfully develop our properties.

●

~~Optimization of well density and configuration.~~ We own properties that are legacy conventional oil fields characterized by widespread vertical development and geological well control. We utilize the extensive petrophysical and production data of such legacy properties to confirm optimal well spacing and configuration using modern reservoir evaluation methodologies.

●

~~Maintain a high degree of operational control.~~ We believe that by retaining high operational control, we can efficiently manage the timing and amount of our capital expenditures and operating costs, and thus key in on the optimal drilling and completions strategies, which we believe will generate higher recoveries and greater rates of return per well.

●

~~Leverage extensive deal flow, technical and operational experience to evaluate and execute accretive acquisition opportunities.~~ Our management and technical teams have an extensive track record of forming and building oil and gas businesses. We also have significant expertise in successfully sourcing, evaluating and executing acquisition opportunities. We believe our understanding of the geology, geophysics and reservoir properties of potential acquisition targets will allow us to identify and acquire highly prospective acreage in order to grow our reserve base and maximize stockholder value.

●

~~Preserve financial flexibility to pursue organic and external growth opportunities.~~ We intend to maintain a disciplined financial profile that will provide us flexibility across various commodity and market cycles. We intend to utilize our strategic partners and public currency to continuously fund development and operations.

	·	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 and to allocate capital to maximize the value of our resource base.
	·	Apply modern drilling and completion techniques and technologies. We own and intend to acquire additional properties that have been historically underdeveloped and underexploited. We believe our attention to detail and application of the latest industry advances in horizontal drilling, completions design, frac intensity and locally optimal frac fluids will allow us to successfully develop our properties.
	·	Optimization of well density and configuration. We own properties that are legacy conventional oil fields characterized by widespread vertical development and geological well control. We utilize the extensive petrophysical and production data of such legacy properties to confirm optimal well spacing and configuration using modern reservoir evaluation methodologies.
	·	Maintain a high degree of operational control. We believe that by retaining high operational control, we can efficiently manage the timing and amount of our capital expenditures and operating costs, and thus key in on the optimal drilling and completions strategies, which we believe will generate higher recoveries and greater rates of return per well.
	·	Leverage extensive deal flow, technical and operational experience to evaluate and execute accretive acquisition opportunities. Our management and technical teams have an extensive track record of forming and building oil and gas businesses. We also have significant expertise in successfully sourcing, evaluating and executing acquisition opportunities. We believe our understanding of the geology, geophysics and reservoir properties of potential acquisition targets will allow us to identify and acquire highly prospective acreage in order to grow our reserve base and maximize stockholder value.
	·	Preserve financial flexibility to pursue organic and external growth opportunities. We intend to maintain a disciplined financial profile in order to provide us flexibility across various commodity and market cycles. We intend to utilize our strategic partners and public currency to continuously fund development and operations.

Our strategy is to be the operator and/or a significant working interest owner, directly or through our subsidiaries and joint ventures, in the majority of our acreage so that we can dictate the pace of development in order to execute our business plan. ~~Prior to the COVID-19 outbreak, our 2020~~Our 2021 development plan ~~included~~includes several ~~carryover~~ projects delayed from ~~2019’s~~our 2019 Phase II Permian Basin Asset development ~~plan,~~program, which were put on hold through 2020 due to the COVID-19 outbreak and the related low oil price environment through most of 2020. In late 2020, we resumed work on these carryover projects, including the ~~drilling~~completion of ana SWD well in the Chaveroo field (Chaves and Roosevelt Counties, New Mexico) ~~and~~which was brought online in September 2020. In September 2020, we brought online one horizontal San Andres well from our 2019 Phase I Permian Basin Asset development program that was previously shut in due to salt water disposal capacity constraints. In January 2021, we initiated production hookup and commencement ~~on five~~of two horizontal San Andres wells drilled in ~~2019, with~~ our ~~plan for the later part of~~ 2019/2020 contemplating the drilling of two horizontal San Andres wells on our Permian Basin Asset, several potential San Andres well reactivation projects, and several enhancement and facilities projects throughout all our operated assets.

However, due to the COVID-19 outbreak, in April 2020 the SWD well completion was put on hold, resulting in only two of 2019’s Phase II carryover producing wells being placed online at reduced rates due to water disposal constraints, and all drilling, reactivation, enhancement and facilities projects contemplated under the 2020 development plan being halted. With the recent partial recovery in oil prices, we are ~~now working to complete~~ ~~several carryover~~ ~~projects from 2019’s~~ Phase II Permian Basin Asset development program. Over the remainder of 2021, we plan ~~including the planned completion of the SWD well and production hookup and commencement on three~~to permit up to ten horizontal San Andres wells ~~drilled~~ in ~~2019.~~ ~~For~~our Permian Basin Asset and anticipate drilling and completing at least two of these wells in fall 2021, with the remainder ~~of 2020, the Company anticipates deploying an estimated $950,000~~planned to be drilled and completed in 2022. We also plan to complete ~~the SWD~~several potential well reactivation projects, and ~~put on production the three new wells in the~~complete several enhancement and facilities projects across our operated Permian Basin ~~in the coming months, and spending~~Asset. Additionally, we plan to spend approximately $1$1.2 million to participate in non-operated well projects on ~~the~~our D-J Basin Asset, pursuant to well proposals ~~recently~~ received from third party operators on lands in which we share a leasehold ~~interest.~~ interest, none of which has been spent to date. This ~~revised 2020~~2021 development ~~plan~~program is based upon our current outlook for the remainder of the year and is subject to ~~further~~ revision, ~~due to the significant volatility in market conditions~~if and ~~historically high levels of uncertainty affecting the oil and gas exploration sector. We plan to further revise our development plans~~ as necessary, to react to market conditions, product pricing, contractor availability, requisite permitting and capital availability, additional non-operated well projects on our D-J Basin Asset that may become available, capital allocation changes between assets, acquisitions, divestitures and other adjustments determined by the Company in the best interest of ~~our~~its shareholders while prioritizing our financial strength and liquidity.

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We expect that we will have sufficient cash available to meet our needs over the foreseeable future, including to fund the remainder of our 2021 development program, discussed above, which cash we anticipate being available from (i) ~~our~~ projected cash flow from our operations, (ii) ~~our~~ existing cash on hand, (iii) equity infusions or loans (which may be convertible) made available from SK Energy LLC (“SK Energy”), which is 100% owned and controlled by ~~Dr.~~ Simon Kukes, ~~the Company’s~~our Chief Executive Officer and director, (“~~SK Energy”),~~ which funding SK Energy is under no obligation to provide, (iv) public or private debt or equity financings (similar to our recently completed February 2021 underwritten offering, as discussed below), and ~~(iv)~~(v) funding through credit or loan facilities. In addition, we may seek additional funding through asset sales, farm-out arrangements, ~~lines of~~and credit ~~or public or private debt or equity financings~~facilities to fund potential acquisitions in ~~2020.~~

the second half of 2021.

Results of Operations and Financial Condition

~~Significant Capital Expenditures~~

~~The table below sets out the significant components of capital expenditures for the six months ended June 30, 2020 (in thousands):~~

~~Capital Expenditures~~
~~Leasehold Acquisitions~~	$73
~~Drilling and Facilities~~	~~5,329~~
Total*	$~~5,402~~

*(see “~~Part I – Financial Information” –~~ “~~Item 1. Financial Statements” - “Note 6 - Oil and Gas Properties”).~~

Market Conditions and Commodity Prices

Our financial results depend on many factors, particularly the price of natural gas and crude oil and our ability to market our production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by among other factors, weather conditions, inventory storage levels, basis differentials and other factors. As a result, we cannot accurately predict future commodity prices and, therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our production volumes or revenues. In addition to production volumes and commodity prices, finding and developing sufficient amounts of natural gas and crude oil reserves at economical costs are critical to our long-term success. We expect prices to remain volatile for the remainder of the year. For information about the impact of realized commodity prices on our natural gas and crude oil and condensate revenues, refer to “Results of Operations” below.

Results of Operations

The following discussion and analysis of the results of operations for the three and six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, should be read in conjunction with our consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. The majority of the numbers presented below are rounded numbers and should be considered as approximate.

Three Months Ended June 30, ~~2020~~2021 vs. Three Months Ended June 30, ~~2019~~

2020

We reported a net loss for the three-month period ended June 30, 2021 of $0.2 million, or ($0.00) per share, compared to a net loss for the three-month period ended June 30, 2020 of $2.7 million or ($0.04) per ~~share, compared to a net loss for the three-month period ended June 30, 2019 of $2.5 million or ($0.05) per~~ share. The ~~increase~~decrease in net loss of ~~$0.2~~$2.5 million was primarily due to a $3.1 million increase in revenue offset by $0.3 million increase in total operating expenses coupled with a $0.7 million decrease in ~~production as we had shut-in all~~other income, offset by a $0.4 million gain due to forgiveness of our ~~operated producing wells~~PPP Loan, when comparing the current period to the prior year period (all of which are discussed in our Permian Basin Asset and D-J Basin Asset in late April 2020, as a result of the COVID-19 outbreak, and the sharp decline in oil prices which occurred partially as a result of the decreased demand for oil caused by such outbreak. In early June 2020, as prices began to partially recover, we opened up production for 90% of our previously producing operated wells. In total, we shut-in all our operated wells for a period of 42 days during the three months ended June 30, 2020.

more detail below).

