NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
NOTE A – BUSINESS DESCRIPTION
AND PRESENTATION
The Company, through its wholly owned
subsidiaries Mountaineer State Energy, Inc. and Mountaineer State Operations, LLC, operates oil and gas wells and mineral
leases in Athens and Meigs Counties in Ohio and in Calhoun, Jackson and Roane Counties in West Virginia. As of December 31, 2018
the Company has 153 producing oil & gas wells, 44 non-producing wells and related equipment and mineral leases covering approximately
20,000 acres.
The Company engaged the firm of independent
oil and gas engineers Lee Keeling & Associates, Inc. to estimate the net oil and gas reserves. On the basis of their
study, the estimates of future net revenues using a present value discount of 10% were estimated to be $2.7 million at December
31, 2018.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A summary of the significant accounting policies applied
in the preparation of the accompanying consolidated financial statements follows:
Principles of Consolidation
The consolidated financial statements
include the accounts of New Concept Energy, Inc. and its majority-owned subsidiaries (collectively, the “Company”,
New Concept or “NCE”) and are prepared on the basis of accounting principles generally accepted in the United States
of America “GAAP”. All significant intercompany transactions and accounts have been eliminated. Certain
accounting balances have been reclassified to conform to the current year presentation.
Depreciation
Depreciation is provided for in amounts
sufficient to relate the cost of property and equipment to operations over their estimated service lives, ranging from 3 to 40
years. Depreciation is computed by the straight-line method.
Depreciation expense, which is included
in operations, was $43,000, $55,000 and $98,000 for 2018, 2017 and 2016, respectively.
Depreciation, Depletion and Amortization
of Oil & Gas Properties
Depreciation, depletion and amortization
(“DD&A”) of producing properties is computed on the unit-of-production method based on estimated oil and gas reserves. While
total DD&A expense for the life of a property is limited to the property’s total cost, reserve revisions result in a
change in timing of when DD&A expense is recognized.
The Company recorded depletion of mineral
rights of $204,000, $259,000 and $310,000 in 2018, 2017 and 2016 respectively.
Segments
The Company operates one primary business
segments: oil and gas operations. Segment data is provided in “Note J” to these consolidated financial statements.
Major Purchaser
The Company sells most of its natural
gas production to one purchaser and all of its oil production to one purchaser. While there is an available market for
crude oil and natural gas production, we cannot be assured that the loss of this purchaser would not have a material impact on
the Company.
Oil and Gas Reserves
Our oil and gas reserves are estimated
by independent petroleum engineers. Reserve engineering is a subjective process that is dependent upon the quality of
available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates
by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling,
testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may
justify revision of such estimates. Because reserves are required to be estimated using recent prices of the evaluation,
estimated reserve quantities can be significantly impacted by changes in product prices.
The standardized measure of discounted
future net cash flows and changes in such cash flows are prepared using assumptions required by the Financial Accounting Standards
Board and the Securities and Exchange Commission. Such assumptions include using recent oil and gas prices and year-end
costs for estimated future development and production expenditures. Discounted future net cash flows are calculated
using a 10% rate. Changes in any of these assumptions could have a significant impact on the standardized measure. Accordingly,
the standardized measure does not represent management’s estimated current market value of reserves.
Full cost accounting
The Company uses the full cost method
of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition,
exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological
expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost
of oil and natural gas properties when incurred.
The full cost method requires the Company
to calculate quarterly, by cost center, a “ceiling,” or limitation on the amount of properties that can be capitalized
on the balance sheet. To the extent capitalized costs of oil and natural gas properties, less accumulated depletion
and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower
of cost or estimated fair value of unproved properties subject to amortization, the cost of properties not being amortized, and
the related tax amounts, such excess capitalized costs are charged to expense. Beginning December 31, 2009, full cost
companies use the unweighted arithmetic average first day of the month price for oil and natural gas for the 12-month period preceding
the calculation date to calculate the future net revenues of reserves. Prior to December 31, 2009, companies used the
price in effect at the calculation date and had the option, under certain circumstances, to elect to use subsequent commodity prices
if they increased after the calculation date.
The Company assesses any unproved oil
and gas properties on an annual basis for possible impairment or reduction in value. The Company assesses properties
on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration
of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling
results and activity; the assignment of reserves; and the economic viability of development if reserves are assigned. During
any period in which these factors indicate an impairment of unproved properties not subject to amortization, the associated costs
incurred to date for such properties are then included in unproved properties subject to amortization.
