New Concept Energy, Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing was signed March 29, 2024. It is an annual Form 10-K; fourth-quarter data is presented only in unaudited quarterly information.
Business Context
- The Company operates primarily through leasing approximately 190 acres and four structures totaling approximately 53,000 square feet in Parkersburg, West Virginia. Approximately 16,000 square feet was leased at year-end for approximately $101,000 annually.
- New Concept sold its Ohio and West Virginia oil and gas wells and mineral leases in August 2020. Under a management agreement effective January 1, 2022, it receives 10% of the related oil and gas revenue for advisory, accounting and management services.
- The Company’s principal source of cash and income also includes interest on notes receivable, including a $3.542 million related-party note due in September 2025 bearing interest at 6%.
- The Company employed three people at December 31, 2023, with other functions contracted to third parties.
Financial Results and Position
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Rent revenue | $101,000 | $101,000 | Unchanged |
| Management-fee revenue | $51,000 | $111,000 | Down $60,000 |
| Total revenue | $152,000 | $212,000 | Down $60,000 |
| Operating expenses | $395,000 | $374,000 | Up $21,000 |
| Operating loss | $(243,000) | $(162,000) | Loss widened $81,000 |
| Interest and other income | $222,000 | $343,000 | Down $121,000 |
| Net income (loss) | $(21,000) | $181,000 | Down $202,000 |
| Basic and diluted loss per share | $(0.01) | $0.04 | Decreased |
| Cash flow from operations | $22,000 | $184,000 | Down $162,000 |
- Total revenue declined approximately 28.3%, while operating expenses increased approximately 5.6%. The operating margin was approximately negative 159.9%, compared with approximately negative 76.4% in 2022.
- Net margin was approximately negative 13.8%, compared with approximately positive 85.4% in 2022. The 2022 result included $131,000 of other income, including a $63,000 collection of a previously reserved investment and a $68,000 equipment-sale gain; no other income was reported in 2023.
- Cash and cash equivalents increased to $447,000 from $436,000. Current assets were $459,000 and current liabilities were $75,000, implying a current ratio of approximately 6.1x.
- Total assets were $4.630 million, including $3.542 million of related-party notes receivable and $629,000 of net property and equipment. Stockholders’ equity was $4.555 million.
- The Company reported no outstanding long-term debt and no interest expense in 2023. Cash used for fixed-asset additions was $11,000.
- No dividends were paid in 2023 or 2022, and no shares were repurchased under a repurchase program.
Material Changes Versus the Prior Comparable Period
- Management-fee revenue fell approximately 54.1%, which management attributed to lower oil and gas revenue resulting from declining oil and gas prices.
- General and administrative expense increased to $338,000 from $317,000, while real-estate operating expense remained $57,000.
- Interest income increased modestly to $222,000 from $212,000, but the absence of 2022’s unusual other income caused total non-operating income to decline substantially.
- The Company moved from $181,000 of net income in 2022 to a $21,000 net loss in 2023. Accumulated deficit increased to $59.076 million.
- Cash from operations decreased to $22,000 from $184,000, although year-end cash increased by $11,000 because investing cash usage was limited and there were no financing cash flows.
- Shares outstanding and weighted-average common shares remained approximately 5.132 million.
Guidance, Outlook, Risks and Unusual Items
- Management intends to continue operating or sell the West Virginia property, continue providing advisory and management services to an independent West Virginia oil and gas company, and seek to establish or acquire new business operations. No quantitative financial guidance was provided.
- Liquidity depends on operating cash receipts and collection of notes receivable, including the $3.5 million related-party receivable due in September 2025. Collectability and timing of repayment are key risks.
- Approximately $7.5 million of net operating loss carryforwards expire between 2024 and 2039. A full valuation allowance was recorded because management could not conclude that the related deferred tax assets were more likely than not to be realized.
- Related-party exposure is significant. The largest note receivable is from American Realty Investors, Inc.; Pillar Income Asset Management, a subsidiary of Realty Advisors, provides administrative, information technology and cybersecurity services and is reimbursed for direct costs. Realty Advisors beneficially owned approximately 27.18% of the Company’s common stock.
- The Company relies on Pillar’s systems and personnel for cybersecurity risk management. Management stated that it does not believe cybersecurity threats are reasonably likely to materially affect the Company, but reliance on third-party systems remains a risk.
- Anti-takeover provisions include an 80% voting requirement for changes to specified governing provisions and restrictions involving holders of 10% or more of the common stock.
- The Company reported no material legal proceedings, no material change in internal control over financial reporting, and no subsequent events requiring adjustment through March 28, 2024.
- The 2023 financial statements received an unqualified audit opinion. The auditor stated that no critical audit matters were identified for 2023. The auditor did not provide an attestation opinion on internal control effectiveness because one was not required.
Important Facts for Investors to Verify
- Verify the terms, security, collectability and September 2025 maturity of the $3.542 million related-party note receivable.
- Assess the sustainability of the $101,000 annual rent stream and the outlook for the 10% oil and gas management fee, which fell sharply in 2023.
- Review whether operating cash flow can cover corporate general and administrative expenses without significant note collections or asset sales.
- Review related-party relationships involving Realty Advisors, Pillar Income Asset Management, American Realty Investors and company leadership.
- Confirm the status and expiration dates of the approximately $7.5 million of tax-loss carryforwards and the continued full valuation allowance.
- Evaluate the concentration of assets in one related-party receivable and one West Virginia real-estate property, as well as the Company’s limited operating scale.
- Note the filing’s reported market data: the common stock trades on NYSE American under “GBR”; 5,131,934 shares were outstanding as of March 29, 2024, and the closing price was $1.06.