Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate website if any, every interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files) Yes [X] No [ ]
Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant
is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of “large accelerated filer,” ”accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
The aggregate market value of the shares
of voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the closing price at
which the common equity was last sold which was the sales price of the Common Stock on the NYSE American as of June 30, 2019 (the
last business day of the Registrant’s most recently completed second fiscal quarter) was $3,582,,000 based upon a total of
1,946,935 shares held as of June 30, 2019 by persons believed to be non-affiliates of the Registrant. The basis of the
calculation does not constitute a determination by the Registrant as defined in Rule 405 of the Securities Act of 1933, as amended,
such calculation, if made as of a date within sixty days of this filing, would yield a different value.
As of March 25, 2020 there were 5,131,934
shares of common stock outstanding.
PART I
Item 1. Business
New Concept Energy, Inc. (“New
Concept”, “NCE” or the “Company” or “we” or “us”) was incorporated in Nevada
on May 31, 1991, under the name Medical Resource Companies of America, Inc. The Company is the successor-by-merger to
Wespac Investors Trust, a California business trust that began operating in 1982. On March 26, 1996, the name was changed
to Greenbriar Corporation. On February 8, 2005, the name of the Company was changed to CabelTel International Corporation. On
May 21, 2008, the name of the company was changed to New Concept Energy, Inc.
Recent Stock Issuance; Change in
Control
"See Item 12 below for a description
of the sale by the Company of 3,000,000 shares of common stock on December 4, 2018 to a now related party and the resulting change
in control of the Company."
Oil and Gas Operations
The Company, through its wholly owned
subsidiaries Mountaineer State Energy, Inc. and Mountaineer State Operations, LLC, owns and 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. The majority of
our oil & gas operation was acquired through the acquisition of the Carl E. Smith Companies in 2008.
As of December 31, 2019 the Company
has 153 producing wells, 44 non-producing wells and related equipment and mineral leases covering approximately 20,000 acres.
Business Strategy
The Company is a Nevada corporation
which owns and operates oil and gas wells in Ohio and West Virginia.
The Company intends to continue to pursue
acquisition of undervalued or distressed oil and gas related businesses, as well as additional acquisitions of oil and gas leases. The
Company may choose to develop or resell the acquired acreage as management deems most beneficial to the Company. The Company’s
strategy is dependent on available financing as well as the market price for oil and gas.
Insurance
The Company currently maintains property
and liability insurance intended to cover claims in its oil and gas operations, and corporate operations. The provision
of personal services entails an inherent risk of liability compared to more institutional long-term care communities. The
Company also carries property insurance on each of its owned and leased properties, as appropriate.
Employees
At December 31, 2019, the Company employed
the services of 5 people with the remainder of the work contracted to third parties. The Company believes it maintains good relationships
with its employees. None of the Company’s employees are represented by a collective bargaining group.
The Company’s operations are subject
to the Fair Labor Standards Act. Many of the Company’s employees are paid at rates related to the minimum wage
and any increase in the minimum wage will result in an increase in labor costs.
Management is not aware of any non-compliance
by the Company as regards applicable regulatory requirements that would have a material adverse effect on the Company’s financial
condition or results of operations.
Quality Assurance
Energy Philosophy – The
Company is committed to the preservation and enhancement of the environment in which we operate. We are philosophically
and operationally focused to continually prioritize the sensitivity of our ecological system in which we develop resources for
our generation as well as our children’s. Management’s legacy is to prove that the energy industry can develop
the earth’s natural resources with clean and efficient technologies while preserving its fragile beauty. Our technologies
directly and significantly reduce the impact of our operations on nature and wildlife by minimizing surface disturbance.
Regular Property Inspections –
Property inspections are conducted by corporate personnel. These inspections cover the appearance of the exterior
and grounds, the appearance and cleanliness of the interior, the professionalism and friendliness of staff and notes on maintenance.
Marketing
The Company sells its oil and natural
gas production to a limited number of purchasers. While there is an available market for crude oil and natural gas production,
we cannot be assured that the loss of these purchasers would not have a material impact on the Company. Further a reduction in
the market price for oil and gas will have a negative effect on the Company’s financial position.
Government Regulation
Management is not aware of any non-compliance
by the Company of applicable regulatory requirements that would have a material adverse effect on the Company’s financial
condition or results of operations.
Competition
The oil and natural gas industry is
highly competitive. We encounter strong competition from other independent operators and from major oil companies in
acquiring properties, contracting for drilling equipment and securing trained personnel. Many of these competitors have
financial and technical resources and personnel substantially larger than ours. As a result, our competitors may be
able to pay more for desirable leases, or to evaluate, bid for and purchase a greater number of properties or prospects than our
financial or personnel resources will permit.
We are also affected by competition
for drilling rigs and the availability of related equipment. In the past, the oil and natural gas industry has experienced
shortages of drilling rigs, equipment, pipe and personnel, which has delayed development drilling and other exploitation activities
and has caused significant price increases. We are unable to predict when, or if, such shortages may again occur or
how they would affect our development and exploitation program.