Gas gathering assets
Gas gathering assets are capitalized
as part of the depletable pool and ratably charged to earnings along with other capitalized exploration, drilling and development
costs.
Office and field equipment
Office and field equipment are capitalized
at cost and depreciated on a straight line basis over their estimated useful lives. Office and field equipment useful
lives range from 5 to 30 years.
Revenue recognition and gas imbalances
We use the sales method of accounting
for oil and natural gas revenues. Under the sales method, revenues are recognized based on actual volumes of oil and
natural gas sold to purchasers. Gas imbalances at December 31, 2018 were not significant. New Concept also
follows the sales method of accounting for natural gas production imbalances and would recognize a liability if the existing reserves
were not adequate to cover an imbalance.
Accounting for Leases
Leases of property, plant and equipment
where the Company assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases
are capitalized at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability
and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations,
net of finance charges, are included in other long-term payables. The interest element of the finance charge is charged to the
income statement over the lease period. Property, plant and equipment acquired under finance leasing contracts are depreciated
over the useful life of the asset.
Leases of assets under which all the
risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under
operating leases are charged to the income statement on a straight-line basis over the period of the lease. When an
operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty
is recognized as an expense in the period in which termination takes place.
Revenue Recognition
Rental income for residential property
leases is recorded when due from residents and is recognized monthly as it is earned, which is not materially different than on
a straight-line basis as lease terms are generally for periods of one year or less.
Revenues are recognized when products
are shipped or services are provided to customers, title is transferred, the sales price is fixed or determinable and collectability
is reasonably assured. Costs associated with revenues are recorded in cost of revenues. Production volumes of natural
gas are sold immediately and transported via pipeline. Royalties on the production of natural gas either paid in cash
or settled through the delivery of volumes. The Company includes royalties in its revenues and cost of revenues when settlement
of the royalties is paid in cash, while royalties settled by the delivery of volumes are excluded from revenues and cost of revenues.
The Company follows the sales method
of accounting for natural gas production imbalances and would recognize a liability if the existing reserves were not adequate
to cover an imbalance.
Use of Estimates
In preparing financial statements in
conformity with accounting principles generally accepted in the United States of America, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents
The Company considers all short-term
deposits and money market investments with a maturity of less than three months to be cash equivalents.
Other Intangible Assets
The cost of acquired patents, trademarks
and licenses is capitalized and amortized using the straight-line method over their useful lives. The carrying amount
of each intangible asset is reviewed annually and adjusted for permanent impairment where it is considered necessary.
Impairment of Notes Receivable
Notes receivable are identified as impaired
when it is probable that interest and principal will not be collected according to the contractual terms of the note agreements. The
accrual of interest is discontinued on such notes, and no income is recognized until all past due amounts of principal and interest
are recovered in full.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets
and certain identifiable intangibles for impairment when events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. In reviewing recoverability, the Company estimates the future cash flows expected
to result from use of the assets and eventually disposing of them. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the asset’s
fair value.
The Company determines the fair value
of assets to be disposed of and records the asset at the lower of fair value less disposal costs or carrying value. Assets
are not depreciated while held for disposal.
Sales of Real Estate
Gains on sales of real estate are recognized
to the extent permitted by Accounting Standards Codification Topic 360-20, “Real Estate Sales – Real Estate Sales”,
(“ASC 360-20”). Until the requirements of ASC 360-20 have been met for full profit recognition, sales are
accounted for by the installment or cost recovery method, whichever is appropriate.
Real Estate Held for Sale
Accounting Standards Codification Topic
360, “Property, Plant, & Equipment” (“ASC 360”)requires that properties held for sale be reported at
the lower of carrying amount or fair value less costs of sale. If a reduction in a held for sale property’s carrying
amount to fair value less costs of sale is required, a provision for loss is recognized by a charge against earnings. Subsequent
revisions, either upward or downward, to a held for sale property’s estimated fair value less costs of sale are recorded
as an adjustment to the property’s carrying amount, but not in excess of the property’s carrying amount when originally
classified as held for sale. A corresponding charge against or credit to earnings is recognized. Properties
held for sale are not depreciated.
