New Concept Energy, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three and six months ended June 30, 2021, filed August 12, 2021. New Concept Energy owns approximately 190 acres in Sandyville, West Virginia, including four structures totaling approximately 53,000 square feet. Approximately 16,000 square feet is leased at an annual rate of $101,000. The company’s oil and gas operations were sold on August 31, 2020 and are presented as discontinued operations.
Financial Performance and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $26,000 in 2021 and 2020 | $52,000 in 2021 and 2020 |
| Operating expenses | $131,000 vs. $143,000 | $223,000 vs. $262,000 |
| Operating earnings (loss) | $(105,000) vs. $(117,000) | $(171,000) vs. $(210,000) |
| Income (loss) from continuing operations | $49,000 vs. $(57,000) | $128,000 vs. $(90,000) |
| Net income (loss) applicable to common shares | $49,000 vs. $(137,000) | $128,000 vs. $(234,000) |
| Basic and diluted EPS | $0.01 vs. $(0.03) | $0.02 vs. $(0.05) |
- Revenue consisted entirely of rent and was unchanged year over year.
- Calculated operating margins were approximately negative 404% for the quarter and negative 329% for the six-month period. Calculated net margins were approximately 188% and 246%, respectively, reflecting non-operating income rather than operating profitability.
- Six-month other income was $191,000, including a $100,000 gain from selling a previously fully reserved receivable and a $91,000 prior-year tax refund. Second-quarter other income included $100,000.
- Cash provided by operating activities was $253,000 for the six months ended June 30, 2021, compared with $40,000 in 2020. Cash used in financing activities was $19,000, primarily for notes payable repayments.
- Cash and cash equivalents increased to $261,000 from $27,000 at December 31, 2020. Current assets were $3.975 million and current liabilities were $202,000.
- Total debt was $155,000, consisting of $52,000 current debt and $103,000 long-term debt. Nearly all debt bears fixed interest rates.
- Total assets were $4.758 million and stockholders’ equity was $4.453 million at June 30, 2021. Notes receivable totaled $3.822 million, including $3.689 million classified as current; approximately $3.637 million of current notes receivable was from related parties.
Material Changes Versus the Prior Comparable Period
- Quarterly net results improved from a $137,000 loss in 2020 to $49,000 of income in 2021; six-month results improved from a $234,000 loss to $128,000 of income.
- Corporate general and administrative expense declined to $111,000 from $127,000 for the quarter and to $185,000 from $231,000 for the six-month period.
- Operating losses narrowed despite unchanged rental revenue, but the company remains structurally unprofitable at the operating level.
- The prior-year periods included losses from discontinued oil and gas operations of $80,000 for the quarter and $144,000 for six months. No comparable discontinued-operation loss was reported in 2021 in the statement of operations, although the filing’s MD&A wording is not fully consistent with that presentation.
- Accumulated deficit improved to $59.178 million from $59.306 million at December 31, 2020, solely reflecting first-half net income.
Guidance, Outlook, Risks, and Unusual Items
- No quantitative revenue, earnings, or cash-flow guidance was provided.
- Management stated that meeting current cash obligations relies on cash from current operations and collection of notes receivable. The company is evaluating additional business opportunities to generate income and cash flow.
- The company sold its oil and gas operation for $85,000, with the buyer assuming a previously accrued $2.745 million plugging and abandonment obligation. The company recorded a $2.138 million gain on the sale in 2020.
- COVID-19 and related economic disruption may affect economic activity and the value or collectability of assets, although the filing states that the full impact remains uncertain.
- Key risks include dependence on rent and collections, related-party note receivables, limited operating revenue, the ability to obtain financing, interest-rate and market risks, competition, permitting and development delays, and the ability to control costs.
- Management recorded a 100% valuation allowance against the deferred tax asset because realization was not considered more likely than not.
- No material subsequent events were identified through August 12, 2021. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important Facts for Investors to Verify
- Verify the collectability, terms, maturity dates, and related-party status of the approximately $3.637 million of current related-party notes receivable.
- Assess whether the company’s $26,000 quarterly rental revenue and $261,000 cash balance are sufficient to support ongoing corporate costs and debt service.
- Reconcile the filing’s discontinued-operations disclosures, including the MD&A reference to a 2021 loss versus the financial statements’ presentation.
- Confirm the source and recurring nature of the $191,000 of first-half other income, particularly the $100,000 receivable sale and $91,000 tax refund.
- Review the terms and repayment schedule of the $155,000 total debt and any obligations associated with the West Virginia property.
- Review the filing’s exhibit 32.1 certification, which contains apparent references to an annual report for the period ended March 31, 2016 despite this being a June 30, 2021 Form 10-Q.