Competition is also strong for attractive
oil and natural gas producing properties, undeveloped leases and drilling rights, and we cannot assure you that we will be able
to compete satisfactorily. Many large oil companies have been actively marketing some of their existing producing properties
for sale to independent producers. We regularly evaluate acquisition opportunities and submit bids as part of our growth
strategy.
Available Information
The Company maintains an internet website
at www.newconceptenergy.com. The Company has available through the website, free of charge, Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 of the Securities
Exchange Act of 1934 (the “Exchange Act”) and amendments to those reports as soon as rea-sonably practicable after
we electronically file or furnish such materials to the Securities and Exchange Commission. In addition, the Company
has posted the charters for our Audit Committee, Compensation Committee and Governance and Nominating Committee, as well as our
Code of Business Conduct and Ethics, Corporate Governance Guidelines on Director Independence and other information on the website. These
charters and principles are not incorporated in this Report by reference. The Company will also provide a copy of these
documents free of charge to stockholders upon request. The Company issues Annual Reports containing audited financial
statements to its common stockholders.
Item 1A. Risk Factors
Risks Related to the Company
During 2020, a strain of coronavirus (“COVID –
19”) was reported worldwide, resulting in decreased economic activity and concerns about the pandemic, which would adversely
affect the broader global economy. At this point, the extent to which COVID – 19 may impact the global economy and our business
is uncertain, but pandemics or other significant public health events could have a material adverse effect on our business and
results of operations.
An investment in our securities involves
various risks. An investor should carefully consider the following risk factors in conjunction with the other information
in this report before trading our securities.
The oil & gas industry
is highly competitive. Competition for leasehold interests, subcontractors and qualified employees are keen and
we are competing against companies that are larger, more experienced and better capitalized than we are.
The oil & gas industry faces exposure from changes
in oil and gas prices due to market fluctuations beyond the Company’s control.
Our governing documents contain anti-takeover
provisions that may make it more difficult for a third party to acquire control of us. Our Articles of Incorporation
contain provisions designed to discourage attempts to acquire control of the Company by a merger, tender offer, proxy contest or
removal of incumbent management without the approval of our Board of Directors. As a result, a transaction which otherwise
might appear to be in your best interests as a stockholder could be delayed, deferred or prevented altogether, and you may be deprived
of an opportunity to receive a premium for your shares over prevailing market rates. The provisions contained in our
Articles of Incorporation include:
|
●
|
the requirement of an 80% vote to make, adopt, alter, amend, change or repeal our Bylaws or certain key provisions of the Articles
of Incorporation that embody, among other things, the anti-takeover provisions;
|
|
●
|
the so-called business combination “control act” requirements involving the Company and a person that beneficially
owns 10% or more of the outstanding common stock except under certain circumstances; and
|
|
●
|
the requirement of holders of at least 80% of the outstanding Common Stock to join together to request a special meeting of
stockholders.
|
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The Company’s principal offices
are located at 1603 LBJ Freeway Suite 800, Dallas, Texas 75234. The Company believes this space is presently suitable,
fully utilized and will be adequate for the foreseeable future.
Oil and Gas
Reserve Estimation
The Company’s producing properties
have been in production for over 20 years. Because individual well production volumes were not available, composite
production decline curves were constructed for each of the five counties in which these wells are located. All five
composite decline curves exhibit well-established production decline trends. After reviewing all available information,
it was determined that the most reliable method of estimating the Proved Developed Producing Reserves was by extrapolation of the
existing production decline trends to the economic limit of production.
The Company’s reserve reports are
prepared by independent petroleum engineers. The process used to control the information provided to the independent
petroleum engineers includes an initial compilation of production data by experienced senior management personal in the Company’s
field office. This data is independently reviewed by appropriate personal in the Company’s corporate office prior
to being submitted to the independent petroleum engineer. The submitted data is ultimately compared to the final reserve
report and then agreed to the financial statement disclosures prepared by the Company.
The Company uses the petroleum engineering
firm of Lee Keeling and Associates, Inc. to prepare its reserve estimates and future net revenues from its oil and gas properties. The
work is performed by a registered professional engineer who is a member of the Society of Petroleum Engineers.
According
to our independent reserve engineering firm, Lee Keeling & Associates, Inc. as of December 31, 2019, our Proved Reserves in
Ohio and West Virginia were approximately 354,000 Mcf of natural gas and 29,105 Bbls of oil. As of December 31, 2019,
the related PV-10 of our total Reserves was approximately $1 million from Ohio & West Virginia.