Asset Retirement Obligation
The Company records an asset retirement
obligation liability on the consolidated balance sheets and capitalizes a portion of the cost in “Oil and natural gas properties”
during the period in which the obligation is incurred. The asset retirement obligation is further described in Note
M.
Income Taxes
The Company accounts for income taxes
in accordance with Accounting Standards Codification, (“ASC”) No. 740, “Accounting for Income Taxes”.
ASC 740 requires an asset and liability approach to financial accounting for income taxes. In the event differences between the
financial reporting basis and the tax basis of the Company’s assets and liabilities result in deferred tax assets, ASC 740
requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance
is provided for a portion or all of the deferred tax assets when there is an uncertainty regarding the Company’s ability
to recognize the benefits of the assets in future years. Recognition of the benefits of deferred tax assets will require the Company
to generate future taxable income. There is no assurance that the Company will generate earnings in future years. Since management
could not determine the likelihood that the benefit of the deferred tax asset would be realized, no deferred tax asset was recognized
by the Company.
Recent Accounting Pronouncements
There were no recent accounting pronouncements
that our Company has not implemented that materially affect our consolidated financial statements.
NOTE C– RELATED PARTIES
Commencing in February 2008, three publicly
traded entities needed a chief financial officer, American Realty Investors, Inc. (“ARL”), Transcontinental Realty
Investors, Inc. (“TCI”) and Income Opportunity Realty Investors, Inc. (“IOR”), Mr. Bertcher, is a certified
public accountant and has a long history in their industry. New Concept made arrangements with the three entities whereby, in addition
to his responsibilities to New Concept Mr. Bertcher would be Chief Financial Officer for the three entities. Mr. Bertcher is paid
directly for such services by the contractual advisor for the three companies.
Beginning in 2011 Pillar Income Asset
Management (“Pillar”) became the contractual advisor to the three publicly traded entities. Pillar is a wholly
owned subsidiary of RAI. In addition to the relationship with Mr. Bertcher, New Concept conducts business with Pillar whereby Pillar
provided the Company with services including processing payroll, acquiring insurance and other administrative matters. The Company
believes that by purchasing these services through certain large entities it can get lower costs and better service. Pillar does
not charge the Company a fee for providing these services. The Company reimburses Pillar for the direct cost for such services.
In December 2018 the Company had accumulated a balance due to Pillar of approximately $450,000 which was repaid from the proceeds
of a stock offering. Mr. Bertcher is an officer of Pillar.
Realty Advisors, Inc., (“RAI”)
is a privately owned investment company and by virtue of its stock ownership, the controlling shareholder for the three public
entities. Mr. Bertcher is an officer of RAI.
Note D - Notes Receivable
|
|
|
|
|
|
|
|
Notes Receivable are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
Rate
|
2018
|
2017
|
|
|
|
|
American Realty Investors, Inc. (a related party) payable upon maturity
|
|
|
|
in September 2019
|
6%
|
4,017
|
-
|
Third Party -payable monthly matures in July 2025
|
6%
|
297
|
337
|
|
|
4,314
|
337
|
|
|
|
|
less: current portion of notes receivable
|
|
4,063
|
36
|
|
|
|
|
Notes Receivable
|
|
251
|
301
|
|
|
|
|
|
|
|
|
The Company holds a note receivable from a non related party. The original note was $415,000 payable in 120 monthly
|
payments at 6% interest. Balance due at December 31, 2018 is $297,000 with $46,000 due currently.
|
|
Note E - Fixed Assets and oil and natural gas properties
|
|
|
|
|
|
|
|
|
|
Land, building and furniture, fixtures and equitpment are recorded at cost incurred to acquire the assets.
