New Concept Energy, Inc. — Q2 2023 Form 10-Q Summary
Business Context and Reporting Period
New Concept Energy, Inc. filed its unaudited Form 10-Q for the quarter and six months ended June 30, 2023. The company owns approximately 190 acres in Parkersburg, West Virginia, including approximately 53,000 square feet of buildings, of which about 16,000 square feet is leased. It also provides management, supervisory, and administrative services for previously sold oil and gas operations under a consulting agreement that generates fees equal to 10% of related gross revenue.
The company is evaluating business opportunities intended to generate additional income and cash flow. It had 5,131,934 common shares outstanding as of August 4, 2023.
Financial Highlights
| Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 |
|---|---|---|---|---|
| Total revenue | $35 thousand | $47 thousand | $80 thousand | $92 thousand |
| Operating expenses | $95 thousand | $93 thousand | $175 thousand | $185 thousand |
| Operating income (loss) | $(60) thousand | $(46) thousand | $(95) thousand | $(93) thousand |
| Other income | $54 thousand | $184 thousand | $106 thousand | $236 thousand |
| Net income (loss) | $(6) thousand | $138 thousand | $11 thousand | $143 thousand |
| Basic and diluted earnings per share | $(0.01) | $0.02 | $0.01 | $0.03 |
Revenue consisted of rental income of $26 thousand for the quarter and $51 thousand year to date, plus management fees of $9 thousand for the quarter and $29 thousand year to date. The implied operating margin was approximately negative 171% for the quarter and negative 119% for the six-month period, reflecting operating expenses substantially above revenue.
Interest income from a related-party note receivable was $54 thousand for the quarter and $106 thousand year to date. The balance of the related-party note receivable was $3.542 million at June 30, 2023.
Cash and cash equivalents were $432 thousand at June 30, 2023, compared with $436 thousand at December 31, 2022. Current assets were $4.019 million and current liabilities were $57 thousand, producing reported current assets substantially above current liabilities. Net cash used in operating activities was $4 thousand during the first six months of 2023, compared with $120 thousand of cash provided during the comparable 2022 period.
The company reported no outstanding debt and stated that it therefore has minimal exposure to interest-rate changes. Total assets were $4.644 million and stockholders’ equity was $4.587 million at June 30, 2023.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue declined to $35 thousand from $47 thousand, primarily because management-fee revenue fell to $9 thousand from $21 thousand.
- Second-quarter results shifted from net income of $138 thousand to a net loss of $6 thousand.
- The 2022 second quarter included $62 thousand from collection of an investment previously fully reserved and a $68 thousand gain on the sale of equipment. These unusual items did not recur in 2023.
- Six-month revenue declined to $80 thousand from $92 thousand, while six-month net income declined to $11 thousand from $143 thousand.
- Six-month corporate general and administrative expense decreased to $149 thousand from $160 thousand, which management attributed to lower administrative expenses.
- Cash declined by $4 thousand during the first six months of 2023, compared with a $120 thousand increase in the prior-year period.
- Total stockholders’ equity increased to $4.587 million from $4.576 million at December 31, 2022, reflecting the six-month net income.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing provides no quantitative earnings or revenue guidance. Management stated that it is evaluating opportunities to increase income and cash flow and cautioned that six-month operating results are not necessarily indicative of full-year results.
Liquidity depends on cash generated by current operations and the collection of interest and principal on the related-party note receivable. This concentration creates a material dependence on the note’s collectability and related-party payments.
The company maintains cash at financial institutions participating in the FDIC Transaction Account Guarantee Program; cash balances exceeded applicable federal insurance limits at June 30, 2023 and at times during the quarter.
Forward-looking risks identified include interest-rate fluctuations, access to debt or equity financing, demand and pricing, competition, construction and permitting matters, delays in property disposition or restructuring, and the ability to control costs and cash flow. The company reported no material environmental liabilities or known material noncompliance. It identified no reportable subsequent events through August 4, 2023.
Management concluded that disclosure controls and procedures were effective as of June 30, 2023, and reported no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the terms, collectability, maturity, and related-party status of the $3.542 million note receivable, which represents the largest current asset.
- Assess the sustainability of rental income and the 10% management-fee arrangement, including its termination provision requiring 60 days’ notice.
- Review the company’s ability to fund ongoing corporate expenses given recurring operating losses and negative operating cash flow in the first half of 2023.
- Verify the unusual 2022 income items totaling $130 thousand and adjust prior-period comparisons accordingly.
- Evaluate cash balances exceeding FDIC insurance limits and the company’s exposure to uninsured deposits.
- Review the company’s plans and funding requirements for new business opportunities, as no specific transactions or financing commitments were disclosed.