Additional Oil and Gas Information
Production
|
2019 – 129,000 Mcf of natural
gas and 4,000 Bbls of oil
|
|
2018 – 130, 000 Mcf of
natural gas and 4, 200 Bbls of oil
|
|
2017 – 178, 000 Mcf of natural gas and 5,
100 Bbls of oil
|
Average sales price per
unit
|
2019 - $2.79 per Mcf and $52.89 per Bbls
|
|
2018 - $2.91 per Mcf and $61.46 per Bbls
|
|
2017 - $3.81 per Mcf and $46.96
per Bbls
|
Productive wells
|
2019 – 153
|
|
2018 – 153
|
|
2017 – 153
|
Developed acreage – approximately 20,000 acres
Drilling activity – The Company
acquired the operations in Ohio and West Virginia in October 2008 and has, for the most part, focused on improving production from
wells. Since the acquisition the Company has drilled 15 wells.
Development plan
In September 2008, the Company through
its acquisition of Carl E. Smith, Inc. (now known as Mountaineer State Energy, Inc.) acquired 20,000 acres of mineral rights in
Ohio and West Virginia. The 20,000 acres are both surrounded and interspersed of hundreds of existing wells of which
138 producing wells were owned by the Company and other non-related entities owned the rest of such wells. The entire
area has pipelines in place and decades of information regarding reserves.
In connection with the acquisition, the
Company formulated a development plan to rework existing wells, to improve production using modern technology, and to follow
up with the drilling of new wells. The Company’s plan is to use the current knowledge of the area and new technologies available
to rework its existing wells.
The decision as to whether to rework
existing wells is based upon a number of factors including available financing and the market price for both oil and gas. During
the last several years the Company has suspended expansion activity for its existing acreage until the price for both oil and gas
stabilizes.
Oil & Gas Reserves
The following table
presents our estimated Oil & Gas Reserves as of December 31, 2019. These estimates correspond with the method used
in presenting the “Supplemental Information on Oil and Gas Operations” in Note L to our consolidated financial statements
included in this report.
|
|
Gas
|
|
Oil
|
|
|
(MMCF)
|
|
(MBBLS)
|
Oil & Gas Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Onshore
|
|
|
|
|
|
|
|
|
Proved Producing
|
|
|
353
|
|
|
|
29
|
|
Proved Non Producing
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Oil & Gas Reserves
|
|
|
354
|
|
|
|
29
|
|
Well Statistics
The following table
sets forth our wells (all natural gas) as of December 31, 2019.
|
|
Wells
|
|
|
Gross (1)
|
|
Net (2)
|
U.S. Onshore
|
|
|
|
|
|
|
|
|
Producing
|
|
|
153
|
|
|
|
148
|
|
Non-Producing
|
|
|
44
|
|
|
|
44
|
|
Total wells
|
|
|
197
|
|
|
|
192
|
|
(1) Gross
wells are the sum of all wells in which we own an interest.
(2) Net
wells are gross wells multiplied by our fractional working interests on the well.
Acreage Statistics
The following table sets
forth our developed and undeveloped oil and gas lease and mineral acreage as of December 31, 2019.
|
|
Acres
|
|
|
Gross (1)
|
|
Net (2)
|
U. S Onshore
|
|
|
|
|
|
|
|
|
Developed
|
|
|
19,375
|
|
|
|
19,375
|
|
Undeveloped
|
|
|
—
|
|
|
|
—
|
|
Total Acreage
|
|
|
19,375
|
|
|
|
19,375
|
|
(1) Gross acres are the sum of all acres
in which we own an interest.
(2) Net acres are gross acres multiplied
by our fractional working interests on the acreage.
(3) 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.
(4) Possible reserves are those additional
reserves that are less certain to be recovered than probable reserves
Item 3. Legal Proceedings
The Company has been named as a defendant
in 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.
Item 4. Mine Safety Disclosures
Not Applicable
PART II
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The common stock of the Company is listed
and traded on the NYSE American using the symbol “GBR”. The following table sets forth the high and low
sales prices as reported in the reporting system of the NYSE American and other published financial sources
|
|
2019
|
|
2018
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
First Quarter
|
|
$
|
2.24
|
|
|
$
|
1.50
|
|
|
$
|
2.45
|
|
|
$
|
1.26
|
|
Second Quarter
|
|
$
|
2.39
|
|
|
$
|
1.66
|
|
|
$
|
4.75
|
|
|
$
|
1.23
|
|
Third Quarter
|
|
$
|
1.88
|
|
|
$
|
1.41
|
|
|
$
|
6.25
|
|
|
$
|
1.91
|
|
Fourth Quarter
|
|
$
|
1.47
|
|
|
$
|
1.20
|
|
|
$
|
2.96
|
|
|
$
|
1.36
|
|
On March 25, 2020 the closing
price of the Company’s Common Stock was $0.64 per share. According to the Transfer Agent’s records, at
February 17, 2019 the Company’s Common Stock was held by approximately 2,545 holders of record.
Dividends
The Company paid no dividends on its
Common Stock in 2019 or 2018. The Company has not paid cash dividends on its Common stock during at least the last ten
fiscal years and it has been the policy of the Board of Directors of the Company to retain all earnings to pay down debt and finance
future expansion and development of its businesses. The payment of dividends, if any, will be determined by the Board
of Directors in the future in light of conditions then existing, including the Company’s financial condition and requirements,
future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board of Directors.