|
At Decemer 31, 2018, fixed assets are as follows:
|
|
|
|
|
|
|
|
|
|
Oil and Gas Properties
|
|
2018
|
|
2017
|
|
|
|
|
|
Land and improvements
|
|
$ 432
|
|
$ 432
|
Buildings and improvements
|
|
272
|
|
272
|
Equipment and furnishings
|
|
565
|
|
565
|
Total fixed assets
|
|
1,269
|
|
1,269
|
Less: Accumulated depletion
|
|
(651)
|
|
(608)
|
Net Fixed Assets
|
|
$ 618
|
|
$ 661
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties
|
|
2018
|
|
2017
|
|
|
|
|
|
Investment in Oil and gas properties
|
|
$ 6,493
|
|
$ 6,493
|
Less: Accumulated depreciation
|
|
(3,976)
|
|
(3,772)
|
Net oil and gas properties
|
|
$ 2,517
|
|
$ 2,721
|
NOTE F – NOTES PAYABLE
Notes payable is comprised of the following (in thousands):
|
2018
|
|
2017
|
|
|
|
|
Bank Debt
|
289
|
|
359
|
Deferred Borrowing Costs
|
$ (29)
|
|
$ (35)
|
|
$ 260
|
|
$ 324
|
Bank debt represent loans from a bank
to finance drilling and equipment at the Company’s oil and gas operation. The interest rate ranges from 5% to 5 ½
%. The loans are collateralized by the Company’s oil & gas leases as well as real property and equipment.
Aggregate annual principal maturities
of long-term debt at December 31, 2018 are as follows (in thousands):
2018
|
59
|
2019
|
46
|
2020
|
46
|
2021
|
46
|
2022
|
46
|
Thereafter
|
46
|
|
|
|
$ 289
|
Deferred borrowing costs
|
(29)
|
|
|
|
$ 260
|
NOTE G – INCOME TAXES
At December 31, 2018, the Company had
net operating loss carry forwards of approximately $9.9 million, which expire between 2018 and 2033.
Forms 1120,
U.S, Corporation Income Tax Returns,
for the years ending December 31, 2018, 2017, 2016 are subject to examination, by the IRS, generally for three years after they
are filed.
The following table presents the principal reasons for the difference between the Company's effective tax rate and
|
the United States statutory income tax rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Earned income tax at statutory rate
|
|
$ -
|
|
$ -
|
|
$ 7
|
|
Net operating loss utilization
|
|
-
|
|
0
|
|
(7)
|
|
Deferred tax asset from NOL carry forwards
|
|
2,183
|
|
2,058
|
|
3,263
|
|
Valuation allowance
|
|
(2,183)
|
|
(2,058)
|
|
(3,263)
|
|
Reported income tax expense (benefit)
|
|
$ 0
|
|
$ 0
|
|
$ 0
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes that it is more likely than not the benefit of NOL carryforwards will not be realized.
|
|
Therefore, a valuation allowance on the related deferred tax assets has been recorded.
|
|
|
|
NOTE H – STOCKHOLDERS’
EQUITY
Outstanding Preferred Stock
|
|
|
|
|
|
|
|
Preferred stock consists of the following (amounts in thousands):
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2018
|
|
2017
|
Series B convertible preferred stock, $10 par value, liquidation value of
$100, authorized 100 shares, issued and outstanding one share
|
1
|
|
1
|
The
Series B preferred stock has a liquidation value of $100 per share. The right to convert expired April 30, 2003. Dividends
at a
rate of 6% are payable in cash or preferred shares at the
option of the Company.
Outstanding Common Stock
On December 4, 2018, the Company issued
an additional 3,000,000 shares of Common Stock to Realty Advisors, Inc. (“
RAI
”) a related party, for cash of
$4,500,000 to increase stockholders’ equity by $4,440,000 after issuance costs. The issuance of 3,000,000 shares of Common
Stock resulted in a change in control of the Company, as RAI now owns approximately 59.6% of the outstanding Common Stock. The
issuance of the 3,000,000 shares of Common Stock to RAI increased the total number of shares issued and outstanding to 5,131,935
shares.
NOTE I – CONTINGENCIES
Carlton Energy Group, LLC
Since December 2006, Carlton Energy Group, LLC (“Carlton”),
an individual, Eurenergy Resources Corporation (“Eurenergy”) and several other entities, including New Concept Energy,
Inc., which was then known as CabelTel International Corporation (the “Company”), have been involved in contentious
litigation alleging tortuous conduct, breach of contract and other matters and, as to the Company, that it was the alter ego of
Eurenergy. The Carlton claims were based upon an alleged tortuous interference with a
contract by the individual and Eurenergy related to the right to explore
a coal bed methane concession in Bulgaria which had never (and has not to this day) produced any hydrocarbons. At no time during
the pendency of this project or since did the Company or any of its officers or directors have any interest whatsoever in the success
or failure of the so-called “Bulgaria Project.” However, in the litigation Carlton alleged that the Company was the
alter ego of certain of the other defendants, including Eurenergy.