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Net Revenues

The following table sets forth the operating results and production data for the periods indicated:

Three Months Ended
June 30,

Increase

% Increase

2020

2019

(Decrease)

(Decrease)

Sale Volumes:

Crude Oil (Bbls)
  35,889
  71,443
  (35,554)
  (50%)
Natural Gas (Mcf)
  44,500
  13,792
  30,708
  223%
NGL (Bbls)
  3,224
  478
  2,746
  574%
Total (Boe) (1)
  46,530
  74,220
  (27,690)
  (37%)





Crude Oil (Bbls per day)
  394
  785
  (391)
  (50%)
Natural Gas (Mcf per day)
  489
  152
  337
  222%
NGL (Bbls per day)
  35
  5
  30
  600%
Total (Boe per day) (1)
  511
  816
  (305)
  (37%)





Average Sale Price:




Crude Oil ($/Bbl)
$16.85
$56.50
$(39.65)
  (70%)
Natural Gas ($/Mcf)
  0.93
  1.85
  (0.92)
  (50%)
NGL ($/Bbl)
  3.20
  16.07
  (12.87)
  (80%)










Net Operating Revenues (in thousands):




Crude Oil
$605
$4,037
$(3,432)
  (85%)
Natural Gas
  41
  26
  15
  58%
NGL
  10
  7
  3
  43%
           Total Revenues
$656
$4,070
$(3,414)
  (84%)

	Three Months Ended June 30,				Increase			% Increase
	2021		2020		(Decrease)			(Decrease)
Sale Volumes:
Crude Oil (Bbls)		55,129		35,889		19,240			54	%
Natural Gas (Mcf)		55,765		44,500		11,265			25	%
NGL (Bbls)		933		3,224		(2,291	)	(71		%)
Total (Boe) ⁽¹⁾		65,356		46,530		18,826			40	%

Crude Oil (Bbls per day)		606		394		212			54	%
Natural Gas (Mcf per day)		613		489		124			25	%
NGL (Bbls per day)		10		35		(25	)	(71		%)
Total (Boe per day) ⁽¹⁾		718		511		207			41	%

Average Sale Price:
Crude Oil ($/Bbl)	$	63.58	$	16.85	$	46.73			277	%
Natural Gas ($/Mcf)		3.76		0.93		2.83			304	%
NGL ($/Bbl)		26.73		3.20		23.53			735	%

Net Operating Revenues (in thousands):
Crude Oil	$	3,505	$	605	$	2,900			479	%
Natural Gas		210		41		169			412	%
NGL		25		10		15			150	%
Total Revenues	$	3,740	$	656	$	3,084			470	%

(1)	Assumes 6 Mcf of natural gas equivalents to 1 barrel of oil.

Total crude oil, ~~and~~ natural gas and NGL revenues for the three-month period ended June 30, ~~2020 decreased $3.4~~2021 increased $3.1 million, or ~~84%~~470%, to ~~$0.7~~$3.7 million, compared to ~~$4.1~~$0.6 million for the same period a year ago, due primarily to ~~an unfavorable~~a favorable price variance of $~~2.8~~$1.9 million, coupled with ~~an unfavorable~~a favorable volume variance of ~~$0.6~~$1.2 million. ~~As noted above, we~~Production increases in the current period are primarily related to the shut-in of all of our operated wells for 42 days during the ~~2020~~prior period due to the severe reduction in pricing, coupled with significantly widened differentials from the decreased demand for oil and gas, related to the COVID-19 outbreak.

Operating Expenses and Other Income (Expense)

The following table summarizes our production costs and operating expenses for the periods indicated ~~(in~~(in thousands):

Three Months Ended

June 30,

Increase

% Increase

2020

2019

(Decrease)

(Decrease)

Direct Lease Operating Expenses
$650
$1,123
$(473)
  (42%)
Workovers
  (29)
  595
  (624)
  (105%)
Gain on settlement of ARO
  (19)
  -
  (19)
  100%
Other*
  148
  377
  (229)
  (61%)
Total Lease Operating Expenses
  750
  2,095
  (1,345)
  (64%)





Exploration Expenses
  -
  13
  (13)
  (100%)
Depreciation, Depletion,




  Amortization and Accretion
  1,912
  2,784
  (872)
  (31%)





General and Administrative (Cash)
$703
$1,246
$(543)
  (44%)
Share-Based Compensation (Non-Cash)
  719
  398
  321
  81%
Total General and Administrative Expense
  1,422
  1,644
  (222)
  (14%)





Interest Income
$8
$9
$(1)
  (11%)
Other Income (Expense)
$679
$(3)
$682
  22,733%

	Three Months Ended
	June 30,					Increase			% Increase
	2021		2020			(Decrease)			(Decrease)
Direct Lease Operating Expenses	$	895	$	631		$	264			42	%
Workovers		212		(29	)		241			831	%
Other*		348		148			200			135	%
Total Lease Operating Expenses	$	1,455	$	750		$	705			94	%

Depreciation, Depletion,
Amortization and Accretion	$	1,602	$	1,912		$	(310	)	(16		%)

General and Administrative (Cash)	$	739	$	703		$	36			5	%
Share-Based Compensation (Non-Cash)		591		719			(128	)	(18		%)
Total General and Administrative Expense	$	1,330	$	1,422		$	(92	)	(6		%)

Interest Income	$	3	$	8		$	(5	)	(63		%)
Other Income	$	45	$	679		$	(634	)	(93		%)
Gain on forgiveness of PPP loan	$	374	$	-		$	374			100	%

*Includes severance, ad valorem taxes and marketing ~~costs~~

costs.

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Lease Operating Expenses.The ~~decrease~~increase of ~~$1.3~~$0.7 million was primarily due to the shut-in of all of our operated wells for 42 days ~~during~~in the ~~2020~~prior period related to the severe reduction in pricing from the decreased demand related to the start of the global spread of the COVID-19 outbreak, notwithstanding the fact that the Company maintained certain cost cutting initiatives that were implemented during the prior year into the current period, coupled with overall lower operating expense rates.

Depreciation, Depletion, Amortization and Accretion. The $0.3 million decrease was primarily the result of a decrease in our depletable base due to the impairment of our oil and gas properties at the prior year end (discussed below), offset by production increases in the current period, when compared to the prior period, primarily due to the shut-in of all of our operated wells for 42 days in the prior period related to the severe reduction in pricing from the decreased demand related to the start of the global spread of the COVID-19 outbreak. ~~Additionally, there~~For the year ended December 31, 2020, due to falling oil and gas prices, we incurred a $19.3 million impairment of our oil and gas properties located in our D-J Basin Asset.

General and Administrative Expenses (excluding share-based compensation). There was a minimal increase in general and administrative expenses (excluding share-based compensation) primarily due to increases in payroll expenses from the return of all the salaries of the Company’s salaried employees and officers to original levels on April 1, 2021, from a previously implemented 20% salary reduction on April 1, 2020, offset by payroll expenses of since terminated employees from the prior period. The salary reduction was put in place to reduce costs at the time that oil and gas prices were ~~cost adjustments related~~falling as a result of decreased demand due to ~~workovers~~the COVID-19 pandemic at the end of March 2020. The Company has since determined that the oil markets had recovered to acceptable levels and ~~a gain on~~implemented the return of salary to previous levels.

Share-Based Compensation. Share-based compensation, which is included in general and administrative expenses in the Statements of Operations, decreased by $0.1 million primarily due to the forfeiture of certain employee stock-based options and nonvested restricted shares due to employee terminations. Share-based compensation is utilized for the purpose of conserving cash resources for use in field development activities and operations.

Interest Income and Other Expense. Includes interest earned from our interest-bearing cash accounts, for which interest rates have decreased significantly when comparing the current period to the prior period, and the settlement of ~~an asset retirement obligations (“ARO”) liability~~$0.6 million in accounts payables in the prior period.

Gain on forgiveness of New PPP loan. Includes principal and accrued interest from our New PPP Loan that was fully forgiven in May 2021 (see Note 7 to the notes to the unaudited financial statements of the Company included above).

Six Months Ended June 30, 2021 vs. Six Months Ended June 30, 2020

We reported net income for the six-month period ended June 30, 2021 of $0.5 million, or $0.01 per share, compared to a net loss for the six-month period ended June 30, 2020 of $7.0 million or ($0.10) per share. The increase in net income of $7.5 million was primarily due to a $3.8 million increase in revenue coupled with a $1.8 million gain on sale of oil and gas properties, a $2.2 million decrease in total operating expenses and $0.4 million gain from forgiveness of our PPP loan, offset by a $0.7 million decrease in other income, when comparing the ~~prior~~current period to the prior year period (all of which are discussed in more detail below).

