New Concept Energy, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three months ended March 31, 2021, filed May 17, 2021. The company owns approximately 190 acres in Parkersburg, West Virginia, with four structures totaling approximately 53,000 square feet. Approximately 16,000 square feet of the main building is leased for $101,000 annually. The filing also describes rent from a retirement community, although the principal property description identifies industrial and office space.
The company sold its entire oil and gas operation on August 31, 2020. The transaction is presented as discontinued operations in the prior-year comparison.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / prior period |
|---|---|---|
| Revenue | $26,000, all rent | $26,000 |
| Operating expenses | $92,000 | $120,000 |
| Operating income (loss) | $(66,000) | $(94,000) |
| Income from continuing operations | $79,000 | $(34,000) |
| Net income (loss) applicable to common shares | $79,000 | $(97,000) |
| Basic and diluted income per share | $0.01 | $0.01 |
| Net cash from operating activities | $25,000 | $(17,000) |
| Cash and cash equivalents | $43,000 | $27,000 at December 31, 2020 |
| Total debt | $167,000 | $174,000 at December 31, 2020 |
| Current assets | $3.899 million | $3.802 million at December 31, 2020 |
| Current liabilities | $178,000 | $164,000 at December 31, 2020 |
| Shareholders’ equity | $4.404 million | $4.325 million at December 31, 2020 |
Operating margin was approximately negative 254% of revenue. Net margin was approximately 304%, primarily because of $91,000 of net other income described by management as a tax refund from prior years and $56,000 of interest income. These margins are not representative of recurring operating performance because revenue was only $26,000 and non-operating items exceeded the operating loss.
At March 31, 2021, $3.584 million of the $3.636 million current note receivable balance was from related parties. The filing states that the company relies on current operations, collection of notes receivable, and related interest to meet current cash obligations. The current ratio was approximately 21.9, but cash alone was only $43,000.
Material changes versus the prior comparable period
- Revenue was unchanged at $26,000.
- Corporate general and administrative expense declined to $74,000 from $104,000, mainly because consulting fees related to oil and gas matters were not incurred in 2021.
- Operating loss improved to $66,000 from $94,000.
- Continuing operations shifted from a $34,000 loss to $79,000 of income, principally due to the $91,000 prior-year tax refund and lower administrative costs.
- Q1 2020 included a $63,000 loss from discontinued oil and gas operations; no discontinued-operation loss was recorded in Q1 2021.
- Operating cash flow improved to $25,000 from negative $17,000. Financing cash flow was negative $9,000 in Q1 2021, reflecting debt repayments.
- Cash increased by $16,000 during the quarter, from $27,000 to $43,000.
- The balance sheet reports 5,131,934 common shares outstanding at March 31, 2021 versus 2,036,935 at December 31, 2020, while the weighted-average share count is reported as approximately 5.132 million for both quarterly periods. The filing text provided does not clearly explain this apparent share-count difference.
Outlook, risks, contingencies, and unusual items
- No quantitative revenue, earnings, or cash-flow guidance was provided. Management stated that it is evaluating business opportunities intended to provide additional income and cash flow.
- The company recorded a $2.138 million gain on the August 2020 sale of its oil and gas operation; the buyer assumed a previously accrued $2.745 million plugging and abandonment obligation.
- Management identified uncertainty regarding the continuing effects of COVID-19, including potential material adverse effects on business and results of operations.
- Key forward-looking risks include interest-rate changes, access to debt and equity financing, demand and pricing, competition, construction and permitting delays, property dispositions or restructuring, occupancy levels, and cost and cash-flow management.
- Nearly all debt bears fixed interest rates, so management considers exposure to interest-rate changes minimal.
- The company has a deferred tax asset fully offset by a valuation allowance because management could not conclude that realization was more likely than not.
- Management reported no material environmental liabilities and no subsequent events requiring disclosure through May 13, 2021.
- Disclosure controls and procedures were deemed effective, and no material change in internal control over financial reporting was reported.
Facts investors should verify
- Collectability, maturity, and related-party terms of the $3.584 million related-party current note receivable, which represents most current assets.
- The explanation for the reported increase in common shares from approximately 2.037 million at December 31, 2020 to 5.132 million at March 31, 2021.
- Whether the $91,000 prior-year tax refund and other non-operating income are nonrecurring.
- The sustainability of the company’s limited rental revenue relative to operating expenses and its ability to generate sufficient recurring cash flow.
- The timing and terms of the remaining $167,000 of debt and the company’s ability to meet obligations with only $43,000 of cash.
- Progress and expected economics of the additional business opportunities under evaluation.