Following a jury trial in 2009, the Trial Court (295
th
District
Court of Harris County, Texas) cross appeals were filed by Carlton, the individual and Eurenergy to the Court of Appeals for the
First District of Texas (the “Court of Appeals”), which, in February 2012, rendered an opinion. The Company and the
other defendants filed a Petition for Review of the Court of Appeals’ Opinion with the Supreme Court of the State of Texas.
On May 8, 2015, the Supreme Court of Texas affirmed, in part, and reversed, in part, the Court of Appeals’ judgment, remanding
the case to the Court of Appeals for further proceedings. On remand, the Court of Appeals reinstated a verdict on damages in the
amount of $31.16 million against the individual and Eurenergy.
During August 2017, the parties to the litigation reached an arrangement,
the final terms of which will not be determined until the outcome of another appeal to the Supreme Court. Under the terms of the
arrangement, the Company should have no financial responsibility to Carlton, nor should any potential final outcome materially
adversely affect the Company, in management’s opinion
Other
The Company has been named as a defendant
in other lawsuits in the ordinary course of business. Management is of the opinion that these lawsuits will not have a material
effect on the financial condition, results of operations or cash flows of the Company.
NOTE J – OPERATING SEGMENTS
The following table reconciles the segment
information to the corresponding amounts in the Consolidated Statements of Operations and assets from continuing operations:
Year ended December 31, 2018
|
|
Oil and Gas Operations
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$ 682
|
|
$ -
|
|
$ 682
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
597
|
|
353
|
|
950
|
|
|
Depreciation, depletion and amortization
|
|
247
|
|
-
|
|
247
|
|
|
Lease of Retirement Center
|
|
-
|
|
-
|
|
-
|
|
|
Impairment of oil and gas properties
|
|
-
|
|
-
|
|
-
|
|
|
Total Operating Expenses
|
|
844
|
|
353
|
|
1,197
|
|
|
Interest income
|
|
37
|
|
-
|
|
37
|
|
|
Interest expense
|
|
(18)
|
|
-
|
|
(18)
|
|
|
Other income (expense), net
|
|
-
|
|
12
|
|
12
|
|
|
Segment operating income (loss)
|
|
$ (143)
|
|
$ (341)
|
|
$ (484)
|
|
|
Assets
|
|
$ 3,596
|
|
$ 4,286
|
|
$ 7,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
Oil and Gas Operations
|
|
Corporate
|
|
Total
|
|
Discontinued Operations Retirement Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$ 791
|
|
$ -
|
|
$ 791
|
|
$ 659
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
707
|
|
408
|
|
1,115
|
|
358
|
Depreciation, depletion and amortization
|
|
320
|
|
-
|
|
320
|
|
101
|
Lease of Retirement Center
|
|
-
|
|
-
|
|
-
|
|
205
|
Impairment of oil and gas properties
|
|
2,626
|
|
-
|
|
2,626
|
|
-
|
Total Operating Expenses
|
|
3,653
|
|
408
|
|
4,061
|
|
664
|
Interest income
|
|
25
|
|
-
|
|
25
|
|
-
|
Interest expense
|
|
(24)
|
|
-
|
|
(24)
|
|
-
|
Other income (expense), net
|
|
-
|
|
28
|
|
28
|
|
-
|
Segment operating income (loss)
|
|
$ (2,861)
|
|
$ (380)
|
|
$ (3,241)
|
|
$ (5)
|
Assets
|
|
$ 3,903
|
|
$ 302
|
|
$ 4,205
|
|
$ -
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
Oil and Gas Operations
|
|
Corporate
|
|
Total
|
|
Retirement Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$ 764
|
|
$ -
|
|
$ 764
|
|
$ 2,665
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
687
|
|
352
|
|
1,039
|
|
1,496
|
Depreciation, depletion and amortization
|
|
494
|
|
-
|
|
494
|
|
168
|
Lease of Retirement Center
|
|
-
|
|
-
|
|
-
|
|
997
|
Impairment of oil and gas properties
|
|
-
|
|
-
|
|
-
|
|
-
|
Total Operating Expenses
|
|
1,181
|
|
352
|
|
1,533
|
|
2,661
|
Interest income
|
|
23
|
|
-
|
|
23
|
|
-
|
Interest expense
|
|
(38)
|
|
-
|
|
(38)
|
|
-
|
Gain on prepayment of debt
|
|
888
|
|
-
|
|
888
|
|
-
|
Gain on Sale of Land
|
|
-
|
|
50
|
|
50
|
|
-
|
Other income (expense), net
|
|
-
|
|
(110)
|
|
(110)
|
|
-
|
Segment operating income (loss)
|
|
$ 456
|
|
$ (572)
|
|
$ 44
|
|
$ 4
|
Assets
|
|
$ 6,641
|
|
$ 291
|
|
$ 6,932
|
|
$ 246
|
NOTE K - QUARTERLY DATA (UNAUDITED)
The table below reflects the Company’s
selected quarterly information for the years ended December 31, 2018, 2017 and 2016. Amounts shown are in thousands
except per share amounts.