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Net Revenues

The following table sets forth the operating results and production data for the periods indicated:

	Six Months Ended June 30,				Increase			% Increase
	2021		2020		(Decrease)			(Decrease)
Sale Volumes:
Crude Oil (Bbls)		117,251		118,381		(1,130	)	(1		%)
Natural Gas (Mcf)		88,665		105,366		(16,701	)	(16		%)
NGL (Bbls)		1,736		7,103		(5,367	)	(76		%)
Total (Boe) ⁽¹⁾		133,765		143,045		(9,280	)	(6		%)

Crude Oil (Bbls per day)		648		650		(2	)	*
Natural Gas (Mcf per day)	��	490		579		(89	)	(15		%)
NGL (Bbls per day)		10		39		(29	)	(74		%)
Total (Boe per day) ⁽¹⁾		740		786		(46	)	(6		%)

Average Sale Price:
Crude Oil ($/Bbl)	$	59.17	$	27.93	$	31.24			112	%
Natural Gas ($/Mcf)		3.21		1.24		1.97			159	%
NGL ($/Bbl)		27.72		7.09		20.63			291	%

Net Operating Revenues (in thousands):
Crude Oil	$	6,938	$	3,307	$	3,631			110	%
Natural Gas		285		131		154			118	%
NGL		48		50		(2	)	(4		%)
Total Revenues	$	7,271	$	3,488	$	3,783			108	%

(1)	Assumes 6 Mcf of natural gas equivalents to 1 barrel of oil.

* Less than 1%.

Total crude oil, natural gas and NGL revenues for the six-month period ended June 30, 2021 increased $3.8 million, or 108%, to $7.3 million, compared to $3.5 million for the same period a year ago, due primarily to a favorable price variance of $4.1 million, offset by an unfavorable volume variance of $0.3 million. Production decreases are primarily related to several of our newer wells having higher peak production early in the prior year, coupled with our oil and gas property sale and well shut-ins related to the winter storms that occurred in the current 2021 period.

Operating Expenses and Other Income (Expense)

The following table summarizes our production costs and operating expenses for the periods indicated (in thousands):

	Six Months Ended
	June 30,					Increase			% Increase
	2021			2020		(Decrease)			(Decrease)
Direct Lease Operating Expenses	$	1,821		$	1,720	$	101			6	%
Workovers		330			137		193			141	%
Other*		590			415		175			42	%
Total Lease Operating Expenses	$	2,741		$	2,272	$	469			21	%

Exploration Expenses	$	-		$	30	$	(30	)	(100		%)
Depreciation, Depletion,
Amortization and Accretion	$	3,163		$	5,349	$	(2,186	)	(41		%)

General and Administrative (Cash)	$	1,822		$	1,973	$	(151	)	(8		%)
Share-Based Compensation (Non-Cash)		1,275			1,572		(297	)	(19		%)
Total General and Administrative Expense	$	3,097		$	3,545	$	(448	)	(13		%)

Gain on Sale of Oil and Gas Properties	$	1,805		$	-	$	1,805			100	%

Interest Expense	$	(1	)	$	-	$	(1	)	(100		%)
Interest Income	$	7		$	32	$	(25	)	(78		%)
Other Income (Expense)	$	48		$	678	$	(630	)	(93		%)
Gain on forgiveness of PPP loan	$	374		$	-	$	374			100	%

*Includes severance, ad valorem taxes and marketing costs.

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Lease Operating Expenses. The increase of $0.5 million was primarily due to the shut-in of all of our operated wells for 42 days in the prior period related to the severe reduction in pricing from the decreased demand related to the start of the global spread of the COVID-19 outbreak, notwithstanding the Company continuing to maintain certain cost cutting initiatives that were implemented during the prior year, coupled with overall lower operating expense rates.

Exploration Expense. There was minimal change in exploration activity undertaken by the Company in the current year’s period compared to the prior year’s period, with the Company conducting no exploration activities in the 2020 period as the Company sought to conserve its operating cash in response to falling oil and gas prices resulting from decreased demand due to the COVID-19 pandemic.

period.

Depreciation, Depletion, Amortization and Accretion. ~~As noted above, the $0.9~~The $2.2 million decrease was primarily the result of ~~lower oil volumes related~~a decrease in our depletable base due to the impairment of our oil and gas properties at the prior year end (discussed below) coupled with production decreases ~~from all~~in the current period, when compared to the prior period. For the year ended December 31, 2020, due to falling oil and gas prices, we incurred a $19.3 million impairment of our ~~operated wells being shut-in over a 42-day period during the 2020 period.~~

oil and gas properties located in our D-J Basin Asset.

General and Administrative Expenses (“~~G&A”)(excluding~~(excluding share-based compensation).The decrease of ~~$0.5~~$0.2 million in general and administrative expenses (excluding share-based compensation) was primarily due to decreases in payroll, as well as other cost decreases, resulting from a 20% reduction in salary for all of the Company’s salaried employees and officers implemented on April 1, 2020, which was put in place ~~in order~~ to reduce costs at the time that oil and gas prices were falling as a result of decreased demand due to the COVID-19 pandemic, and a reduction of non-essential contractors.

The 20% reduction in salaries has since been returned to prior levels beginning April 1, 2021, as the Company determined that the oil markets have recovered to acceptable levels.

Share-Based Compensation.Share-based compensation, which is included in general and administrative expenses in the Statements of Operations, ~~increased~~decreased by $0.3 million primarily due to ~~an increase in~~ the ~~awarding~~forfeiture of certain employee ~~share-based~~stock-based options and nonvested restricted shares ~~as compensation during the 2020 period.~~due to employee terminations. Share-based compensation is utilized for the purpose of conserving cash resources for use in field development activities and operations.

~~Interest Income and Other Income (Expense).~~ Includes interest earned from our interest-bearing cash accounts, and represented the settlement of accounts payables of $0.6 million and the settlement of a dated $88,000 accounts receivable for the 2020 period.

~~Six Months Ended June 30, 2020 vs. Six Months Ended June 30, 2019~~

We reported a net loss for the six-month period ended June 30, 2020 of $7.0 million, or ($0.10) per share, compared to a net loss for the six-month period ended June 30, 2019 of $5.5 million or ($0.14) per share. The increase in net loss of $1.5 million was primarily due to a decrease in revenue of $2.2 million when comparing the current period to the prior period as result of the of the COVID-19 outbreak, and our decision to shut-in our wells during the 2020 period, as noted above, resulting in lower production and pricing, offset by $0.7 million in other income items related to accounts receivable and payable settlements.

~~Net Revenues~~

~~The following table sets forth the operating results and production data for the periods indicated:~~

Six Months Ended
June 30,

Increase

% Increase

2020

2019

(Decrease)

(Decrease)

Sale Volumes:

Crude Oil (Bbls)
  118,381
  101,650
  16,731
  16%
Natural Gas (Mcf)
  105,366
  37,756
  67,610
  179%
NGL (Bbls)
  7,103
  1,389
  5,714
  411%
Total (Boe) (1)
  143,045
  109,332
  33,713
  31%





Crude Oil (Bbls per day)
  650
  562
  88
  16%
Natural Gas (Mcf per day)
  579
  209
  370
  177%
NGL (Bbls per day)
  39
  8
  31
  388%
Total (Boe per day) (1)
  786
  605
  181
  30%





Average Sale Price:




Crude Oil ($/Bbl)
$27.93
$54.00
$(26.07)
  (48%)
Natural Gas ($/Mcf)
  1.24
  3.57
  (2.33)
  (65%)
NGL ($/Bbl)
  7.09
  9.44
  (2.35)
  (25%)










Net Operating Revenues (in thousands):




Crude Oil
$3,307
$5,490
$(2,183)
  (40%)
Natural Gas
  131
  135
  (4)
  (3%)
NGL
  50
  13
  37
  285%
           Total Revenues
$3,488
$5,638
$(2,150)
  (38%)

~~(1)~~

~~Assumes 6 Mcf of natural gas equivalents to 1 barrel of oil.~~

Total crude oil and natural gas revenues for the six-month period ended June 30, 2020 decreased $2.1 million, or 38%, to $3.5 million, compared to $5.6 million for the same period a year ago, due primarily to an unfavorable price variance of $2.7 million, partially offset by a favorable volume variance of $0.6 million. Although we shut-in all of our operated wells for 42 days during the 2020 period as a result of the severe reduction in pricing from the decreased demand in oil and gas related to the COVID-19 outbreak, production amounts did increase overall in the current six-month period compared to the prior six-month period ~~primarily from five new productive wells in our Permian Basin Asset,~~ as well as our participation (non-operated working interest) in the drilling and completion of 11 productive wells in our D-J Basin Asset, which occurred in the latter part of the 2019 fiscal year and are now being realized in the current period. However, the 31% increase in production was not able to overcome the significant price declines.