Purchases of Equity Securities
The Board of Directors has not authorized
the repurchase of any shares of its Common Stock under any share repurchase program, except when stockholders owning less than
one round lot (100 shares) so request, the Company will purchase shares at market closing on the last trading day prior to receipt
of the certificate(s). The Company repurchased no shares during 2018.
Item 6. Selected Financial Data
The selected consolidated financial data presented below
are derived from the Company’s audited financial statements.
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
Operating Revenue
|
|
$
|
590
|
|
|
$
|
682
|
|
|
$
|
791
|
|
Operating expenses
|
|
|
3,383
|
|
|
|
1,197
|
|
|
|
4,061
|
|
Operating Profit (loss)
|
|
|
(2,793
|
)
|
|
|
(515
|
)
|
|
|
(3,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(2,352
|
)
|
|
|
(484
|
)
|
|
|
(3,241
|
)
|
Earnings (loss) from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
(5
|
)
|
NET EARNINGS (LOSS)
|
|
$
|
(2,352
|
)
|
|
$
|
(484
|
)
|
|
$
|
(3,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share
|
|
$
|
(0.46
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(1.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common share
|
|
|
5,132
|
|
|
|
2,358
|
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
5,790
|
|
|
$
|
7,882
|
|
|
$
|
4,205
|
|
Long-term debt
|
|
|
177
|
|
|
|
201
|
|
|
|
248
|
|
Asset Retirement obligation
|
|
|
2,770
|
|
|
|
2,770
|
|
|
|
2,770
|
|
Total liabilities
|
|
|
3,381
|
|
|
|
3,121
|
|
|
|
3,569
|
|
Total stockholders equity
|
|
$
|
2,409
|
|
|
$
|
4,761
|
|
|
$
|
636
|
|
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operation
Overview
The Company, through its wholly owned
subsidiaries Mountaineer State Energy, Inc. and Mountaineer State Operations, LLC, owns and 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. The majority of
our oil & gas operation was acquired through the acquisition of the Carl E. Smith Companies in 2008.
As of December 31, 2019 the Company
has 153 producing gas wells, 44 non-producing wells and related equipment and mineral leases covering approximately 20,000 acres.
Critical Accounting Policies and
Estimates
The Company’s discussion and analysis
of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. Certain of the
Company’s accounting policies require the application of judgment in selecting the appropriate assumptions for calculating
financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These
judgments and estimates are based upon the Company’s historical experience, current trends and information available from
other sources that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
The Company believes the following critical
accounting policies are more significant to the judgments and estimates used in the preparation of its consolidated financial statements. Revisions
in such estimates are recorded in the period in which the facts that give rise to the revisions become known.
Oil and Gas Property 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.
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 proved reserves; and the economic viability of development if proved 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.
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 prices at the date of the evaluation,
estimated reserve quantities can be significantly impacted by changes in product prices.
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. Downward revisions of reserves result in an acceleration of
DD&A expense, while upward revisions tend to lower the rate of DD&A expense recognition.
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 average annual 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.
The Company’s allowance for doubtful
accounts receivable and notes receivable is based on an analysis of the risk of loss on specific accounts. The analysis
places particular emphasis on past due accounts. Management considers such information as the nature and age of the
receivable, the payment history, customer or other debtor and the financial condition of the debtor. Management’s
estimate of the required allowance, which is reviewed on a quarterly basis, is subject to revision as these factors change.
Deferred Tax Assets
Significant management judgment is required
in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against
net deferred tax assets. The future recoverability of the Company’s net deferred tax assets is dependent upon
the generation of future taxable income prior to the expiration of the loss carry forwards. At December 31, 2019, the
Company had a deferred tax asset due to tax deductions available to it in future years. However, as management could
not determine that it was more likely than not that the benefit of the deferred tax asset would be realized, a 100% valuation allowance
was established.
Liquidity and Capital Resources
At December 31, 2019, the Company had
current assets of $4,141,000 (largely due to the sale of 3,000,000 shares of common stock on December 4, 2018 and current liabilities
of $434,000.
Cash and cash equivalents totaled $22,000
at December 31, 2019 and $361,000 at December 31, 2018. New Concept’s principal sources of cash are, sales of
oil and gas, interest and proceeds from sales of assets
Net cash provided (used) by continuing
operating activities was $369,000, in 2019, ($637,000) in 2018 and $202,000 in 2017.
Net cash provided (used) in investing
activities was ($664,000) in 2019, ($3,960,000) in 2018 and $14,000 in 2017.
Net cash provided (used) in financing
activities was ($44,000) 2019, $4,539,000 in 2018 and $90,000 in 2017.