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
Year ended December 31, 2018
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
Revenue
|
$ 204
|
|
$ 173
|
|
$ 167
|
|
$ 138
|
Operating (expense)
|
(275)
|
|
(239)
|
|
(186)
|
|
(144)
|
Corporate general and administrative expense
|
(75)
|
|
(108)
|
|
(99)
|
|
(71)
|
Impairment of natural gas and oil properties
|
-
|
|
-
|
|
-
|
|
-
|
Other income (expense) net
|
12
|
|
-
|
|
(3)
|
|
22
|
Income (loss) allocable to common shareholders
|
$ (134)
|
|
$ (174)
|
|
$ (121)
|
|
$ (55)
|
Income (loss) per common share – basic
|
($0.07)
|
|
($0.08)
|
|
($0.06)
|
|
$0.00
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
Year ended December 31, 2017
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
Revenue
|
$ 195
|
|
$ 243
|
|
$ 194
|
|
$ 159
|
Operating (expense)
|
(256)
|
|
(256)
|
|
(254)
|
|
(261)
|
Corporate general and administrative expense
|
(100)
|
|
(122)
|
|
(95)
|
|
(91)
|
Impairment of natural gas and oil properties
|
-
|
|
-
|
|
-
|
|
(2,626)
|
Other income (expense) net
|
(11)
|
|
11
|
|
65
|
|
(30)
|
Net income (loss) from continuing operations
|
(172)
|
|
(124)
|
|
(90)
|
|
(2,849)
|
Net income (loss) from discontinued operations
|
13
|
|
(11)
|
|
(11)
|
|
(2)
|
Income (loss) allocable to common shareholders
|
$ (159)
|
|
$ (135)
|
|
$ (101)
|
|
$ (2,851)
|
Income (loss) per common share – basic
|
($0.08)
|
|
($0.07)
|
|
($0.05)
|
|
($1.39)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
Year ended December 31, 2016
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
Revenue
|
$ 219
|
|
$ 170
|
|
$ 190
|
|
$ 185
|
Operating (expense)
|
(396)
|
|
(233)
|
|
(295)
|
|
(327)
|
Corporate general and administrative expense
|
(166)
|
|
(101)
|
|
(52)
|
|
(33)
|
Gain on prepayment of debt
|
-
|
|
-
|
|
-
|
|
888
|
Gain on sale of land
|
|
|
|
|
|
|
50
|
Other income (expense) net
|
(10)
|
|
(7)
|
|
(13)
|
|
(80)
|
Net income (loss) from continuing operations
|
(353)
|
|
(171)
|
|
(170)
|
|
738
|
Net income (loss) from discontinued operations
|
57
|
|
38
|
|
6
|
|
(97)
|
Income (loss) allocable to common shareholders
|
$ (296)
|
|
$ (133)
|
|
$ (164)
|
|
641
|
Income (loss) per common share – basic
|
($0.15)
|
|
($0.07)
|
|
($0.08)
|
|
$0.32
|
NOTE L - SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND
NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)
The following table reflects revenues
and expenses directly associated with our oil and gas producing activities, including general and administrative expenses directly
related to such producing activities. They do not include any allocation of interest costs or general corporate overhead
and, therefore, are not necessarily indicative of the contribution to net earnings of our oil and gas operations. Income
tax expense has been calculated by applying statutory income tax rates to oil and gas sales after deducting costs, including depreciation,
depletion and amortization and after giving effect to permanent differences.
