New Concept Energy, Inc. 2022 Form 10-K Summary
Business Context and Reporting Period
Annual report for the year ended December 31, 2022, filed March 20, 2023. New Concept Energy operates primarily through real estate leasing and advisory services. It owns approximately 190 acres and four structures totaling approximately 53,000 square feet in Parkersburg, West Virginia; approximately 16,000 square feet of the main building was leased at year-end. The Company also provides management and advisory services for the oil and gas operations it sold in August 2020. Former oil and gas operations are reported as discontinued operations.
Financial Performance and Position
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $212,000 | $101,000 | +$111,000 |
| Operating expenses | $374,000 | $437,000 | -$63,000 |
| Operating loss | $(162,000) | $(336,000) | Improved by $174,000 |
| Other income, net | $131,000 | $191,000 | -$60,000 |
| Net income from continuing operations | $181,000 | $78,000 | +$103,000 |
| Net income per common share | $0.04 | $0.01 | +$0.03 |
| Net cash from operating activities | $184,000 | $123,000 | +$61,000 |
Rent was $101,000, management fees were $111,000, and interest income was $212,000, primarily from a related-party note. Based on reported figures, the operating margin was approximately negative 76% and the continuing-operations net margin was approximately 85%; profitability was dependent on interest income and other income rather than operating revenue.
Cash and cash equivalents increased to $436,000 from $252,000. Current assets were $4.008 million, including a $3.542 million related-party note receivable and accrued interest, while current liabilities were $63,000 in the consolidated balance sheet. Total assets were $4.639 million and stockholders’ equity was $4.576 million. The Company reported no outstanding long-term debt at December 31, 2022 and no interest-rate exposure from debt.
Material Changes Versus the Prior Comparable Period
- Revenue more than doubled because the Company began receiving a 10% management fee from the purchaser of its former oil and gas operations under an agreement effective January 1, 2022.
- Property operating expenses declined from $77,000 to $57,000, and general and administrative expenses declined from $360,000 to $317,000.
- Operating loss narrowed materially, and continuing-operations net income increased to $181,000 from $78,000.
- Other income declined to $131,000 from $191,000. 2022 other income included a $63,000 collection of a previously fully reserved investment and a $68,000 gain on equipment disposal.
- Operating cash flow increased to $184,000 from $123,000. No financing or investing cash flows were reported in 2022.
- Oil and gas operations generated no discontinued-operation income in 2022 or 2021; the 2020 results included a $2.138 million gain on disposal and $170,000 of operating losses.
Guidance, Outlook, Risks and Unusual Items
Management provided no formal financial guidance. The Company intends to continue operating or selling its West Virginia property, providing advisory and management services, and evaluating new business opportunities.
- Liquidity depends substantially on operating cash receipts and collection of the approximately $3.5 million related-party note, which bears interest at 6% and was scheduled to mature in September 2023.
- The auditor identified transactions with and balances due from related parties as a critical audit matter and emphasized the significance of related-party transactions.
- The Company had approximately $7.5 million of net operating loss carryforwards expiring between 2022 and 2037, but recorded a full valuation allowance because future realization was not considered sufficiently likely.
- The Company has a small operating base, three employees, a concentrated tenant and material dependence on interest income and related-party receivable collections.
- Anti-takeover provisions include an 80% voting requirement for certain amendments and other restrictions that may delay or prevent a change in control.
- No material legal proceedings or subsequent events requiring adjustment were reported. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor was not required to provide an internal-control attestation.
For the fourth quarter of 2022, unaudited revenue was $57,000 and income allocable to common shareholders was $11,000, or $0.01 per share.
Most Important Facts for Investors to Verify
- Confirm the September 2023 maturity, collectability, security and repayment status of the $3.542 million related-party note receivable.
- Assess whether the 10% oil and gas management-fee arrangement is continuing, terminable on 60 days’ notice, and sustainable.
- Verify occupancy, lease terms, tenant concentration and the potential sale value or required capital expenditures for the West Virginia property.
- Reconcile the filing’s MD&A reference to $60,000 of current liabilities with the consolidated balance sheet amount of $63,000.
- Review related-party governance, shared services provided by Pillar Income Asset Management, and the Company’s relationship with Realty Advisors, Inc., which beneficially owned approximately 27.18% of the common stock.
- Evaluate cash generation excluding nonrecurring 2022 items, including the $63,000 investment collection and $68,000 equipment-sale gain.