Results of Operations
Fiscal 2019 as compared to 2018
Revenues: Total revenues from
the oil & gas operation was $590,000 in 2019 and $682,000 in 2018. The decrease was due to the rate the Company received for
the sale of its natural gas during 2019.
Operating Expenses: Operating
expenses for continuing oil & gas operations was $686,000 in 2019 and $844,000 in 2018. This decrease was principally due to
a reduction of depreciation and depletion expense of $166,000.
In 2019 pursuant to the requirements
of the “full cost ceiling test” for oil & gas companies we recorded a non-cash charge to operations of $ $2.3 million
to write down its investment in West Virginia. In September 2019 the Company unsuccessfully drilled a well which resulted in dry
hole. As the well did not prove up the estimated probable and possible reserves, the Company had to deem the applicable reserve
estimates as impaired. In the third quarter the company booked an impairment expense of $2,285,000 which represents a reduction
of both the estimated probable and possible reserves as well as the cost of drilling the failed well. This charge to earnings was
caused by a revaluation of the Company’s non- producing oil and gas reserves.
Corporate Expenses were $412,000
in 2019 and $353,000 in 2018. The increase was principally due to an increase in consulting expenses.
Interest Income: Interest
Income was $237,000 in 2019 as compared to $37,000 in 2018. The increase was due to the interest earned from investing the proceeds
from the issuance and sale of common stock in December 2018.
Fiscal 2018 as compared to 2017
Revenues: Total revenues from
the oil & gas operation was $682,000 in 2018 and $791,000 in 2017. The decrease was due to the rate the Company received for
the sale of its natural gas during 2018.
Operating Expenses: Operating
expenses for continuing oil & gas operations was $844,000 in 2018 and $1,027, 000 in 2017. This decrease was principally due
to a reduction of depreciation and depletion expense of $73,000. The remaining decrease was the result of an overall reduction
in operating expenses.
In 2017 pursuant to the requirements
of the “full cost ceiling test” for oil & gas companies we recorded a non-cash charge to operations of $ $2.6 million
to write down its investment in Ohio and West Virginia. This charge to earnings was caused by a revaluation of the Company’s
non- producing oil and gas reserves.
Corporate Expenses were $353,000
in 2018 and $408,000 in 2017. The decrease was principally due to a reduction in payroll expenses.
Interest Expense: Interest
Expense was $18,000 in 2018 as compared to $24,000 in 2017. The decrease was due to a reduction in the long term debt.
Other Income & (Expense):
Other income & (expense) was $28,000 for 2017 as compared to ($110,000) in 2016. In 2017 the most significant item was the
receipt of $64,000 for a receivable the Company had previously written off. .The expenses in 2016 were principally the write off
assets pertaining to the termination of the lease at the retirement center.
Item 7a: Quantitative and Qualitative Disclosures
about Market Risk
All of the Company’s debt is financed
at fixed rates of interest. Therefore, the Company has minimal risk from exposure to changes in interest rates.
Item 8. Financial Statements
The consolidated financial statements
required by this Item begin at page 24 of this Report.
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Item 9A. Controls and
Procedures
Evaluation of Disclosure Controls
and Procedures
Based on an evaluation by our management
(with the participation of our Principal Executive Officer and Principal Financial Officer), as of the end of the period covered
by this report, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms
and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal
Financial Officer, to allow timely decisions regarding required disclosures.
There has been no change in our internal
control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal
Control over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting for the Company. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements in accordance with generally accepted accounting principles. There are inherent limitations to the effectiveness
of any system of internal control over financial reporting. These limitations include the possibility of human error,
the circumvention of overriding of the system and reasonable resource constraints. Because of its inherent limitations,
our internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions
or that the degree of compliance with policies or procedures may deteriorate.
Management assessed the effectiveness
of the Company’s internal control over financial reporting. In making this assessment, management used the criteria
set forth in Internal Control - Integrated Framework -2013 issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on management’s assessments and those criteria, management has concluded that Company’s
internal control over financial reporting was effective as of December 31, 2019.
This annual report does not include
an attestation report of the Company’s registered public accounting firm regarding internal control over financial report. Management’s
report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities
and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over
Financial Reporting
In preparation for management’s
report on internal control over financial reporting, we documented and tested the design and operating effectiveness of our internal
control over financial reporting. There were no changes in our internal controls over financial reporting (as such term
is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended December 31, 2019 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and
Corporate Governance
Directors
The affairs of the Company are managed
by the Board of Directors. The directors are elected at the Annual Meeting of Stockholders or appointed by the incumbent
Board and serve until the next Annual Meeting of Stockholders, until a successor has been elected or approved, or until earlier
resignation, removal or death.
It is the Board’s objective that
a majority of the Board consists of independent directors. For a director to be considered “independent”,
the Board must determine that the director does not have any direct or indirect material relationship with the Company. The
Board has established guidelines to assist it in determining director independence, which conform to, or are more
exacting than, the independence requirements
in the NYSE American Stock Exchange listing rules. The independence guidelines are set forth in the Company’s
“Corporate Governance Guidelines”. The text of this document has been posted on the Company’s internet
website at http://www.newconceptenergy.com, and is available in print to any stockholder who requests it. In
addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independent determination.