|
|
2018
|
|
|
Gas
|
|
Oil;
|
|
|
(MMCF)
|
|
(MBBLS)
|
Proved developed and undeveloped reserves - January 1,2018
|
|
830
|
|
69
|
Purchase of oil and natural gas properties in place
|
|
-
|
|
-
|
Discoveries and exclusions
|
|
(520)
|
|
(37)
|
Revisions
|
|
-
|
|
-
|
Sales of oil and gas properties in place
|
|
-
|
|
-
|
Production
|
|
(130)
|
|
(4)
|
Proved developed and undeveloped reserves - December 31,2018
|
|
180
|
|
28
|
Probable reserves
|
|
1,566
|
|
-
|
Possible reserves
|
|
522
|
|
-
|
Total reserves - December 31, 2018
|
|
2,268
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Proved developed at beginning of year
|
|
830
|
|
69
|
|
|
|
|
|
Proved developed reserves at end of year
|
|
180
|
|
28
|
|
|
2017
|
|
|
|
|
|
|
|
Gas
|
|
Oil
|
|
|
(MMCF)
|
|
(MBBLS)
|
Proved developed and undeveloped reserves - January 1, 2017
|
|
3,219
|
|
149
|
Purchase of oil and natural gas properties in place
|
|
-
|
|
-
|
Discoveries and exclusions
|
|
-
|
|
-
|
Revisions
|
|
(2,211)
|
|
(75)
|
Sales of oil and gas properties in place
|
|
-
|
|
-
|
Production
|
|
(178)
|
|
(5)
|
Proved developed and undeveloped reserves - December 31,2017
|
|
830
|
|
69
|
Probable reserves
|
|
1,025
|
|
0
|
Possible reserves
|
|
342
|
|
0
|
Total reserves - December 31, 2017
|
|
2,197
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Proved developed at beginning of year
|
|
1,051
|
|
81
|
|
|
|
|
|
Proved developed reserves at end of year
|
|
830
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Oil and gas sales
|
|
$ 682
|
|
$ 791
|
Operating expenses
|
|
(597)
|
|
(707)
|
Depreciation, depletion and amortization
|
|
(247)
|
|
(320)
|
Impairment of oil & gas properties
|
|
-
|
|
(2,626)
|
|
|
|
|
|
Results of operations
|
|
$ (162)
|
|
$ (2,862)
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the standardized measure of future net cash flows related to our
|
proved reserves
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Future oil and gas cash inflows
|
|
$ 8,292
|
|
$ 10,653
|
Future oil & gas operating expenses
|
|
(1,478)
|
|
(3,425)
|
Future development costs
|
|
(1,400)
|
|
(1,480)
|
Future tax expense
|
|
(590)
|
|
(724)
|
Future net cash flows
|
|
$ 4,824
|
|
$ 5,024
|
10% discount to reflect timing of cash flows
|
|
(1,853)
|
|
(2,303)
|
|
|
|
|
|
|
|
$ 2,971
|
|
$ 2,721
|
(1) Probable Reserves are those
additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves are
as likely as not to be recovered.
(2) Possible reserves are those additional
reserves that are less certain to be recovered than probable reserves.
NOTE M – ASSET RETIREMENT OBLIGATION
The Company records an asset retirement
obligation (ARO) when the total depth of a drilled well is reached and the Company can reasonably estimate the fair value of an
obligation to perform site reclamation, dismantle facilities or plug and abandon costs. The Company records the ARO
liability on the consolidated balance sheets and capitalizes a portion of the cost in “Oil and natural gas properties”
during the period in which the obligation is incurred. In general, the amount of an ARO and the costs capitalized will
be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed
inflation factor up to the estimated settlement date and adjusted for the Company’s credit risk. This amount is
then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After
recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds. The
additional capitalized costs are depreciated on a unit-of-production basis or straight-line basis.
In 2012, the Company re-evaluated its
method of plugging abandoned wells and determined by doing so in-house it could lower the cost. Based upon the Company’s
current calculations, we have established a sufficient reserve, for accounting purposes, to plug the existing wells when necessary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Asset retirement obligation, January 1
|
|
|
$ 2,770
|
|
$ 2,770
|
|
Acquisition of oil and gas properties
|
|
|
-
|
|
-
|
|
Revisions in the estimated cash flows
|
|
|
-
|
|
-
|
|
Liability incurred upon acquiring and drilling wells
|
|
-
|
|
-
|
|
Liability settled upon plugging and abandoning wells
|
|
-
|
|
-
|
|
Accretion of discounnt expense
|
|
|
|
-
|
|
-
|
|
Asset retirement obligation, December 31
|
|
|
$ 2,770
|
|
$ 2,770
|
NOTE N –SUBSEQUENT EVENTS
The Company has
evaluated subsequent events through March 29, 2019, the date the financial statements were available to be issued, and has determined
that there are none to be reported.
