Business Context and Reporting Period
New Concept Energy, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The company owns approximately 190 acres in Parkersburg, West Virginia, including approximately 53,000 square feet of structures, and derives revenue primarily from rental income and management fees. Its oil and gas operations were sold in August 2020; beginning January 1, 2022, the company provided consulting, management, supervisory, and administrative services for those operations for a fee equal to 10% of gross revenue.
The company is a smaller reporting company. Common stock trades under the symbol GBR on NYSE American, with 5,131,934 shares outstanding as of August 10, 2022.
Financial Highlights
| Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|---|---|
| Total revenue | $47 thousand | $26 thousand | $92 thousand | $52 thousand |
| Operating income (loss) | ($46 thousand) | ($105 thousand) | ($93 thousand) | ($223 thousand) |
| Net income applicable to common shares | $138 thousand | $49 thousand | $143 thousand | $128 thousand |
| Net income per common share | $0.02 | $0.01 | $0.03 | $0.02 |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $120 thousand | $253 thousand |
- Revenue consisted of rent of $26 thousand for the quarter and $51 thousand for the six months, plus management fees of $21 thousand and $41 thousand, respectively.
- Operating expenses were $93 thousand for the quarter and $185 thousand for the six months. Corporate general and administrative expense was $80 thousand for the quarter and $160 thousand for the six months.
- Approximate operating margins were negative 98% for the quarter and negative 101% for the six months, reflecting operating losses despite positive net income.
- Other income, net, was $184 thousand for the quarter and $130 thousand for the six months. Quarterly other income included a $62 thousand collection of an investment previously fully reserved and a $68 thousand gain on equipment sold.
- Interest income was $54 thousand for the quarter and $106 thousand for the six months. Interest expense was zero in 2022, compared with $2 thousand and $4 thousand in the comparable 2021 periods.
- Cash and cash equivalents increased to $372 thousand at June 30, 2022, from $252 thousand at December 31, 2021.
- Current assets were $3.957 million and current liabilities were $56 thousand, implying substantial reported current-asset coverage. However, $3.542 million of current assets consisted of a related-party note receivable.
- Total assets were $4.594 million and total stockholders’ equity was $4.538 million at June 30, 2022. The filing does not report outstanding debt at June 30, 2022; it reports no financing cash flows and no interest paid in 2022.
Material Changes Versus Prior Comparable Period
- Quarterly revenue increased $21 thousand, or approximately 81%, primarily because of $21 thousand of new management-fee revenue; rental income was unchanged at $26 thousand.
- Six-month revenue increased $40 thousand, or approximately 77%, due to $41 thousand of management fees, partially offset by a $1 thousand decrease in rental income.
- Quarterly operating loss improved by $59 thousand, and six-month operating loss improved by $130 thousand, primarily because of lower corporate general and administrative expense.
- Quarterly net income increased by $89 thousand. Six-month net income increased by $15 thousand, despite lower other income than in 2021.
- Other income declined from $191 thousand to $130 thousand for the six months. The 2021 period included a $100 thousand collection of a previously fully reserved receivable and a $91 thousand prior-year tax refund; the 2022 period included the $62 thousand investment collection and $68 thousand equipment-sale gain.
- Net cash provided by operating activities declined from $253 thousand to $120 thousand for the six months, while cash increased by $120 thousand in 2022 compared with $234 thousand in 2021.
Liquidity, Outlook, Risks, and Unusual Items
Management states that the company’s ability to meet current cash obligations depends on cash generated from current operations and collection of notes receivable and related interest. The company is evaluating additional business opportunities to generate income and cash flow. No formal financial guidance is provided.
- Liquidity is concentrated in a $3.542 million related-party note receivable, making collectability and the timing of collection important to cash resources.
- Reported profitability was driven substantially by nonrecurring or unusual other-income items rather than core operating revenue; operating activities remained loss-making.
- The company maintains a 100% valuation allowance against its deferred tax asset because management could not conclude that realization was more likely than not.
- COVID-19-related economic effects remain uncertain. Other identified risks include interest-rate fluctuations, access to debt or equity financing, demand and pricing, competition, licensing and permitting, construction or disposition delays, occupancy and rental rates, cost control, and inflationary pressure on compensation and maintenance.
- Management reported no material environmental liabilities or known material noncompliance relating to hazardous or toxic substances or petroleum products.
- The company evaluated subsequent events through August 10, 2022, and identified none requiring disclosure.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material change in internal control over financial reporting during the quarter.
Facts an Investor Should Verify
- Terms, maturity, collectability, and related-party status of the $3.542 million note receivable.
- Sustainability of rental revenue and the 10% management-fee arrangement, including termination rights on 60 days’ notice.
- Whether the $62 thousand investment collection and $68 thousand equipment-sale gain are nonrecurring and how much future earnings depend on similar items.
- Sources and uses of cash, given the decline in operating cash flow to $120 thousand and management’s stated reliance on operations and receivable collections.
- Occupancy, rental rates, and operating performance of the company’s West Virginia property; the filing does not provide a complete current occupancy or property-level margin disclosure.
- The filing’s MD&A contains a date inconsistency when discussing quarterly net income; the financial statements report $138 thousand for 2022 versus $49 thousand for 2021.