The Company has adopted a code of conduct
that applies to all directors, officers and employees, including our principal executive officer, principal financial officer and
principal accounting officer. Stockholders may find our Code of Conduct on our internet website address at http://www.newconceptenergy.com. We
will post any amendments to the Code of Conduct as well as any waivers that are required to be disclosed by the rules of the SEC
or the NYSE AMERICAN on our website.
Our Board of Directors has adopted charters
for our Audit, Compensation and Governance and Nominating Committees of the Board of Directors. Stockholders may find
these documents on our website by going to the website address http://www.newconceptenergy.com. Stockholders may
also obtain a printed copy of the materials referred to by contacting us at the following address:
New Concept Energy, Inc.
Attn: Investor Relations
1603 LBJ Freeway, Suite 750
Dallas, Texas 75234
972-407-8400 (Telephone)
The Audit Committee of the Board of
Directors is an “audit committee” for the purposes of Section 3(a) (58) of the Exchange Act. The members
of that Committee are Dan Locklear (Chairman), Raymond D. Roberts, Cecilia Maynard and Victor L. Lund. Mr. Locklear
is qualified as an “audit committee financial expert” within the meaning of SEC regulations and the Board has determined
that he has the accounting and related financial management expertise within the meaning of the listing standards of the NYSE American. All
of the members of the Audit Committee meet the independence and experience requirements of the listing standards of the NYSE American.
All members of the Audit Committee,
Compensation Committee and the Governance and Nominating Committee must be independent directors. Members of the Audit
Committee must also satisfy additional independence requirements which provide (i) that they may not accept, directly or indirectly,
any consulting, advisory or compensatory fee from the Company or any of its subsidiaries other than their director’s compensation
(other than in their capacity as a member of the Audit Committee, the Board of Directors or any other Committee of the Board),
and (ii) no member of the Audit Committee may be an “affiliated person” of the Company or any of its subsidiaries,
as defined by the Securities and Exchange Commission.
The current directors of the Company
are listed below, together with their ages, terms of service, all positions and offices with the Company, their principal occupations,
business experience and directorships with other companies during the last five years or more. The designation “affiliated”,
when used below with respect to a director, means that the director is an officer or employee of the Company or one of its subsidiaries. The
designation “independent”, when used below with respect to a director, means that the director is neither an officer
of the Company nor a director, officer or employee of a subsidiary of the Company, although the Company may have certain business
or professional relationships with the director as discussed in Item 13. Certain Relationships and Related Transactions. No family
relationship exists between any executive officer and any of the directors of the company.
Raymond D. Roberts, age 88, (Independent)
Director since June 2015
Mr. Roberts is recently retired. For
more than the past five years, he has been Director of Aviation of Stellar Aviation, Inc., a privately held Nevada Corporation,
engaged in the business of aircraft (Boeing 737) and logistical management. Mr. Roberts is also a director of American Realty Investors,
Inc. (“ARL”), Transcontinental Realty Investors, Inc. (“TCI”) and Income Opportunity Realty Investors,
Inc. (IOR”) ARL and TCI common stock are listed and traded on the New York Stock Exchange and IOR common stock is listed
and traded on the NYSE American Exchange. Mr. Roberts was also elected as a member of the Governance and Nominating Committee of
the Board of Directors of the Registrant.
Gene S. Bertcher, age 72, (Affiliated)
Director November 1989 to September 1996 and since June 1999
Mr. Bertcher was elected President and
Chief Financial Officer effective November 1, 2004. He was elected Chairman and Chief Executive Officer in December
2006. Mr. Bertcher has been Chief Financial Officer and Treasurer of the Company since November 1989 and Executive Vice
President from November 1989 until he was elected President. Also, Mr. Bertcher is Executive Vice-President and Chief
Financial Officer of American Realty Investors, Inc. and Transcontinental Realty Investors, Inc., both of which are traded on the
NYSE. In addition Mr. Bertcher is Executive Vice-President and Chief Financial Officer Income Opportunity Realty Investors, Inc.
which is traded on the NYSE American exchange, positions he has occupied since February 2008. He has been a certified
public accountant since 1973.
Dan Locklear, age 67, (Independent)
Director since December 2003
Mr. Locklear has been Chief Financial
Officer of Sunridge Management Group, a real estate management company, for more than five years. Mr. Locklear was formerly
employed by Johnstown Management Company, Inc. and Trammel Crow Company. Mr. Locklear has been a certified public accountant
since 1981 and a licensed real estate broker in the State of Texas since 1978.
Victor L. Lund, age 90, (Independent)
Director since March 1996
Mr. Lund founded Wedgwood Retirement
Inns, Inc. (“Wedgwood”) in 1977, which became a wholly owned subsidiary of the Company in 1996. For most
of Wedgwood’s existence, Mr. Lund was Chairman of the Board, President and Chief Executive Officer, positions he held until
Wedgwood was acquired by the Company.