~~Operating Expenses and Other Income (Expense)~~

~~The following table summarizes our production costs and operating expenses for the periods indicated~~ ~~(in thousands):~~

Six Months Ended

June 30,

Increase

% Increase

2020

2019

(Decrease)

(Decrease)

Direct Lease Operating Expenses
$1,739
$1,894
$(155)
  (8%)
Workovers
  137
  681
  (544)
  (80%)
Gain on settlement of ARO
  (19)
  -
  (19)
  100%
Other*
  415
  490
  (75)
  (15%)
Total Lease Operating Expenses
  2,272
  3,065
  (793)
  (26%)





Exploration Expenses
  30
  23
  7
  30%
Depreciation, Depletion,




  Amortization and Accretion
  5,349
  5,033
  316
  6%





General and Administrative (Cash)
$1,973
$2,275
$(302)
  (13%)
Share-Based Compensation (Non-Cash)
  1,572
  697
  875
  126%
Total General and Administrative Expense
  3,545
  2,972
  573
  19%





Gain on sale of oil and gas properties
  $-
  $920
  $(920)
   (100%)
Interest Expense
$-
$826
$(826)
  (100%)
Interest Income
$32
$9
$23
  256%
Other Income (Expense)
$678
$(103)
$781
  (758%)

*Includes severance, ad valorem taxes and marketing costs

~~Lease Operating Expenses.~~ The decrease of $0.8 million was due to the shut-in all of our operated wells for 42 days during the 2020 period related to the severe reduction in pricing from the decreased demand related to the COVID-19 outbreak. Additionally, direct operating lease expenses decreased relative to the overall production increase due to the existing infrastructure and tank batteries already in place for the recently completed wells in in our Permian Basin Asset and from our participation in the completion of wells in our D-J Basin Asset by outside operators in the latter part of 2019. Additional workover activities were also down during the 2020 period due to the economic downturn.

~~Exploration Expense.~~ ~~There was minimal change in exploration activity undertaken by the Company in the current year’s period compared to the prior year’s period.~~

~~Depreciation, Depletion, Amortization and Accretion.~~ The $0.3 million increase was primarily the result of higher oil volume from the increased number of wells and increased oil production from our new producing wells during the current year’s period, compared to the prior year’s period.

~~General and Administrative Expenses (excluding share-based compensation).~~ The decrease of $0.3 million in general and administrative expenses (excluding share-based compensation) was primarily due to decreases in payroll, as well as other cost decreases, in the 2020 period, resulting from a 20% reduction in salary for all of the Company’s salaried employees and officers implemented on April 1, 2020, and a reduction of non-essential contractors.

~~Share-Based Compensation.~~Share-based compensation, which is included in general and administrative expenses in the Statements of Operations, increased by $0.9 million primarily due to an increase in the awarding of employee share-based options and restricted shares as compensation during the 2020 period. Share-based compensation is utilized ~~for the purpose of conserving cash resources for use in field development activities and operations.~~

Gain on Sale of Oil and Gas ~~Properties.~~ ~~In the prior period, the~~Properties. The Company sold rights to ~~85.5~~230 net acres ~~of oil~~ and ~~gas leases~~interests in three non-operated wells located in ~~Weld County, Colorado, to a third party,~~the D-J Basin for ~~aggregate~~net cash proceeds of ~~$1.2~~$1.9 million and recognized a gain on sale of oil and gas properties of ~~$0.9 million.~~

$1.8 million during the six months ended June 30, 2021. We had no sales of oil and gas properties during the six months ended June 30, 2020.

Interest Expense.The ~~decrease~~increase of ~~$0.8~~$0.01 million was due ~~primarily~~to accrued interest related to the ~~Company having no debt in the current period, compared~~Company’s New PPP Loan (see Note 7 to the ~~prior year’s period.~~

notes to the unaudited financial statements of the Company included above), which was forgiven during the period as discussed below.

Interest Income and Other ~~Income (Expense).~~Expense. Includes interest earned from our interest-bearing cash accounts, ~~and~~ for which interest rates have decreased significantly when comparing the ~~2020~~current period ~~includes~~to the ~~settlement of accounts payables for $0.6 million~~prior period, and the settlement of ~~a dated $88,000~~$0.6 million in accounts ~~receivable, compared~~payables in the prior period.

Gain on forgiveness of New PPP loan. Includes principal and accrued interest from our New PPP Loan that was fully forgiven during the current period (see Note 7 to the ~~prior period which~~notes to the unaudited financial statements of the Company included ~~the write-off of a $0.1 million third party option related to an option to acquire shares of Caspian Energy, which expired unexercised.~~

above).

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Liquidity and Capital Resources

The primary sources of cash for the Company during the six-month period ended June 30, ~~2020~~2021 were from an underwritten public offering to purchase $8.3 million of common stock, $1.9 million in the sale of oil and gas properties, and the sales of crude oil and natural ~~gas and funds provided by our entry into a PPP loan (see “Part I - Financial Information” - “Item 1. Financial Statements” - “Note 7 – PPP Loan”).~~gas. The primary uses of cash were funds used for ~~development costs~~completion and ~~operations. To help conserve its~~ operating cash, effective April 1, 2020, the Company implemented a 20% reduction in salary for all of the Company’s salaried employees and officers, to continue until the oil markets have recovered to acceptable levels, which the Company has determined has not occurred to date.

costs.

Impact of COVID-19

In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020, and a global pandemic on March 11, 2020. COVID-19 ~~has, since~~and the ~~early part of 2020,~~governmental responses thereto significantly reduced worldwide economic ~~activity. Due~~activity during much of 2020, and continues to ~~COVID-19~~threaten the ~~Company or its employees, suppliers,~~global economy, as variants and ~~other partners may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to spread~~mutations of the disease ~~within these groups or due~~continue to ~~shutdowns that may be requested or mandated by governmental authorities.~~spread, even as vaccines have become more widely available. While it is not possible at this time to estimate the full impact that COVID-19 will continue to have on the Company’s business, the continued spread of COVID-19 and the measures taken, and which may be taken in the future, by the governments of countries affected and in which the Company operates ~~has~~have disrupted, and may continue to disrupt, the operation of the Company’s business for a prolonged ~~period of time.~~period. The COVID-19 outbreak and mitigation measures ~~has~~have also had an adverse impact on global economic conditions, as well as an adverse effect on the Company’s business and financial condition and may continue to have an adverse effect on the Company, including on its potential to conduct financings on terms acceptable to the Company, if at all. ~~In addition, the~~The Company has ~~taken~~implemented temporary precautionary measures intended to help minimize the risk of the virus to its employees, vendors, and guests, including limiting the number of occupants at the Company’s Houston headquarters and requiring all others to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s ~~business.~~business, which measures have recently eased in accordance with federal, state and local guidance, and the vaccination of substantially all of the Company’s office-based employees. The extent to which the COVID-19 outbreak will continue to impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus, the continued availability and efficacy of vaccines and booster shots, the willingness of individuals to be vaccinated, the effect of virus mutations, and the actions to contain its impact. ~~However, any further~~Any future decrease in the price of oil, or the demand for oil and gas, as a result of COVID-19 or otherwise, will likely have a negative impact on our results of operations and cash flows.

~~As discussed above,~~we shut-in our operated production from mid-April through early June 2020, which directly contributed to a decrease in production volumes from 96,515 Boe for the three months ended March 31, 2020 to 46,530 Boe for the three months ended June 30, 2020, representing a decrease of 52%. Similarly, our crude oil, natural gas and NGLs sales revenues decreased from $2,832,000 for the three months ended March 31, 2020 to $656,000 for the three months ended June 30, 2020, representing a decrease of 77%, largely due to our decreased production, as well as decreases in NYMEX pricing and significantly widened differentials, largely due to the global COVID-19 pandemic, and the sharp decline in the demand for, and price of, oil and gas, in connection therewith.

In response to the effects of COVID-19, the Company has adopted policies, procedures, and practices both in its Houston office headquarters and across its field operations to protect its employees, contractors, and guests from COVID-19, including the adoption of a COVID-19 Response Plan, implementation of contractor questionnaires to assess COVID-19 risk and exposure prior to entering any Company facility or worksite, adopting best practices, guidelines and protocols recommended by the Centers for Disease Control (the ~~“CDC”~~“CDC”) and the Office of the Texas Governor for the prevention of exposure and spread of COVID-19, and instituting ~~weekly~~twice-monthly management calls discussing the Company’s ongoing response to the COVID-19 pandemic and effectiveness thereof. ~~Consistent with the Office of the Texas Governor’s executive orders, the Company has limited occupancy at the Company’s Houston headquarters; however, given~~Given the Company’s robust online systems and workflow practices and procedures, the Company has not experienced any material challenges or reductions in efficiency or effectiveness of its office-based workforce, while its field personnel continue to attend to their daily field operations uninterrupted, while mindful of social distancing and other preventative measures and safeguards recommended by the ~~CDC.~~

CDC, and subject to the CDC’s updated guidance.

