PEDEVCO CORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying interim unaudited consolidated financial statements of PEDEVCO Corp. (“PEDEVCO” or the “Company”), have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in PEDEVCO’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the interim unaudited consolidated 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, 2024, filed with the SEC on March 31, 2025 (the “2024 Annual Report”), have been omitted.

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

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

NOTE 2 – DESCRIPTION OF BUSINESS

PEDEVCO is an oil and gas company focused on the development, acquisition and production of oil and natural gas assets where the latest in modern drilling and completion techniques and technologies have yet to be applied. In particular, the Company focuses on legacy proven properties where there is a long production history, well defined geology and existing infrastructure that can be leveraged when applying modern field management technologies. The Company’s current properties are located in the San Andres formation of the Permian Basin situated in West Texas and eastern New Mexico (the “Permian Basin”) and in the Denver-Julesberg Basin (“D-J Basin”) in Colorado and Wyoming. 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, and Laramie County, Wyoming, through its wholly-owned subsidiary, PRH Holdings LLC, and which asset the Company refers to as its “D-J Basin Asset.”

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company has provided a discussion of significant accounting policies, estimates and judgments in its 2024 Annual Report. There have been no changes to the Company’s significant accounting policies since December 31, 2024.** **

Recently Issued Accounting Pronouncements* *

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual period ending December 31, 2025. The Company is currently evaluating the timing and impacts of adoption of this ASU.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,” which requires additional disclosure about specified categories of expenses included in relevant expense captions presented on the income statement. The amendments are effective for annual periods beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either prospectively or retrospectively. The Company does not expect the standard to have a material effect on its consolidated financial statements and has begun evaluating disclosure presentation alternatives.

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):

There were no significant contract liabilities or transaction price allocations to any remaining performance obligations as of June 30, 2025.

NOTE 5 – CASH

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows (in thousands):

• Increase in restricted cash is related to additional collateral for a surety bond required by the Colorado Bureau of Land Management with respect to the Company’s Colorado operations.

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, 2025 (in thousands):

*Certain reclassifications have been made to prior period amounts to conform to the current period’s presentation, which had no effect on the previously reported total assets, total liabilities, total shareholders’ equity, results of operations or cash flows.

For the six-month period ended June 30, 2025, the Company incurred $8,455,000 of capital costs primarily related to the Company’s completion operations with respect to four operated wells recently drilled and completed with a third-party in the Permian Basin.

Additionally, for the six-month period ended June 30, 2025, the Company recorded an impairment of oil and gas properties of $742,000 related to undeveloped leases representing 1,007 net acres in the D-J Basin that it allowed to expire or had no plans to drill prior to expiration.

In February 2025, the Company entered into a joint development agreement with a private equity-backed D-J Basin E&P Company (“Operator”), pursuant to which the parties agreed to jointly participate in the expansion and development of the Company’s Roth and Amber drilling and spacing units (“DSUs”) located in Weld County, Colorado. The Operator paid to the Company $1.7 million, and the Company agreed to amend the Company’s existing Roth and Amber DSUs to increase each to 1,600 acres and transfer operatorship of the DSUs to the Operator.

In February 2025, the Company recognized $0.3 million in disposition expense related to the sale of certain capitalized equipment to a third-party in the D-J Basin.

In April 2025, the Company sold all of its operated production in Weld County, Colorado to a private buyer for an adjusted price of $606,000. The sale included wellbore and surface equipment only for the Company’s 17 operated wells in its D-J Basin Asset, with the Company retaining ownership in all its existing leasehold. The effective date of the sale is January 1, 2025. As a result, the Company recorded a gain on sale of oil and gas properties of $1,021,000 in its consolidated statements of operations for the three and six months ended June 30, 2025.

During the six months ended June 30, 2025, the Company also acquired approximately 63 net mineral acres and 224 net lease acres in and around its existing footprint in the D-J Basin through multiple transactions at total acquisition and due diligence costs of $79,000 and $134,000, respectively.

