Filing identity and reporting period
Important mismatch: The supplied filing is for NGFC Equities, Inc., not American Resources Corp. It is a Form 10-Q for the quarter ended June 30, 2016, with comparative results for the three and nine months ended June 30. The summary below describes the filing provided; confirm the issuer before relying on it.
Business context
NGFC reported three divisions: energy and retail, healthcare, and consulting. Its 55%-owned subsidiary ECI-LATAM (ECIL) installs and services medical equipment and sells parts and service contracts. The company had not begun operations in its planned fueling-station business and said low gasoline prices were making natural-gas vehicle conversion less attractive.
Financial results and liquidity
| Metric | Nine months ended June 30, 2016 | Prior comparable period | Three months ended June 30, 2016 | Prior comparable period |
|---|---|---|---|---|
| Revenue | $184,800 | $45,791 | $39,938 | $32,591 |
| Gross profit | $108,906 | $33,432 | $18,142 | $32,579 |
| Operating loss | $(81,260) | $(197,089) | $(51,734) | $(143,461) |
| Continuing-operations loss | $(47,081) | $(197,286) | $(28,537) | $(142,981) |
| Net income (loss) attributable to NGFC shareholders | $4,185 | $(203,928) | $48,968 | $(151,908) |
Revenue increased year over year, but gross profit declined in the June quarter. The nine-month net income included $75,790 of income from discontinued operations; the June-quarter figure also included $75,790 from discontinued operations. Marketable-security gains contributed to other income: nine-month realized gains were $43,407, partly offset by $9,517 of unrealized losses.
At June 30, cash was $67,308, marketable securities $40,699, current assets $112,966, and current liabilities $68,245, implying working capital of $44,721. The balance sheet showed a $50,000 Southridge note payable, due December 31, 2016 at 7% interest, and $11,592 in credit-card payables. Stockholders’ equity was $483,392; total equity, including noncontrolling interest, was $1,061,763.
For the nine months, reported operating cash flow was $77,929, investing cash flow was $(94,270), and financing cash flow was $(18,554). The cash-flow statement reports ending cash of $409,880, but reconciles this to balance-sheet cash of $67,308 by subtracting $342,572 held by the deconsolidated entity. Cash-flow figures include cash flows from discontinued operations, limiting direct comparison with the balance-sheet cash figure.
Material changes and unusual items
- NGFC reported deconsolidating NGFC Limited Partnership (NGLP) effective May 2016 and classified its results as discontinued operations. The filing also describes a corrected resignation process: NGFC gave limited partners 30 days’ notice in July and later approved resignation as general partner effective August 19, 2016.
- Revenue growth over nine months came alongside higher officer compensation, general and administrative expense, and depreciation and amortization. Consulting fees fell sharply from the prior-year period.
- ECIL had one major customer responsible for approximately 70% of its revenue in the June 2016 quarter; all ECIL sales and services were outside the United States, and its maintenance work to date had been for Getinge Group equipment.
- The Southridge equity-line registration became effective August 9, 2016, after quarter-end. It permits purchases of up to $3 million of NGFC common stock, with up to 7.5 million shares registered. The filing also reports a related $50,000 note.
- Class A shares outstanding were 18,092,674 as of August 10, 2016; the filing warns that future equity financing could dilute existing shareholders.
Outlook, risks, and controls
Management estimated parent-company monthly cash burn at $4,000–$5,000 and said available resources could support operations for about 12 months; ECIL expected overhead of about $7,000 per month. These are management estimates, not a guarantee. The company said it needed additional financing to pursue its plans: it estimated about $5.8 million per proposed operating unit and approximately $10 million to establish a presence in the energy and retail division. Management identified no assurance that financing would be available and acknowledged possible dilution or curtailment of operations.
There was no formal earnings guidance. Management said it would reassess natural-gas fueling and conversion plans in light of low gasoline prices and that the timing of a favorable market was uncertain. The company reported that its disclosure controls were not effective at quarter-end; management said it was developing a disclosure checklist and planned to add personnel as funds permitted. No material litigation or off-balance-sheet arrangements were reported.
Key facts for investors to verify
- Confirm that NGFC Equities, Inc.—rather than American Resources Corp—is the intended issuer and that June 30, 2016 is the intended reporting period.
- Review the NGLP deconsolidation, discontinued-operations accounting, and subsequent resignation process, including the effect on reported earnings and cash flows.
- Reconcile the cash-flow statement’s $409,880 ending cash with the $67,308 balance-sheet cash balance and understand the cash attributed to NGLP.
- Verify the Southridge equity-line pricing, draw conditions, share issuance, and dilution implications, as well as repayment of the $50,000 note.
- Assess ECIL’s customer concentration, geographic exposure, and ability to generate cash, alongside NGFC’s financing needs and ineffective disclosure controls.