Further, to help conserve its operating cash, in April 2020 and continuing to April 2021, the Company initiated significant temporary G&A cost-reduction measures, including reducing all employee and officer salaries by 20% (which salaries were returned to their original levels as of April 1, 2021, as the Company determined that the oil markets had recovered to acceptable levels), ~~until market conditions significantly improve,~~ cutting all discretionary spending, and undertaking additional actions, resulting in a nearly 20% cash G&A reduction in the second quarter of 2020, from our original G&A budget, and negotiating reductions of approximately $1 million in vendor accounts payable, with further meaningful discounts going forward. Additionally, the Company has takenas well implementing cost-reduction measures ~~anticipated~~ to reduce lease operating expenses (“LOE”) ~~by over 25% in 2020. The Company plans~~. We plan to ~~pause its planned 2020 development plan,~~continue to closely monitor the global energy markets and oil and gas pricing, with the only anticipated significant capital expenditures remaining in 2020 being those related to (i) 2019 carryover capital commitments to complete an SWD and the cost to put on production three new wells previously drilled on the Permian Basin Asset in the coming months, for an aggregate estimated expense of $950,000, and (ii) approximately $1 million earmarked for participation in non-operated D-J Basin Asset development projects, representing a reduction to our originally projected 2020 development plan budget from $14.5 million, to approximately $7 million ~~(of which we have deployed $5 million in 2020 to date~~). ~~This revised 2020 development plan is based upon our current outlook for~~ the remainder of ~~the year and is~~our 2021 development plan being subject to ~~further~~ revision, ~~due to the significant volatility in market conditions~~if and ~~historically high levels of uncertainty affecting the oil and gas exploration sector. We will further revise our development plans~~ as necessary, to react to market conditions in the best interest of ~~our~~its shareholders, while prioritizing ~~our~~its financial strength and liquidity.

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Working Capital

At June 30, 2021, the Company’s total current assets of $21.0 million exceeded its total current liabilities of $2.3 million, resulting in a working capital surplus of $18.7 million, while at December 31, 2020, the Company’s total current assets of ~~$10.9~~$8.8 million exceeded its total current liabilities of ~~$4.1~~$2.0 million, resulting in a working capital surplus of $6.8 ~~million, while at December 31, 2019, the Company’s total current assets of $27.1 million exceeded its total current liabilities of $15.2 million, resulting in a working capital surplus of $11.9~~ million. The ~~$5.1~~$11.9 million ~~decrease~~increase in our working capital surplus is primarily related to cash ~~used to fund payables~~received from the sale of common stock in our February 2021 underwritten offering (discussed below), the sale of certain oil and gas properties and the forgiveness in full of our New PPP Loan principal and accrued ~~expenses related to our earlier capital drilling projects and current operational expenses.~~

~~Financing~~

~~Other than obtaining the $370,000 PPP loans and repayment of the Original PPP loan (see “Part I - Financial Information” - “Item 1. Financial Statements” - “Note 7 – PPP Loan~~”)~~, we did not engage in any financing transactions~~interest, during the ~~three-month period~~six months ended June 30, ~~2020.~~ 2021.

Financing

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 $8.3 million.

We expect that we will have sufficient cash available to meet our needs over the foreseeable future, which cash we anticipate being available from (i) ~~our~~ projected cash flow from our operations, (ii) ~~our~~ existing cash on hand, (iii) equity infusions or loans (which may be convertible) made available from SK Energy LLC (“SK Energy”), which is 100% owned and controlled by ~~Dr.~~ Simon Kukes, ~~the Company’s~~our Chief Executive Officer and director, which funding SK Energy is under no obligation to provide, (iv) public or private debt or equity financings, and ~~(iv)~~(v) funding through credit or loan facilities. In addition, we may seek additional funding through asset sales, farm-out arrangements, ~~lines of~~and credit ~~or public or private debt or equity financings~~facilities to fund ~~2020 capital expenditures and/or acquisitions.~~potential acquisitions during the remainder of 2021. If market conditions are not conducive to ~~raising additional funds,~~developing our assets consistent with our remaining 2021 development program, the Company may choose to delay or extend the drilling program and associated capital expenditures into ~~2021.~~the future. Furthermore, as a result of the ~~recent~~ COVID-19 outbreak, and the ~~recent~~ sharp decline in oil prices which occurred partially as a result of the decreased demand for oil caused by such outbreak and the actions taken globally to stop the spread of such virus, in mid-April 2020, the Company shut-in all of its operated producing wells in its Permian Basin Asset and D-J Basin Asset to preserve the Company’s oil and gas reserves for production during a more favorable oil price environment, ~~90% of which wells were brought~~with the Company now back on full production from its operated wells in ~~early June~~the Permian Basin and the D-J Basin that the Company had shut-in in mid-April 2020 ~~with~~due to the partial recovery of oil ~~prices.~~prices in early June 2020. If oil prices deteriorate significantly from current levels, the Company ~~expects to~~may again shut-in some or all of its oil and gas production, which would result in reduced or no cash flow being generated from operations during the period such wells are shut-in, have a material adverse effect on the Company’s projected cash flow from operations, and, once our cash on hand is depleted, eventually require additional infusions of capital through debt and/or equity financings, asset sales, farm-out arrangements, lines of credit, or other means, which may not be available on favorable terms, if at all.

Cash Flows (in thousands)

Six Months Ended June 30,

2020

2019

Cash flows provided by operating activities
$87
$2,085
Cash flows used in investing activities
  (12,663)
  (24,197)
Cash flows provided by financing activities
  370
  33,000
Net (decrease) increase in cash and restricted cash
$(12,206)
$10,888

	Six Months Ended June 30,
	2021		2020
Cash flows provided by operating activities	$	2,473	$	87
Cash flows provided by (used in) investing activities		598		(12,663	)
Cash flows provided by financing activities		8,237		370
Net increase (decrease) in cash and restricted cash	$	11,308	$	(12,206	)

Cash Flows provided by Operating Activities. Net cash ~~provided by~~ operating activities ~~decreased~~increased by ~~$2.0~~$2.4 million for the current year’s period, when compared to the prior year’s period, primarily due to an increase in ~~our~~ net ~~loss~~income of ~~$1.5~~$7.5 million, ~~which was primarily commodity price driven,~~offset by a decrease of $2.2 million in depreciation, depletion and amortization and a $1.8 million gain on the sale of oil and gas properties, coupled with net increases ~~in operating activities of $2.0 million offset by net decreases~~ to ~~certain of~~ our other components of working capital, which are related to our increased revenue and a reduction of ~~$2.5 million.~~

payables in the current period, when compared to the prior period.

Cash Flows ~~used in~~provided by (used in) Investing Activities. ~~There was a decrease in net~~ Net cash ~~used in~~provided by investing activities ~~of $11.5~~increased by $13.3 million for the current year’s period, when compared to the prior year’s period, primarily due to ~~a reduction~~$11.4 million less in capital spending, ~~related to drilling~~coupled with $1.9 million in proceeds from the sale of oil and ~~completion costs when comparing the current period to the prior period, mainly due to reductions and delays in spending associated with the decline in oil prices caused by COVID-19.~~

gas properties.

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Cash Flows provided by Financing Activities. ~~There was $0.4 million in cash flows provided by obtaining PPP Loan financing in~~In the current period, the Company generated net cash from financing activities by selling common stock, net of offering costs, for $8.2 million, compared to ~~$33.0 million in proceeds~~net cash from financing activities of $0.4 million in the prior period, due to proceeds from obtaining the ~~issuance of a related party note payable, which has since been converted to common stock, and the sale of common stock.~~

New PPP Loan financing.

Off-Balance Sheet Arrangements

The Company does not participate in financial transactions that generate relationships with u~~nconsolidated~~unconsolidated entities or financial partnerships. As of June 30, ~~2020,~~2021, we did not have any off-balance sheet arrangements.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. See Part II, Item 7, “Critical Accounting Policies” in our Annual Report on Form 10-K for ~~further discussion of~~the year ended December 31, 2020. There have been no material changes to our critical accounting ~~policies.~~

policies and estimates since our Annual Report on Form 10‑K for the year ended December 31, 2020, as disclosed under “Note 3 – Summary of Significant Accounting Policies” to the notes to the audited financial statements included under Part II, Item 8 of the Annual Report on Form 10-K.

Recently Adopted and Recently Issued Accounting Pronouncements

None.

ITEM 3. Q~~UANTITATIVE~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

ITEM 4. C~~ONTROLS~~CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, as appropriate, in order to allow timely decisions in connection with required disclosure.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”)(the Principal Executive Officer) and Chief Accounting Officer (“CAO”)(the Principal Financial/Accounting Officer), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report. Based on this evaluation, our CEO and CAO concluded as of June ~~30, 2020,~~30. 2021, that our disclosure controls and procedures were effective.

Table of Contents

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended June 30, ~~2020,~~2021, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting, including any corrective actions regarding significant deficiencies and material weaknesses.