Depletion expense recorded for production on proved properties for the three and six months ended June 30, 2025 and 2024, amounted to $2,766,000, compared to $4,042,000, and $6,808,000, compared to $7,207,000, respectively.

NOTE 7 – NOTE RECEIVABLE

On November 9, 2023, in accordance with the sale of our then wholly-owned subsidiary EOR Operating Company (“EOR”) to Tilloo Exploration and Production LLC (“Tilloo”), the Company entered into a five-year secured promissory note (the “Note”) with Tilloo, bearing interest at 10% per annum, with no payments due until January 8, 2025, and fully-amortized payments due monthly over the remaining four years of the term thereafter until maturity. The Note contains customary events of default and is secured by a lien over all the assets and capital shares of EOR created under a Security Agreement, a Security Agreement (Pledge of Corporate Securities), and a Mortgage entered into by and between the Company and Tilloo.

Tilloo failed to make its initial installment payment on January 8, 2025, and has not made any subsequent payments as of June 30, 2025. The Company issued a notice of default under the Note to Tilloo in mid-January 2025, and sought to work with Tilloo into April 2025 in an effort to either restructure the Note or arrange for the sale of the assets securing the same to an unaffiliated third-party buyer, with proceeds of such sale to be applied toward repayment of the Note. However, as the Company’s efforts to work with Tilloo were unsuccessful through April 2025, and due to Tilloo’s sustained default and a determination by the Company that the prospect of recovery is remote, the Company has fully written off the outstanding balance of the Note as of June 30, 2025. Accordingly, a $1,267,000 bad debt expense has been recognized in the consolidated statements of operations for the three and six months ended June 30, 2025. However, the Company continues to consider avenues and remedies available to collect on all amounts due and owing to the Company from Tilloo. Additionally, the Company has fully written off post-closing adjustments receivable due from Tilloo related to the sale of EOR in the amount of $111,000. These write-offs reflect the Company's decision that the carrying value of the Note and post-closing adjustments receivable are no longer recoverable. Taken together, the Company recognized a total of $1,378,000 in bad note receivable - credit loss in the consolidated statements of operations for the three and six months ended June 30, 2025.

NOTE 8 – ASSET RETIREMENT OBLIGATIONS

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

In New Mexico, the Company, through its New Mexico operating subsidiary Ridgeway Arizona Oil Corp. (“RAZO”), has entered into a Stipulated Final Order (“SFO”) with Director of the Oil and Gas Conservation Division of New Mexico (the “OCD”) pursuant to which, among other things, RAZO agreed to reimburse the OCD for actual costs incurred by the OCD for plugging and abandoning approximately 299 inactive legacy wells in the Permian Basin Asset at a rate of $2.00 per gross barrel of oil sold by RAZO during any production reporting period, subject to a minimum payment of $30,000 per month by RAZO. RAZO has been timely paying each reimbursement invoice received from the OCD in accordance with the SFO and is in full compliance with the SFO. The SFO superseded all previous Agreed Compliance Orders, as amended, entered into by and between RAZO and the OCD. During the six months ended June 30, 2025, the Company reimbursed the OCD $297,000 in plugging and abandoning costs related to the SFO.

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 a borrowing rate obtained from a financial institution at which it maintains banking accounts.

In December 2022, the Company entered into a lease agreement for approximately 5,200 square feet of office space in Houston, Texas, that commenced on September 1, 2023, which expires on February 28, 2027. The remaining monthly payments are approximately $15,800 through February 2026 and increase to approximately $16,000 through the end of the lease. The Company paid a security deposit of $14,700.

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

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

The weighted-average remaining lease term for the Company’s operating lease is 1.7 years as of June 30, 2025, with a weighted-average discount rate of 7.90%.

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

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 exercise options to extend such leases, if available, in exchange for payment of additional cash consideration. In the D-J Basin, 129 net acres expire during the remainder of 2025, and 5,371 net acres expire within the next two-year period (net to our direct ownership interest only). In the Permian Basin, no net acres are due to expire during the remainder of 2025, and no net acres expire within the next two-year period (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 any future 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.