The following documents are filed as
exhibits (or are incorporated by reference as indicated) into this Report:
Exhibit Designation
|
Exhibit Description
|
3.1
|
Articles of Incorporation of Medical Resource Companies of America (incorporated by reference to Exhibit 3.1 to Registrant’s Form S-4 Registration Statement No. 333-55968 dated December 21, 1992)
|
3.2
|
Amendment to the Articles of Incorporation of Medical Resource Companies of America (incorporated by reference to Exhibit 3.5 to Registrant’s Form 8-K dated April 1, 1993)
|
3.3
|
Restated Articles of Incorporation of Greenbriar Corporation (incorporated by reference to Exhibit 3.1.1 to Registrant’s Form 10-K dated December 31, 1995)
|
3.4
|
Amendment to the Articles of Incorporation of Medical Resource Companies of America (incorporated by reference to Exhibit to Registrant’s PRES 14-C dated February 27, 1996)
|
3.5
|
Certificate of Decrease in Authorized and Issued Shares effective November 30, 2001 (incorporated by reference to Exhibit 2.1.7 to Registrant’s Form 10-K dated December 31, 2002)
|
3.6
|
Certificate of Designations, Preferences and Rights of Preferred Stock dated May 7, 1993 relating to Registrant’s Series B Preferred Stock (incorporated by reference to Exhibit 4.1.2 to Registrant’s Form S-3 Registration Statement No. 333-64840 dated June 22, 1993)
|
3.7
|
Certificate of Voting Powers, Designations, Preferences and Rights of Registrant’s Series F Senior Convertible Preferred Stock dated December 31, 1997 (incorporated by reference to Exhibit 2.2.2 of Registrant’s Form 10-KSB for the fiscal year ended December 31, 1997)
|
3.8
|
Certificate of Voting Powers, Designations, Preferences and Rights of Registrant’s Series G Senior Non-Voting Convertible Preferred Stock dated December 31, 1997 (incorporated by reference to Exhibit 2.2.3 of Registrant’s Form 10-KSB for the fiscal year ended December 31, 1997)
|
3.9
|
Certificate of Designations dated October 12, 2004 as filed with the Secretary of State of Nevada on October 13, 2004 (incorporated by reference to Exhibit 3.4 of Registrant’s Current Report on Form 8-K for event occurring October 12, 2004)
|
3.10
|
Certificate of Amendment to Articles of Incorporation effective February 8, 2005 (incorporated by reference to Exhibit 3.5 of Registrant’s Current Report on Form 8-K for event occurring February 8, 2005)
|
3.11
|
Certificate of Amendment to Articles of Incorporation effective March 21, 2007 (incorporated by reference to Exhibit 3.13 of Registrant’s Current Report on Form 8-K for event occurring March 21, 2005)
|
3.12
|
Amended and restated bylaws of New Concept Energy, Inc. dated November 18, 2008.
|
10.1
|
Registrant’s 1997 Stock Option Plan (filed as Exhibit 4.1 to Registrant’s Form S-8 Registration Statement, Registration No. 333-33985 and incorporated herein by this reference).
|
10.2
|
Registrant’s 2000 Stock Option Plan (filed as Exhibit 4.1 to Registrant’s Form S-8 Registration Statement, Registration No. 333-50868 and incorporated herein by this reference)
|
14.0
|
Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003)
|
21.1*
|
Subsidiaries of the Registrant
|
31.1*
|
Rule 13a-14(a) Certification by Principal Executive Officer and Chief Financial Officer
|
32.1*
|
Certification of Principal Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
99.1*
|
Reserve Study dated March 16, 2015 prepared by Lee Keeling and Associates, Inc is included as an exhibit
|
99.2
|
Shared Services Agreement effective December 31, 2010
(incorporated by reference to Exhibit 99.2 to registrants Form 10K/A for the year ended December 31, 2011 filed March 21, 2013)
|
101
|
Interactive data files pursuant to Rule 405 of Regulation S-T
|
|
*Filed herewith.
|
|
|
|
|