As a result of COVID-19, our workforce has continued to operate primarily in a work from home environment for the ~~COVID-19 pandemic, certain employees of the Company began working remotely~~quarter ended June 30, 2021. While pre-existing controls were not specifically designed to operate in ~~April 2020, but these changes to the working~~our current work from home operating environment, ~~did~~we do not believe that such work from home actions have had a material adverse effect on ~~the Company’s~~our internal ~~control~~controls over financial reporting. We ~~will continue~~have continued to ~~monitor~~re-evaluate and refine our financial reporting process to provide reasonable assurance that we could report our financial results accurately and timely.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the ~~impact~~disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of ~~COVID-19 on our internal~~achieving the desired control ~~over financial reporting.~~

objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Table of Contents

PART II - OTHER INFORMATION

ITEM 1. L~~EGAL~~LEGAL PROCEEDINGS

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

ITEM 1A. R~~ISK~~RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the Commission on March ~~30, 2020~~23, 2021 (the “Form 10-K”), under the heading “~~Item~~“Item 1A. Risk ~~Factors~~”Factors“, other than as set forth below, and investors are encouraged to review such risk factors in the Annual Report and below, prior to making an investment in the Company. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

~~The risk factor entitled “~~Declines in oil and, to a lesser extent, NGL and natural gas prices, will adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations or targets and financial commitments.~~” from the Form 10-K is replaced and superseded by the following:~~

Declines in oil and, to a lesser extent, NGL and natural gas prices, have in the past, and will continue in the future to, adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations or targets and financial commitments.

The price we receive for our oil and, to a lesser extent, natural gas and NGLs, heavily influences our revenue, profitability, cash flows, liquidity, access to capital, present value and quality of our reserves, the nature and scale of our operations and future rate of growth. Oil, NGL and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. In recent years, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. Further, oil prices and natural gas prices do not necessarily fluctuate in direct relation to each other. Because approximately 88% of our estimated proved reserves as of December 31, 2019 were oil, our financial results are more sensitive to movements in oil prices. The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“~~WTI~~”) crude rising from a low of $27 in February 2016 to a high of $76 in October 2018, then, in 2020, most recently dropping below $20 per barrel due in part to reduced global demand stemming from the recent global COVID-19 outbreak. A prolonged period of low market prices for oil and natural gas, or further declines in the market prices for oil and natural gas, will likely result in capital expenditures being further curtailed and will adversely affect our business, financial condition and liquidity and our ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy, which would have a material adverse effect on our stock price and indebtedness. Additionally, lower oil and natural gas prices have, and may in the future, cause, a decline in our stock price. During the year ended December 31, 2019, the daily NYMEX WTI oil spot price ranged from a high of $66.24 per Bbl to a low of $46.31 per Bbl and the NYMEX natural gas Henry Hub spot price ranged from a high of $4.25 per MMBtu to a low of $1.75 per MMBtu.During the six months ended June 30, 2020, the daily NYMEX WTI oil spot price ranged from a high of $63.27 per Bbl to a low of ($36.98) per Bbl and the NYMEX natural gas Henry Hub spot price ranged from a high of $2.17 per MMBtu to a low of $1.42 per MMBtu.

~~The risk factor entitled “~~Our success is dependent on the prices of oil, NGLs and natural gas. Low oil or natural gas prices and the substantial volatility in these prices will adversely affect, and is expected to continue to adversely affect, our business, financial condition and results of operations and our ability to meet our capital expenditure requirements and financial obligations.~~” from the Form 10-K is replaced and superseded by the following:~~

Our success is dependent on the prices of oil, NGLs and natural gas. Low oil or natural gas prices and the substantial volatility in these prices will adversely affect, and is expected to continue to adversely affect, our business, financial condition and results of operations and our ability to meet our capital expenditure requirements and financial obligations.

The prices we receive for our oil, NGLs and natural gas heavily influence our revenue, profitability, cash flow available for capital expenditures, access to capital and future rate of growth. Oil, NGLs and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the commodities market has been volatile. For example, the price of crude oil has experienced significant volatility over the last five years, with the price per barrel of WTI crude rising from a low of $27 in February 2016 to a high of $76 in October 2018, then dropping below $20 per barrel due in part to reduced global demand stemming from the recent global COVID-19 outbreak, before recovering to between $40-$45 per barrel more recently. Prices for natural gas and NGLs experienced declines of similar magnitude. An extended period of continued lower oil prices, or additional price declines, will have further adverse effects on us. The prices we receive for our production, and the levels of our production, will continue to depend on numerous factors, including the following:

	●	~~the domestic and foreign supply of oil, NGLs and natural gas;~~

	●	~~the domestic and foreign demand for oil, NGLs and natural gas;~~

	●	~~the prices and availability of competitors’ supplies of oil, NGLs and natural gas;~~

	●	~~the actions of the Organization of Petroleum Exporting Countries, or OPEC, and state-controlled oil companies relating to oil price and production controls;~~

	●	~~the price and quantity of foreign imports of oil, NGLs and natural gas;~~

	●	~~the impact of U.S. dollar exchange rates on oil, NGLs and natural gas prices;~~

	●	~~domestic and foreign governmental regulations and taxes;~~

	●	~~speculative trading of oil, NGLs and natural gas futures contracts;~~

	●	~~localized supply and demand fundamentals, including the availability, proximity and capacity of gathering and transportation systems for natural gas;~~

	●	~~the availability of refining capacity;~~

	●	~~the prices and availability of alternative fuel sources;~~

	●	~~the threat, or perceived threat, or results, of viral pandemics, for example, as experienced with the COVID-19 pandemic in 2020;~~
	●	~~weather conditions and natural disasters;~~

	●	~~political conditions in or affecting oil, NGLs and natural gas producing regions, including the Middle East and South America;~~

	●	~~the continued threat of terrorism and the impact of military action and civil unrest;~~

	●	~~public pressure on, and legislative and regulatory interest within, federal, state and local governments to stop, significantly limit or regulate hydraulic fracturing activities;~~

	●	~~the level of global oil, NGL and natural gas inventories and exploration and production activity;~~

	●	~~authorization of exports from the Unites States of liquefied natural gas;~~

	●	~~the impact of energy conservation efforts;~~

	●	~~technological advances affecting energy consumption; and~~

	●	~~overall worldwide economic conditions.~~

Declines in oil, NGL or natural gas prices will not only reduce our revenue, but will reduce the amount of oil, NGL and natural gas that we can produce economically. Should natural gas, NGL or oil prices remain at current levels for an extended period of time, we will continue to shut-in our operated wells, delay some or all of our exploration and development plans for our prospects, and cease exploration or development activities on certain prospects due to the anticipated unfavorable economics from such activities, and, as a result, we will have to make substantial downward adjustments to our estimated proved reserves, each of which would have a material adverse effect on our business, financial condition and results of operations.

~~The risk factor entitled “Our business and operations may be adversely affected by the recent COVID-19 or other similar outbreaks.” from the Form 10-K is replaced and superseded by the following:~~

Our business and operations have been adversely affected by, and are expected to continue to be adversely affected by, the recent COVID-19 outbreak, and may be adversely affected by other similar outbreaks.

As a result of the recent COVID-19 outbreak or other adverse public health developments, including voluntary and mandatory quarantines, travel restrictions and other restrictions, our operations, and those of our subcontractors, customers and suppliers, have and are anticipated to continue to experience delays or disruptions and temporary suspensions of operations. In addition, our financial condition and results of operations have been and are likely to continue to be adversely affected by the COVID-19 outbreak.

The timeline and potential magnitude of the COVID-19 outbreak is currently unknown. The continuation or amplification of this virus could continue to more broadly affect the United States and global economy, including our business and operations, and the demand for oil and gas. For example, the outbreak of coronavirus has resulted in a widespread health crisis that will adversely affect the economies and financial markets of many countries, resulting in an economic downturn that will affect our operating results. Other contagious diseases in the human population could have similar adverse effects. In addition, the effects of COVID-19 and concerns regarding its global spread have recently negatively impacted the domestic and international demand for crude oil and natural gas, which has contributed to price volatility, impacted the price we receive for oil and natural gas and materially and has materially and adversely affected the demand for and marketability of our production, which production we have currently shut-in in total, and is anticipated to continue to adversely affect the same for the foreseeable future. As the potential impact from COVID-19 is difficult to predict, the extent to which it will negatively affect our operating results, or the duration of any potential business disruption is uncertain. The magnitude and duration of any impact will depend on future developments and new information that may emerge regarding the severity and duration of COVID-19 and the actions taken by authorities to contain it or treat its impact, all of which are beyond our control. These potential impacts, while uncertain, have already negatively affected our first and second quarter results of operations, and are anticipated to have a negative impact on multiple future quarters’ results as well.

~~The risk factor entitled “Declining general economic, business or industry conditions may have a material adverse effect on our results of operations, liquidity and financial condition.” from the Form 10-K is replaced and superseded by the following:~~

Declining general economic, business or industry conditions have, and will continue to have, a material adverse effect on our results of operations, liquidity and financial condition, and are expected to continue having a material adverse effect for the foreseeable future.

Concerns over global economic conditions, the threat of pandemic diseases and the results thereof, energy costs, geopolitical issues, inflation, the availability and cost of credit, the United States mortgage market and a declining real estate market in the United States have contributed to increased economic uncertainty and diminished expectations for the global economy. These factors, combined with volatile prices of oil and natural gas, declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and a recession, which could expand to a global depression. Concerns about global economic growth have had a significant adverse impact on global financial markets and commodity prices and are expected to continuing having a material adverse effect for the foreseeable future. If the economic climate in the United States or abroad continues to deteriorate, demand for petroleum products could diminish, which could further impact the price at which we can sell our oil, natural gas and natural gas liquids, affect the ability of our vendors, suppliers and customers to continue operations, and ultimately adversely impact our results of operations, liquidity and financial condition to a greater extent that it has already.

