Filing summary: BioFuel Energy Corp. (not Green Brick Partners, Inc.)
Important identity mismatch: The supplied filing is BioFuel Energy Corp.’s Form 10-Q for the quarter ended June 30, 2014, filed July 29, 2014. It is not a Green Brick Partners filing. Green Brick Partners is mentioned only as a later name implied by a proposed business combination; this summary reflects the supplied BioFuel filing.
Business context and reporting period
BioFuel had disposed of its two ethanol plants in November 2013, transferring them to lender designees in satisfaction of the plants’ outstanding debt. At the time of this filing, the company was a holding company with minimal consulting revenue and was pursuing the acquisition of JBGL, a group of residential land development, construction lending and homebuilding businesses, for $275 million. Results cover the three and six months ended June 30, 2014; statements are unaudited.
Financial results and liquidity
- Revenue: Q2 2014 revenue was $56,000, versus none in Q2 2013; first-half revenue was $156,000, versus none in first-half 2013. Revenue came from consulting services.
- Expenses and losses: Q2 operating loss was $2.814 million and net loss attributable to BioFuel common stockholders was $2.750 million, or $0.51 per share. First-half operating loss was $3.618 million and attributable net loss was $3.461 million, or $0.64 per share. No income tax provision or benefit was recorded.
- Margins: The filing does not provide a meaningful operating margin for the post-disposal consulting business; revenue was negligible relative to expenses.
- Cash flow: First-half operating cash use was $4.818 million, compared with $3.040 million provided in first-half 2013. There were no investing or financing cash flows in first-half 2014. Cash declined by $4.818 million from the period’s beginning balance.
- Cash and liquidity: June 30 cash was $8.054 million; current assets were $8.784 million and current liabilities $1.406 million. The company reported no material debt on its June 30 balance sheet. Its former ethanol-plant debt had been satisfied in the 2013 transfer.
- Equity: Total equity was $7.435 million, down from $11.053 million at December 31, 2013. Federal net operating loss carryforwards were $181.3 million and fully reserved; the filing says they begin to expire if unused after December 31, 2029.
Changes versus the prior comparable period
- Q2 attributable net loss improved to $2.750 million from $4.124 million, and first-half attributable net loss improved to $3.461 million from $8.759 million. The comparison is affected by the absence of ethanol-plant discontinued-operation losses in 2014; the plants were disposed of in November 2013.
- Continuing-operation losses increased: $2.814 million in Q2 2014 versus $1.411 million in Q2 2013, and $3.618 million in the first half versus $2.730 million. Management attributed higher G&A principally to acquisition-related legal and financial adviser costs of $2.2 million in the first half, partly offset by lower compensation and stock-based compensation.
- Operating cash flow shifted from $3.040 million provided in first-half 2013 to $4.818 million used in first-half 2014, including payments of approximately $4.2 million of change-of-control severance in Q1 2014.
Outlook, transaction, and risks
- The June 10 definitive agreement provides for a $275 million acquisition of JBGL. Proposed funding includes a rights offering expected to raise approximately $70 million, cash on hand, and approximately $150 million of debt financing from Greenlight. Following closing, Greenlight was expected to own 49.9% and the Brickman Parties 8.4% of the company’s common stock.
- Closing was expected in October 2014, subject to conditions including approval by a majority of stockholders excluding Greenlight and affiliates, successful completion of the rights offering, and continued Nasdaq listing. The filing cautions there is no assurance the transaction will be completed.
- Nasdaq had granted continued listing on the Nasdaq Capital Market on condition that the acquisition close by November 4, 2014 and the combined company meet initial-listing requirements. Failure to meet these conditions presented a listing risk.
- Management expected consulting revenue to be negligible in 2014 and identified general corporate and acquisition expenses as principal liquidity needs. The filing provides no operating guidance for the proposed combined company.
- Cash was held in standard accounts at one financial institution in excess of FDIC insurance limits. The company also had a rights agreement intended to protect its tax attributes; use of NOLs may be limited, and deferred tax assets were fully reserved.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material legal proceedings were reported.
Most important facts for investors to verify
- Confirm the correct issuer and filing: this is BioFuel Energy Corp., not Green Brick Partners, Inc.
- Check whether the JBGL acquisition, rights offering, and Greenlight financing closed, and the final purchase consideration, funding mix, and ownership dilution.
- Verify whether the combined company met Nasdaq’s November 4, 2014 deadline and initial-listing requirements.
- Assess the company’s cash runway and transaction-related financing obligations, given $8.054 million cash and continuing operating cash use at June 30, 2014.
- Review the final treatment and realizability of the $181.3 million NOL carryforwards, including any ownership-change limitations.