Milnesand Sale Dispute and Tilloo Note Default

On November 4, 2024, the Company received correspondence from legal counsel to Tilloo Exploration & Production, LLC seeking to recover damages which Tilloo is alleging were caused by alleged intentional misrepresentations made by principals of the Company to principals of Tilloo in connection with Tilloo’s acquisition of the Milnesand and Sawyer fields in New Mexico from the Company for aggregate consideration of $1,122,436 effective August 1, 2023 (the “Milnesand Sale”), which consideration was paid to the Company by Tilloo via a five-year secured promissory note with 10% annual interest and no payments due until January 8, 2025 (the “Tilloo Note”). The Company does not believe any misrepresentations were made by the Company or its principals in the Milnesand Sale and that the claims will fail as a matter of law. The Company has not received any correspondence from Tilloo regarding the allegations made in November 4, 2024 correspondence subsequent to receipt of the same from Tilloo, and Tilloo failed to make the initial installment payment due under the Tilloo Note on January 8, 2025. The Company issued a notice of default under the Tilloo Note to Tilloo in mid-January 2025, and the Company continues to consider avenues and remedies available to collect on all amounts due and owing to the Company from Tilloo.

NOTE 10 – SHAREHOLDERS’ EQUITY

Common Stock

During the six months ended June 30 2025, the Company granted an aggregate of 2,105,000 restricted stock awards to various employees of the Company.

During the month of June 2025, the Company sold an aggregate of 489,967 shares of common stock in five separate sales at sales prices ranging between $0.716 to $0.801 per share via an ongoing “at the market offering” (the “ATM Offering”) for net proceeds of $354,000, which includes $11,000 in commission fees. The Company also incurred $214,000 in initial and subsequent legal and audit-related fees and expenses incurred in connection with the registration and placement of the ATM Offering.

The ATM Offering was made pursuant tothe terms of that certain December 20, 2024, Sales Agreement (the “Sales Agreement”) entered into with Roth Capital Partners, LLC (the “Lead Agent”) and A.G.P./Alliance Global Partners (“AGP”, and collectively with the Lead Agent, the “Agents”), pursuant to which the Company may sell securities from time to time in an “at the market offering” (the “ATM Offering”). The Company will pay the Lead Agent a commission of 3.0% of the gross sales price of any shares sold under the Sales Agreement. The Company also agreed to reimburse the Agents for their reasonable and documented out-of-pocket expenses in an amount not to exceed $75,000, in connection with entering into the Sales Agreement and for the Agents’ reasonable and documented out-of-pocket expenses related to quarterly maintenance of the Sales Agreement on a quarterly basis in an amount not to exceed $5,000.

NOTE 11 – SHARE-BASED COMPENSATION

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

Common Stock

On January 23, 2025, restricted stock awards were granted to officers and employees of the Company for an aggregate of 1,844,118 shares of the Company’s restricted common stock under the Company’s 2021 Plan. The grant for the 1,844,118 shares of restricted common stock vest as follows: 33.3% vesting on the 10-month anniversary of the vesting commencement date, 33.3% vesting on the 22-month anniversary date of the vesting commencement and 33.4% vesting on the 34-month anniversary date of the vesting, contingent upon the recipient’s continued service with the Company. These shares have a total fair value of $1,568,000 based on the market price on the grant date.

Stock-based compensation expense recorded relating to the vesting of restricted stock for the three and six months ended June 30, 2025 and 2024, was $419,000 and $394,000 and $838,000 and $795,000, respectively. The remaining unamortized stock-based compensation expense at June 30, 2025 related to restricted stock was $1,537,000.

Options

On January 23, 2025, the Company granted options to purchase an aggregate of 464,000 shares of common stock to various Company employees at an exercise price of $0.85 per share under the Company’s 2021 Plan. The options have a term of five years and fully vest in November 2027, with 33.3% vesting on the 10-month anniversary of the vesting commencement date, 33.3% vesting on the 22-month anniversary date of the vesting commencement and 33.4% vesting on the 34-month anniversary date of the vesting, contingent upon the recipient’s continued service with the Company. The aggregate fair value of the options on the date of grant, using the Black-Scholes model, was $195,000. Variables used in the Black-Scholes option-pricing model for the options issued include: (1) a discount rate of 4.45% based on the applicable US Treasury bill rate, (2) expected term of 3.5 years, (3) expected volatility of 64.5% based on the trading history of the Company, and (4) zero expected dividends.