~~The risk factor entitled “~~The marketability of our production is dependent upon oil and natural gas gathering and transportation facilities owned and operated by third parties, and the unavailability of satisfactory oil and natural gas transportation arrangements would have a material adverse effect on our revenue.~~” from the Form 10-K is replaced and superseded by the following:~~

The marketability of our production is dependent upon oil and natural gas gathering, transportation, and storage facilities owned and operated by third parties, and the unavailability of satisfactory oil and natural gas transportation arrangements have had a material adverse effect on our revenue.

The unavailability of satisfactory oil and natural gas transportation arrangements has hindered our access to oil and natural gas markets and has delayed production from our wells. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for, and supply of, oil and natural gas and the proximity of reserves to pipelines, terminal facilities and storage facilities. Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines, processing facilities, and storage facilities owned and operated by third parties. Our failure to obtain these services on acceptable terms could materially harm our business. Due to the current lack of demand, low prices, and high transportation costs, we have elected to shut-in all of our operated wells, resulting in a nearly complete loss of production revenue. Furthermore, we are obligated to pay shut-in royalties to certain mineral interest owners in order to maintain our leases with respect to certain shut-in wells. We do not expect to purchase firm transportation capacity on third-party facilities. Therefore, we expect the transportation of our production to be generally interruptible in nature and lower in priority to those having firm transportation arrangements.

The disruption of third-party facilities due to maintenance and/or weather could negatively impact our ability to market and deliver our products. The third parties' control when or if such facilities are restored after disruption, and what prices will be charged for products. Federal and state regulation of oil and natural gas production and transportation, tax and energy policies, changes in supply and demand, pipeline pressures, damage to or destruction of pipelines and general economic conditions could adversely affect our ability to produce, gather and transport oil and natural gas.

~~The risk factor entitled “~~An increase in the differential between the NYMEX or other benchmark prices of oil and natural gas and the wellhead price we receive for our production could adversely affect our business, financial condition and results of operations~~.” from the Form 10-K is replaced and superseded by the following:~~

An increase in the differential between the NYMEX or other benchmark prices of oil and natural gas and the wellhead price we receive for our production has adversely affected our business, financial condition and results of operations.

The prices that we will receive for our oil and natural gas production sometimes may reflect a discount to the relevant benchmark prices, such as the New York Mercantile Exchange (NYMEX), that are used for calculating hedge positions. The difference between the benchmark price and the prices we receive is called a differential. Increases in the differential between the benchmark prices for oil and natural gas and the wellhead price we receive has recently adversely affected, and is anticipated to continue to adversely affect, our business, financial condition and results of operations. We do not have, and may not have in the future, any derivative contracts or hedging covering the amount of the basis differentials we experience in respect of our production. As such, we will be exposed to any increase in such differentials.

~~The risk factor entitled “Downturns and volatility in global economies and commodity and credit markets could materially adversely affect our business, results of operations and financial condition.” from the Form 10-K is replaced and superseded by the following:~~

~~Downturns and volatility in global economies and commodity and credit markets have materially adversely affected our business, results of operations and financial condition.~~

Our results of operations are materially adversely affected by the conditions of the global economies and the credit, commodities and stock markets. Among other things, we have recently been adversely impacted, and anticipate to continue to be adversely impacted, due to a global reduction in consumer demand for oil and gas, and consumer lack of access to sufficient capital to continue to operate their businesses or to operate them at prior levels. In addition, a decline in consumer confidence or changing patterns in the availability and use of disposable income by consumers can negatively affect the demand for oil and gas and as a result our results of operations.

~~The following are new risk factors which supplement the risk factors included in the Form 10-K:~~

We recently temporarily shut-in all of our operated producing wells in our Permian Basin Asset and D-J Basin Asset to preserve the Company’s oil and gas reserves for production during a more favorable oil price environment, and while we have resumed over 90% of our production, we may again shut-in some or all of our operated production, should market conditions significantly deteriorate.

As a result of the recent COVID-19 outbreak, and the recent sharp decline in oil prices which occurred partially as a result of the decreased demand for oil caused by such outbreak and the actions taken globally to stop the spread of such virus, in mid-April 2020 the Company temporarily shut-in all of its operated producing wells in its Permian Basin Asset and D-J Basin Asset to preserve the Company’s oil and gas reserves for production during a more favorable oil price environment, noting that most of the Company’s acreage is held by production with no drilling obligations, which provides the Company with flexibility to hold back on production and development during periods of low oil and gas prices. Following partial recovery in oil prices, commencing in early June 2020, the Company reactivated over 90% of its operated wells in the Permian Basin and the D-J Basin that the Company shut-in in mid-April 2020, However, the Company may again shut-in some or all of its production, should market conditions deteriorate into the mid- to low-$20 per barrel realized well head price range in the future. While the Company’s producing wells are shut-in, the Company does not generate revenues from such wells, and would need to use its cash on hand and funds the Company receives from borrowings and the sale of equity in order to pay its operating expenses. A continued period of low-priced oil may make it non-economical for the Company to operate its wells, which would have a material adverse effect on our operating results and the value of our assets. The Company cannot estimate the future price of oil, and as such cannot estimate, when the Company may again determine to begin producing oil at its operated wells.

~~We may be forced to write-down material portions of our assets if low oil prices continue.~~

The recent COVID-19 outbreak has led to an economic downturn resulting in lower oil prices, which has in turn required us to shut-in all of our production from mid-April through early June 2020 as it was uneconomical for us to operate our producing wells during such time, and the Company could be required to again shut-in some or all of its production in the future should market conditions deteriorate. A continued period of low prices may force us to incur material write-downs of our oil and natural gas properties, which could have a material effect on the value of our properties, and cause the value of our securities to decline in value.

ITEM 2. U~~NREGISTERED~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company did not issue or sell any unregistered equity securities during the quarter ended June 30, ~~2020,~~2021, and through the date of the filing of this Report, which were not previously disclosed in a prior Quarterly Report on Form 10-Q, our Annual Report on Form 10-K or in a Current Report on Form 8-K.

Use of Proceeds From Sale of Registered Securities

None.

Issuer Purchases of Equity Securities

None.

ITEM 3. D~~EFAULTS~~DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. M~~INE~~MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. O~~THER~~OTHER INFORMATION

None.

Table of Contents

ITEM 6. E~~XHIBITS~~

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

EXHIBITS

		Incorporated By Reference
ExhibitNo.	Description	Form	Exhibit	Filing Date	File Number
31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set

* Filed herewith.

** Furnished herewith.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~EXHIBIT~~ I~~NDEX~~

~~Incorporated By Reference~~

~~Exhibit No.~~

~~Description~~

~~Form~~

~~Exhibit~~

~~Filing Date~~

~~File Number~~

10.1***

~~Executive Employment Agreement, dated June 10, 2011, by Pacific Energy Development Corp and Clark Moore~~

~~10-K~~

~~10.20~~

~~March 31, 2014~~

~~001-35922~~

10.2***

~~Amendment No. 1 to Employment Agreement, dated January 11, 2013, by and between PEDEVCO Corp. and Clark R. Moore~~

~~10-K~~

~~10.58~~

~~March 31, 2014~~

~~001-35922~~

10.3***

~~Amendment No. 2 to Employment Agreement, effective April 1, 2020, entered into by and between Clark R. Moore and PEDEVCO Corp.~~

~~8-K~~

~~10.3~~

~~March 31, 2020~~

~~001-35922~~

10.4***

~~Offer Letter with J. Douglas Schick as President dated August 1, 2018~~

~~8-K~~

~~10.4~~

~~August 1, 2018~~

~~001-35922~~

10.5***

~~Amendment No. 1 to Offer Letter, effective April 1, 2020, entered into by and between J. Douglas Schick and PEDEVCO Corp.~~

~~8-K~~

~~10.5~~

~~March 31, 2020~~

~~001-35922~~

31.1*

~~Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

31.2*

~~Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

32.1**

~~Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

32.2**

~~Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

101.INS*

~~XBRL Instance Document~~

101.SCH*

~~XBRL Taxonomy Extension Schema Document~~

101.CAL*

~~XBRL Taxonomy Extension Calculation Linkbase Document~~

101.DEF*

~~XBRL Taxonomy Extension Definition Linkbase Document~~

101.LAB*

~~XBRL Taxonomy Extension Label Linkbase Document~~

101.PRE*

~~XBRL Taxonomy Extension Presentation Linkbase Document~~

* Filed herewith.

