New Concept Energy, Inc. — Form 10-K Summary
Reporting period: Year ended December 31, 2020; filed March 31, 2021. The filing is an annual report, although the request identifies 2020 Q4. Financial statement amounts are in thousands except per-share data.
Business Context
- The Company’s continuing operations consist primarily of 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 December 31, 2020 for $101,000 annually.
- In August 2020, the Company sold its Ohio and West Virginia oil and gas wells and mineral leases. Those activities are reported as discontinued operations.
- Management intends to continue operating or sell the West Virginia property while exploring new business opportunities.
- The Company had two employees at December 31, 2020, with other work performed by third parties.
Financial Performance and Position
| Metric | 2020 | 2019 |
|---|---|---|
| Rent revenue | $101 | $98 |
| Operating expenses | $468 | $479 |
| Operating loss | $(367) | $(381) |
| Interest income | $242 | $257 |
| Interest expense | $(12) | $(15) |
| Other income, net | $85 | $199 |
| Income (loss) from continuing operations | $(52) | $60 |
| Discontinued operations, including disposal gain | $1,968 | $(2,412) |
| Net income (loss) applicable to common shareholders | $1,916 | $(2,352) |
| Basic and diluted earnings per share | $0.37 | $(0.46) |
| Net cash provided by operating activities | $(535) | $239 |
| Cash and cash equivalents | $27 | $22 |
| Total assets | $4,611 | $5,790 |
| Total liabilities | $286 | $3,381 |
| Stockholders’ equity | $4,325 | $2,409 |
- Continuing operations remained unprofitable: rent and interest income did not cover property and corporate expenses. The filing does not provide a clear consolidated gross margin or operating margin; based on reported figures, the continuing-operations operating loss was approximately 363% of rent revenue in 2020.
- Current assets were $3,802 and current liabilities were $164, implying reported current-asset coverage of approximately 23 times. However, $3,683 of current assets consisted of notes receivable, including $3,631 due from a related party.
- Total debt declined to $192 before deferred borrowing costs, from $245 in 2019. Principal payments on notes payable were $53 during 2020, and scheduled principal maturities total $192 through 2024.
- Operating cash flow was negative $535, while investing activities provided $593, primarily from $508 of note collections and $85 of proceeds from the oil and gas disposal. Financing activities used $53.
- No dividends were paid in 2020 or 2019, and the Company has not paid cash dividends for at least ten fiscal years.
Material Changes Versus the Prior Comparable Period
- Rent revenue increased modestly from $98 to $101, while property operating expenses increased from $61 to $72. General and administrative expense decreased from $418 to $396.
- Interest income declined from $257 to $242 as outstanding note principal declined.
- Other income decreased from $199 to $85. The 2020 amount primarily represented an income-tax refund; 2019 included a $46 gain on equipment and a $153 legal-claim settlement.
- The oil and gas business generated a $170 loss during the first nine months of 2020, followed by a $2,138 gain on its sale. The buyer assumed a previously accrued $2,745 plugging and abandonment obligation.
- Total assets declined by $1,179, primarily because assets held for sale and related liabilities were removed following the oil and gas disposal. Total liabilities declined by $3,095.
- Accumulated deficit improved from $(61,222) to $(59,306), and equity increased from $2,409 to $4,325, principally because of the 2020 net income generated by the disposal transaction.
Outlook, Risks, Contingencies, and Unusual Items
- The Company provides no quantitative revenue, earnings, or capital-spending guidance. Management is exploring alternatives, including operating or selling the West Virginia property and acquiring or establishing new operations.
- Liquidity depends on rent, interest collections, and collection of notes receivable, particularly the approximately $3.6 million related-party receivable scheduled to mature in September 2021. The filing does not provide a clear assessment of whether this receivable was subsequently collected.
- The independent auditor highlighted transactions and balances due from related parties as a critical audit matter because collectability involves significant judgment. Related-party notes and interest receivable represented the substantial majority of the Company’s notes receivable and interest income.
- Management recorded a 100% valuation allowance against deferred tax assets because realization was not considered more likely than not. The Company reported approximately $8.5 million of net operating loss carryforwards expiring between 2021 and 2036.
- The Company has been named in lawsuits in the ordinary course of business; management believes they will not materially affect financial condition, results, or cash flows.
- COVID-19 and broader public-health events could materially adversely affect the business and results. The Company reported no additional subsequent events through March 31, 2021.
- All debt is at fixed interest rates, limiting exposure to changes in market rates. The debt is secured by oil and gas leases and real property and equipment, although the oil and gas operations were sold in 2020.
- The auditor issued an unqualified opinion on the financial statements. No auditor attestation report on internal control was required for this smaller reporting company; management concluded internal controls were effective as of December 31, 2020.
Investor Verification Priorities
- Verify the status, collectability, maturity, security, and related-party terms of the approximately $3.6 million receivable from American Realty Investors, Inc.
- Reconcile the reported $2,138 gain on the oil and gas disposal with the $85 sale proceeds and confirm the buyer’s assumption of the $2,745 plugging and abandonment obligation.
- Assess the sustainability of the remaining rental and interest-income model relative to recurring corporate costs and negative 2020 operating cash flow.
- Review debt maturities, collateral arrangements, and any obligations remaining after the oil and gas asset sale.
- Evaluate related-party transactions, including services provided through Pillar Income Asset Management and the Company’s relationship with Realty Advisors, Inc.
- Confirm the expiration and usability of the $8.5 million tax-loss carryforwards and the continued valuation allowance against deferred tax assets.
- Consider ownership and governance concentration: Realty Advisors, Inc. beneficially owned approximately 27.34% of the common stock as of March 31, 2021, while directors and executive officers collectively reported no beneficial ownership.