Business context and reporting period
Filing identity discrepancy: The supplied filing is for NGFC Equities, Inc., not American Resources Corp. It is a Form 10-Q for the quarter ended March 31, 2016 (the company’s fiscal second quarter), with six-month results from October 1, 2015 through March 31, 2016. Confirm the issuer and period before relying on this summary.
NGFC described three intended business areas: energy and retail, healthcare, and consulting. Its principal operating subsidiary, ECI-LATAM, installs and services medical equipment. The energy-station business remained in development and had no stated committed funding for planned facilities.
Financial performance and position
| Metric | Three months ended March 31, 2016 | Six months ended March 31, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $59,997 | $144,862 | $13,200 for each period |
| Gross profit | $24,533 | $90,764 | $853 for each period |
| Operating loss | $(27,471) | $(30,278) | $(19,603) and $(53,628), respectively |
| Consolidated net loss | $(1,353) | $(19,920) | $(19,603) and $(54,305), respectively |
| Net loss attributable to NGFC shareholders | $(2,083) | $(44,740) | $(17,318) and $(52,020), respectively |
Six-month other income included $117,085 of realized gains and $107,286 of unrealized losses on marketable securities. Basic and diluted loss per share was reported as $(0.00) for all periods shown. The filing reports no separate gross-margin percentage.
For the six months, operating cash use was $21,506, investing cash use was $10,417, and financing cash use was $18,554; cash fell by $50,477 to $394,298. At March 31, 2016, cash was $394,298, marketable securities $242,801, current assets $642,680, and current liabilities $4,784. Total liabilities were current liabilities only; the officer loan had been repaid. Total equity was $1,098,273, including $613,831 of noncontrolling interest. Accumulated deficit was $558,254.
Changes versus comparable periods and prior balance sheet
- Six-month revenue increased to $144,862 from $13,200, principally reflecting the consolidated healthcare subsidiary; management said ECIL revenue was concentrated in a single customer, and the filing gives differing concentration figures for the quarter and six-month period.
- Six-month operating loss narrowed to $30,278 from $53,628, while operating loss for the March quarter increased to $27,471 from $19,603.
- Six-month shareholder-attributable loss improved to $44,740 from $52,020. Trading gains and losses materially affected reported results.
- Compared with September 30, 2015, cash decreased by $50,477, current liabilities fell from $68,094 to $4,784, and total assets declined from $1,130,269 to $1,103,057. The officer loan and deferred revenue were no longer outstanding at quarter-end.
Outlook, risks and unusual items
- Management estimated approximately $5.8 million of capital would be needed for each planned energy operating unit and said it had no commitment for that funding. It also cited an approximately $10 million capital need to establish a presence in the energy division.
- Management estimated current operations could be funded for about 18 months, based partly on cash and securities that included $532,186 belonging to NGFC Limited Partnership. The parent’s stated monthly burn rate was approximately $4,000–$5,000; ECIL expected about $7,000 in monthly salaries and overhead.
- NGFC reported an equity-line arrangement approved for up to $3 million with Southridge Partners II LP, involving potential resale of 7.5 million Class A shares and a stated 90% discount to $0.40, subject to the agreement’s terms and company approval for a lower price. The filing also refers to a $50,000 note issued to Southridge; its status and balance are not clear from the presented balance sheet.
- NGLP had raised $535,350 from 14 limited partners. Its agreement provides for 70% of quarterly excess net asset value to limited partners and 30% to NGFC as general partner, and grants investors an option to convert contributed capital into NGFC shares at $0.30 per share under stated terms. Market losses may prevent distributions or gains.
- ECIL had significant customer concentration: the filing says about 70% of its quarter revenue came from one customer, while elsewhere it says 60% of revenue for the six-month period came from one customer. ECIL’s services were outside the U.S.; management also described historical reliance on Getinge Group equipment and work performed by one employee.
- Management stated disclosure controls were not effective to assure all required disclosures were made. It cited plans to develop a checklist and hire staff as funding allowed. The filing reported no material litigation and no off-balance-sheet arrangements.
- Management’s natural-gas demand, pricing, subsidy and regulatory expectations are forward-looking and uncertain. It warned that failure to raise capital could delay or curtail operations and that equity financing could dilute shareholders.
Important facts for investors to verify
- Whether this NGFC Equities filing is the intended filing; it does not identify American Resources Corp as the registrant.
- The equity-line agreement, share-resale registration, discount mechanics, approval conditions, and the stated $50,000 Southridge note’s outstanding status.
- Cash availability and restrictions, particularly the amount held for NGLP, and the basis for management’s 18-month liquidity estimate.
- ECIL customer concentration and the inconsistent concentration figures disclosed for the quarter and six-month period.
- The company’s ineffective disclosure controls and the timing and cost of planned remediation.