** Furnished herewith.

*** Management contract or compensatory plan, contract or arrangement.

	June 30,	December 31,
	2020	2019
Assets
Current assets:
Cash	$10,209	$22,415
Accounts receivable – oil and gas	646	4,602
Prepaid expenses and other current assets	33	73
Total current assets	10,888	27,090

Oil and gas properties:
Oil and gas properties, subject to amortization, net	83,744	76,952
Oil and gas properties, not subject to amortization, net	8,090	14,896
Total oil and gas properties, net	91,834	91,848

Operating lease – right-of-use asset	316	360
Other assets	3,557	3,598
Total assets	$106,595	$122,896

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$2,729	$12,099
Accrued expenses	299	1,972
Revenue payable	799	827
PPP loan – current	165	-
Operating lease liabilities – current	101	97
Asset retirement obligations – current	-	225
Total current liabilities	4,093	15,220

Long-term liabilities:
PPP loan	205	-
Operating lease liabilities	248	300
Asset retirement obligations	1,973	1,874
Total liabilities	6,519	17,394

Commitments and contingencies

Shareholders’ equity:
Common stock, $0.001 par value, 200,000,000 shares authorized; 72,125,328 and 71,061,328 shares issued and outstanding, respectively	72	71
Additional paid-in capital	202,598	201,027
Accumulated deficit	(102,594)	(95,596)
Total shareholders’ equity	100,076	105,502
Total liabilities and shareholders’ equity	$106,595	$122,896

	Three Months Ended		Six Months Ended
	June 30,		June 30,
Revenue:	2020	2019	2020	2019
Oil and gas sales	$656	$4,070	$3,488	$5,638

Operating expenses:
Lease operating costs	750	2,095	2,272	3,065
Exploration expense	-	13	30	23
Selling, general and administrative expense	1,422	1,644	3,545	2,972
Depreciation, depletion, amortization and accretion	1,912	2,784	5,349	5,033
Total operating expenses	4,084	6,536	11,196	11,093

Gain on sale of oil and gas properties	-	-	-	920

Operating loss	(3,428)	(2,466)	(7,708)	(4,535)

Other income (expense):
Interest expense	-	-	-	(826)
Interest income	8	9	32	9
Other income (expense)	679	(3)	678	(103)
Total other income (expense)	687	6	710	(920)

Net loss	$(2,741)	$(2,460)	$(6,998)	$(5,455)

Loss per common share:
Basic and diluted	$(0.04)	$(0.05)	$(0.10)	$(0.14)

Weighted average number of common shares outstanding:
Basic and diluted	72,125,328	49,198,625	72,060,812	38,572,537

	Six Months Ended June 30,
	2020	2019
Cash Flows From Operating Activities:
Net loss	$(6,998)	$(5,455)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion	5,349	5,033
Share-based compensation expense	1,572	697
Loss on disposal of fixed asset	24	-
Amortization of right-of-use asset	44	-
Gain on sale of oil and gas properties	-	(920)
Amortization of debt discount	-	161
Changes in operating assets and liabilities:
Accounts receivable – oil and gas	3,956	(539)
Prepaid expenses and other current assets	40	142
Accounts payable	(2,199)	4,373
Accrued expenses	(1,673)	(450)
Accrued expenses – related parties	-	(943)
Revenue payable	(28)	(14)
Net cash provided by operating activities	87	2,085

Cash Flows From Investing Activities:
Cash paid for the acquisition of oil and gas properties	-	(1,056)
Cash paid for property and equipment	-	(47)
Cash paid for drilling and completion costs	(12,663)	(24,269)
Proceeds from the sale of oil and gas property	-	1,175
Net cash used in investing activities	(12,663)	(24,197)

Cash Flows From Financing Activities:
Proceeds from PPP loan	740	-
Repayment of PPP loan	(370)	-
Proceeds from the issuance of shares	-	18,000
Proceeds from notes payable – related parties	-	15,000
Net cash provided by financing activities	370	33,000


Net (decrease) increase in cash and restricted cash	(12,206)	10,888
Cash and restricted cash at beginning of period	25,712	5,779
Cash and restricted cash at end of period	$13,506	$16,667


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	$7,261	$6,039
Changes in estimates of asset retirement costs	$230	$129
Issuance of restricted common stock	$1	$-
Acquisition of asset retirement obligations	$-	$33
Common stock issued for debt conversion	$-	$55,075

	Common Stock
	Shares	Amount	Additional Paid-in Capital	Accumulated Deficit	Totals
Balances at January 1, 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)	-	-	-	-
Share-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
Share-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

	Common Stock		Additional
	Shares	Amount	Paid-in Capital	Accumulated Deficit	Totals
Balances at January 1, 2019	15,808,445	$16	$101,450	$(84,494)	$16,972
Issuance of common stock for debt conversion	29,480,383	29	55,046	-	55,075
Share-based compensation	-	-	299	-	299
Net loss	-	-	-	(2,995)	(2,995)
Balances at March 31, 2019	45,288,828	45	156,795	(87,489)	69,351
Issuance of restricted common stock	160,000	-	-	-	-
Issuance of common stock to non-affiliates	1,500,000	1	2,999	-	3,000
Issuance of common stock to affiliate	6,818,181	7	14,993	-	15,000
Warrants exercised	60,056	-	-	-	-
Share-based compensation	-	-	398	-	398
Net loss	-	-	-	(2,460)	(2,460)
Balances at June 30, 2019	53,827,065	$53	$175,185	$(89,949)	$85,289

	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Oil sales	$605	$4,037	$3,307	$5,490
Natural gas sales	41	26	131	135
Natural gas liquids sales	10	7	50	13
Total revenue from customers	$656	$4,070	$3,488	$5,638

	June 30, 2020	December 31, 2019
Cash	$10,209	$22,415
Restricted cash included in other assets	3,297	3,297
Total cash and restricted cash	$13,506	$25,712

	Balance at December 31,				Balance at June 30,
	2019	Additions	Disposals	Transfers	2020
Oil and gas properties, subject to amortization	$107,164	$4,924	$-	$7,284	$119,372
Oil and gas properties, not subject to amortization	14,896	478	-	(7,284)	8,090
Asset retirement costs	1,547	(230)	-	-	1,317
Accumulated depreciation and depletion	(31,759)	(5,186)	-	-	(36,945)
Total oil and gas assets	$91,848	$(14)	$-	$-	$91,834

Remainder of 2020	$58
2021	118
2022	121
2023	82
Thereafter	-
Total lease payments	379
Less imputed interest	(30)
Total lease liability	$349

	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Contract Term (Years)
Outstanding at December 31, 2019	753,349	$3.30	2.4
Granted	733,000	$1.68
Expired/Canceled	(124,000)	$2.23
Outstanding at June 30, 2020	1,362,349	$2.32	3.3
Exercisable at June 30, 2020	686,016	$2.97	2.1

	Three Months Ended June 30,		Increase	% Increase
	2020	2019	(Decrease)	(Decrease)
Sale Volumes:
Crude Oil (Bbls)	35,889	71,443	(35,554)	(50%)
Natural Gas (Mcf)	44,500	13,792	30,708	223%
NGL (Bbls)	3,224	478	2,746	574%
Total (Boe) (1)	46,530	74,220	(27,690)	(37%)

Crude Oil (Bbls per day)	394	785	(391)	(50%)
Natural Gas (Mcf per day)	489	152	337	222%
NGL (Bbls per day)	35	5	30	600%
Total (Boe per day) (1)	511	816	(305)	(37%)

Average Sale Price:
Crude Oil ($/Bbl)	$16.85	$56.50	$(39.65)	(70%)
Natural Gas ($/Mcf)	0.93	1.85	(0.92)	(50%)
NGL ($/Bbl)	3.20	16.07	(12.87)	(80%)


Net Operating Revenues (in thousands):
Crude Oil	$605	$4,037	$(3,432)	(85%)
Natural Gas	41	26	15	58%
NGL	10	7	3	43%
Total Revenues	$656	$4,070	$(3,414)	(84%)

	Six Months Ended June 30,		Increase	% Increase
	2020	2019	(Decrease)	(Decrease)
Sale Volumes:
Crude Oil (Bbls)	118,381	101,650	16,731	16%
Natural Gas (Mcf)	105,366	37,756	67,610	179%
NGL (Bbls)	7,103	1,389	5,714	411%
Total (Boe) (1)	143,045	109,332	33,713	31%

Crude Oil (Bbls per day)	650	562	88	16%
Natural Gas (Mcf per day)	579	209	370	177%
NGL (Bbls per day)	39	8	31	388%
Total (Boe per day) (1)	786	605	181	30%

Average Sale Price:
Crude Oil ($/Bbl)	$27.93	$54.00	$(26.07)	(48%)
Natural Gas ($/Mcf)	1.24	3.57	(2.33)	(65%)
NGL ($/Bbl)	7.09	9.44	(2.35)	(25%)


Net Operating Revenues (in thousands):
Crude Oil	$3,307	$5,490	$(2,183)	(40%)
Natural Gas	131	135	(4)	(3%)
NGL	50	13	37	285%
Total Revenues	$3,488	$5,638	$(2,150)	(38%)

PEDEVCO Corp.

August ~~14, 2020~~16, 2021

/s/ ~~Dr.~~ Simon Kukes

~~Dr.~~
Simon Kukes

Chief Executive Officer

(Principal Executive Officer)