Cecilia Maynard, age 68, Director since January 2019
Ms. Maynard was employed by Pillar
Income Asset Management, Inc. (“Pillar”) from January 2011 through December 31, 2018. Pillar is a Nevada corporation
which provides management services to other entities. Ms. Maynard has also (since May 31, 2018) been a director, Vice President
and Secretary of First Equity Properties, Inc., a Nevada corporation, the common stock of which is registered under Section 12(g)
of the Securities Exchange Act of 1934.
Board Committees
The Board of Directors held six meetings
during 2019. For such year, no incumbent director attended fewer than 75% of the aggregate of (i) the total number of
meetings held by the Board during the period for which he or she had been a director, and (ii) the total number of meetings held
by all Committees of the Board on which he or she served during the period that he or she served.
The Board of Directors has standing
Audit, Compensation and Governance and Nominating Committees. The Audit Committee was formed on December 12, 2003, and
its function is to review the Company’s operating and accounting procedures. A Charter of the Audit Committee
has been adopted by the Board. The current members of the Audit Committee, all of whom are independent within the SEC
regulations, the listing standards of the NYSE American and the Company’s Corporate Governance Guidelines are Messrs. Locklear
(Chairman), Roberts and Lund. Mr. Dan Locklear is qualified as an Audit Committee financial expert within the meaning
of SEC regulations, and the Board has determined that he has the accounting and related financial management expertise within the
meaning of the listing standards of the NYSE American. The Audit Committee met four times in 2019.
The Governance and Nominating Committee
is responsible for developing and implementing policies and practices relating to the corporate governance, including reviewing
and monitoring implementation of the Company’s Corporate Governance Guidelines. In addition, the Committee develops
and reviews background information on candidates for the Board and makes recommendations to the Board regarding such candidates. The
Committee also prepares and supervises the Board’s annual review of director independence and the Board’s performance
and self-evaluation. The Charter of the Governance and Nominating Committee was adopted on October 20, 2004. The
members of the Committee are Messrs. Lund (Chairman), Roberts and Ms. Maynard. The Governance and Nominating Committee
met twice in 2019.
The Board has also formed a Compensation
Committee of the Board of Directors, adopted a Charter for the Compensation Committee on October 20, 2004, and selected Mr. Roberts
(Chairman) and Messrs. Locklear and Ms. Maynard as members of that Committee. The Compensation Committee met twice in
2019.
The members of the Board of Directors
at the date of this Report and the Committees of the Board on which they serve are identified below:
Director
|
Audit Committee
|
Governance and Nominating Committee
|
Compensation Committee
|
Raymond D Roberts
|
P
|
P
|
Chairman
|
Gene S. Bertcher
|
|
|
|
Cecilia Maynard
|
|
P
|
P
|
Dan Locklear
|
Chairman
|
P
|
P
|
Victor L. Lund
|
P
|
Chairman
|
|
Executive Officers
The following person currently serves
as the sole executive officer of the Company: Gene S. Bertcher, Chairman of the Board, President, Chief Executive Officer
and Treasurer. His position with the Company is not subject to a vote of stockholders. His age, term of service
and all positions and offices with the Company, other principal occupations, business experience and
directorships with other companies during
the last five years or more are listed under the caption “Directors” above.
In addition to the foregoing officers,
the Company has other officers not listed herein who are not considered executive officers.
Code of Ethics
The Board of Directors has adopted a
code of ethics entitled “Code of Business Conduct and Ethics” that applies to all directors, officers and employees
of the Company and its subsidiaries. In addition, the Company has adopted a code of ethics entitled “Code of Ethics
for Senior Financial Officers” that applies to the principal executive officer, president, principal financial officer, chief
financial officer, principal accounting officer and controller. The text of these documents is posted on the Company’s
internet website address at http://www.newconceptenergy.com and is available in print to any stockholder who requests
them.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms
3, 4 and 5 furnished to the Company pursuant to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange
Act“), upon written representations received by the Company, the Company is not aware of any failure by any director, officer
or beneficial owner of more than 10% of the Company’s common stock to file with the Securities and Exchange Commission on
a timely basis.