During the three and six months ended June 30, 2025 and 2024, the Company recognized stock option expense of $55,000 and $68,000 and $111,000 and $142,000, respectively. The remaining amount of unamortized stock options expense at June 30, 2025 was $210,000.

The intrinsic value of outstanding and exercisable options at June 30, 2025 was $-0-.

Option activity during the six months ended June 30, 2025, was:

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 income by the sum of the weighted average number of shares of common stock, as defined above, outstanding plus potentially dilutive securities. Net income (loss) per common share-diluted considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares, as defined above, would have an anti-dilutive effect.

The calculation of earnings (loss) per share for the periods indicated below were as follows (amounts in thousands, except share and per share data):

For the three and six months ended June 30, 2025 and 2024, share equivalents related to options to purchase 2,294,000, compared to 1,835,667, and 2,294,000 compared to 1,835,667, shares of common stock, respectively, were excluded from the computation of diluted net income per share as the inclusion of such shares would be anti-dilutive.

NOTE 13 – INCOME TAXES

The Company’s effective tax rate was approximately 21.3% and 0.0% for the six months ended June 30, 2025 and 2024, respectively. The effective tax rate was primarily due to recognized tax benefits in the current period compared to the impact of the full valuation allowance recorded in the prior period. As a result, the Company recognized an income tax benefit of $414,000 for the period ended June 30, 2025.

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (“OBBBA”) into law. The OBBBA includes, among other things, a permanent extension of 100% bonus depreciation for certain capital expenditures and modifications to the interest expense limitation under Section 163(j). In accordance with ASC Topic 740, Income Taxes, the effects of the tax law are recognized in the period of enactment and therefore not reflected in the Company’s unaudited condensed consolidated financial statements for the three and six months ended June 30, 2025. The Company is evaluating the potential tax impacts of the OBBBA on the consolidated financial statements.

NOTE 14 — SEGMENT INFORMATION

Operating segments are defined as components of an enterprise for which separate financial information is available and regularly evaluated by the Chief Operating Decision Maker (“CODM”) for the purpose of making key operating decisions, allocating resources, and assessing operating performance. The Company operates in one reportable operating segment, oil and natural gas development, exploration and production. The Company’s oil and gas properties are managed as a whole rather than through discrete operating segments. Financial and operational information is tracked by geographic area; however, financial performance is assessed as a single enterprise and not on a geographic basis. Allocation of resources is made on a project basis across the Company’s entire portfolio without regard to geographic area, and considers among other things, return on investment, current market conditions, including commodity prices and market supply, availability of services and human resources, and contractual commitments. The Company’s President and Chief Executive Officer is its CODM.

The Company’s profitability measure is consolidated net income which is used to assess budgeted versus actual results and drives the Company’s operating cash flow. The CODM reviews significant consolidated forecasts and results of operations, including return on capital, operating expenses, and cash flow when making decisions such as the allocation of capital. The financial position, results of operations and cash flows of the Company’s reportable operating segment are consistent with the Company’s consolidated financial statements included herein.

NOTE 15 – SUBSEQUENT EVENTS

On July 7, 2025, the Company appointed John K. Howie to the Company's Board of Directors and as a member of the Company's Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. As consideration for Mr. Howie joining the Board of Directors, the Board granted Mr. Howie 150,000 shares of restricted common stock of the Company pursuant to the Company’s 2021 Equity Incentive Plan, as amended. which shares vest on July 7, 2026, subject to Mr. Howie continuing to serve as a member of the Company’s Board of Directors on such vesting date, and subject to the terms and conditions of a Restricted Shares Grant Agreement entered into by and between the Company and Mr. Howie.