Filing summary
Registrant and period: The supplied filing is NGFC Equities, Inc.’s Form 10-K for the fiscal year ended September 30, 2015, not an American Resources Corp. filing. It reports a full fiscal year, not standalone fourth-quarter results; Q4 figures are not provided. The company changed its name from Natural Gas Fueling and Conversion Inc. in February 2015.
Business context and financial results
NGFC was an early-stage holding company pursuing energy and retail, healthcare, and consulting businesses. Its planned fueling-station and vehicle-conversion operations had not begun. The company acquired 55% of medical-equipment service provider ECI-LATAM (ECIL); the filing says ECIL generated all consolidated revenue and all of ECIL’s fiscal 2015 revenue came from one customer. Vanguard Energy and La Veles had minimal or no operations.
| Metric | FY ended Sep. 30, 2015 | FY ended Sep. 30, 2014 |
|---|---|---|
| Revenue | $62,429 | $0 |
| Gross profit | $2,207; approximately 3.5% gross margin | Not applicable |
| Operating expenses | $407,093 | $84,952 |
| Operating loss | $(404,886) | $(84,952) |
| Net loss | $(444,455); $(424,559) attributable to NGFC shareholders | $(88,930) |
| Cash used in operations | $(87,635) | $(81,952) |
| Cash and cash equivalents | $444,775 | $82,819 on balance sheet |
| Marketable securities | $195,461 | $27,561 |
| Current assets / current liabilities | $644,392 / $68,094 | $110,380 / $3,000 |
| Total assets / total liabilities | $1,130,269 / $68,094 | $110,380 / $3,000 |
FY 2015 other investment results included $17,274 realized gains, $57,176 unrealized losses, and $333 of dividends. No interest-bearing bank debt or credit facility is disclosed. Current liabilities included an $18,554 unsecured, related-party officer loan bearing 5% interest, $14,387 in credit-card payable, $33,953 deferred revenue, and $1,200 accrued expenses. The filing reports stockholders’ equity of $521,707 attributable to NGFC and $540,468 of noncontrolling interest.
Material changes and financing
- Revenue began with the ECIL acquisition; reported sales were $62,429 versus none in the prior year. The consolidated net loss widened from $88,930 to $444,455, while operating expenses rose to $407,093, including $166,250 of consulting fees and $242,700 of stock-based compensation.
- NGFC acquired its 55% ECIL interest for 3 million NGFC shares valued at $450,000. The purchase accounting recorded a $150,000 customer list, $361,049 goodwill, and $120,833 net customer-list carrying value at year-end. The company reported no goodwill impairment.
- Financing cash flow was $628,720, including $146,201 from the direct public offering and $487,585 from selling subsidiary ownership interests. NGLP raised $485,350 from 13 limited partners and received a $35,000 contribution from NGFC; the partnership offering targeted up to $1 million. Limited partners could convert contributed capital into NGFC shares at $0.30 per share through September 30, 2016.
- Cash used in investing activities was $179,129, including $207,469 invested in trading securities, partly offset by $33,335 cash acquired with ECIL. The marketable-securities balance included both company and partnership holdings.
Outlook, risks, and unusual matters
- Management estimated approximately $5.8 million in capital would be required for each planned full-service “Operational Unit.” It proposed first acquiring a smaller existing fuel station, but disclosed no committed financing, lines of credit, or material commitments. Management estimated available working capital could support operations for about 18 months; additional capital was uncertain.
- Principal risks include the company’s limited operating history and recurring losses, reliance on additional financing, dependence on ECIL’s single customer, and the absence of operating energy subsidiaries. NGFC also cited market, fuel-price, supply, regulatory-certification, competition, and alternative-technology risks.
- Approximately 31% of current assets were held in publicly traded securities, exposing liquidity to market declines. The filing warns that prolonged market weakness could force sales at unfavorable prices.
- Management concluded disclosure controls and internal control over financial reporting were not effective, citing limited resources, insufficient written procedures, inadequate segregation of duties, and lack of multiple review levels. The auditor gave an unqualified opinion on the financial statements but was not engaged to opine on internal-control effectiveness.
- The CEO held 7 million Class B shares with 10 votes each, in addition to 4 million Class A shares; the filing estimated his voting power at 84.05%. The Class B shares also carry consent rights over specified corporate actions.
- The filing reports no material litigation or off-balance-sheet arrangements. A subsequent event was the November 2015 issuance of 50,000 shares, valued at $7,500, for consulting services. NGFF began trading in November 2015, but the filing said no meaningful public market had developed.
Important facts for investors to verify
- Confirm the registrant identity: this filing names NGFC Equities, Inc., not American Resources Corp.
- Reconcile the filing’s cash-flow statement, which gives September 30, 2014 ending cash of $34,358, with the comparative balance sheet, which reports $82,819.
- Reconcile reported Class A shares outstanding: the cover page states 18,092,674, while the financial statements and ownership disclosure generally state 18,042,674.
- Verify the NGLP fundraising and cash figures, including the stated $485,350 raised from limited partners, the additional $35,000 general-partner contribution, and the reported securities and cash balances.
- Assess the sustainability and collectability of ECIL revenue, customer concentration, the valuation and recoverability of goodwill and the customer list, and the liquidity and risk of the trading-securities portfolio.
- Confirm financing needs and progress toward planned operations, and evaluate dilution and governance implications of the partnership conversion option, future securities issuance, and super-voting Class B shares.