Item 11. Executive Compensation
The following tables set forth the compensation
in all categories paid by the Company for services rendered during the fiscal years ended December 31, 2019, 2018 and 2017 by the
Chief Executive Officer of the Company and to the other executive officers and Directors of the Company whose total annual salary
in 2018 exceeded $50,000.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Nonqualified
|
|
|
All
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Option
|
|
|
|
Compen-
|
|
|
Compensation
|
|
|
Compen-
|
|
|
|
|
|
|
Position
|
|
|
|
Year
|
|
|
|
Salary
|
|
|
|
Bonus
|
|
|
|
Awards
|
|
|
|
Awards
|
|
|
|
sation
|
|
|
Earnings
|
|
|
sation
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gene S. Bertcher (1)
Chairman, President
& Chief Financial
Officer
|
|
|
|
2019
2018
2017
|
|
|
$
$
$
|
56,500
56,500
53,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
$
$
|
56,500
56,500
53,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The salary in the above table represents Mr. Bertcher’s compensation paid by the Company;
he also receives additional compensation for services to three other publicly traded entities which are unrelated to the Company.
|
GRANTS OF PLAN-BASED AWARDS
None
OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END
None
OPTION EXERCISES AND STOCK
VESTED
None
PENSION BENEFITS
None
NONQUALIFIED DEFERRED COMPENSATION
None
DIRECTOR COMPENSATION
|
Name
|
|
|
Fees Earned
Or Paid in
Cash
|
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-Equity
Incentive Plan
Compensation
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
|
All Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gene S. Bertcher
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
Raymond D Roberts
|
|
$
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,500
|
|
Dan Locklear
|
|
$
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,500
|
|
Victor L. Lund
|
|
$
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,500
|
|
Cecilia Maynard
|
|
$
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,500
|
|
MANAGEMENT AND CERTAIN SECURITY HOLDERS
None
Compensation of Directors
The Company pays each non-employee director
a fee of $2,500 per year, plus a meeting fee of $2,000 for each board meeting attended. Employee directors serve without
compensation.
Item 12. Security Ownership of Certain Beneficial
Owners
The following table
sets forth the ownership of the Company’s Common Stock, both beneficially and of record, both individually and in the aggregate,
for those persons or entities known by the Company to be the beneficial owners of more than 5% of its outstanding Common Stock
as of the close of business on March 25, 2020.
Name and Address of
Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Approximate
Percent of Class *
|
Realty Advisors, Inc.
|
3,060,000 shares
|
59.63%
|
|
·
|
based on 5,131,934 shares
outstanding at March 25, 2020.
|
Security Ownership of Management
The following table
sets forth the ownership of the Company’s Common Stock, both beneficially and of record, both individually and in the aggregate
for the directors and executive officers of the Company, as of the close of business on March 25, 2020.
Name and Address of Beneficial Owner
|
Amount and Nature of Beneficial
Ownership*
|
Approximate Percent of Class**
|
Gene S. Bertcher
|
-
|
0%
|
Raymond Roberts
|
-
|
0%
|
Dan Locklear
|
-
|
0%
|
Victor L. Lund
|
-
|
0%
|
Cecilia Maynard
|
-
|
0%
|
All directors and executive officers as a group (5
people)
|
-
|
0%
|
* Beneficial Ownership means the sole
or shared power to vote, or to direct the voting of, a security or investment power with respect to a security, or any combination
thereof.
** Percentages are based upon
5,131, 934 shares of Common Stock outstanding at March 25, 2020.
|
Item 13. Certain Relationships and Related
Transactions, and Director Independence
Beginning in 2011 Pillar became the contractual
advisor to three other publically traded entities which are related to Realty Advisors, Inc. (“RAI”) through stock
ownership by RAI. In addition 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. Pillar is a wholly owned subsidiary of Realty Advisors, Inc.
Except as set forth above, the Reporting
Persons do not have any contracts, arrangements, understandings or relationships, legal or otherwise, with any person with respect
to any securities of the Issuer, including but not limited to, transfer or voting of any of the securities, finders’ fees,
joint ventures, loan or option arrangements, puts or calls, guarantees of profits, divisions of profits or losses, or the giving
or withholding of proxies.
It is the policy of the Company that
all transactions between the Company and any officer or director, or any of their affiliates, must be approved by independent members
of the Board of Directors of the Company. All of the transactions described above were so approved.
See Item 10. Directors, Executive Officers
and Corporate Governance for information on the independence of Directors and the standards of the NYSE American Exchange.
Item 14. Principal Accounting Fees and Services
The following table sets forth the aggregate
fees for professional services rendered to the Company for the years 2018 and 2017 by the Company’s principal accounting
firm Swalm & Associates, P.C.:
Type of Fees
|
|
2019
|
|
2018
|
Audit Fees
|
|
$
|
69,000
|
|
|
$
|
67,000
|
|
Tax Fees
|
|
|
9,000
|
|
|
|
12,000
|
|
Total Fees
|
|
$
|
78,000
|
|
|
$
|
79,000
|
|
All services rendered by the principal
auditors are permissible under applicable laws and regulations and were pre-approved by either of the Board of Directors or the
Audit Committee, as required by law. The fees paid to principal auditors for services described in the above table fall
under the categories listed below:
Audit Fees: These are fees
for professional services performed by the principal auditor for the audit of the Company’s annual financial statements and
review of financial statements included in the Company’s Form 10-Q filings and services that are normally provided in connection
with statutory and regulatory filings or engagements.
Audit-Related Fees: These
are fees for assurance and related services performed by the principal auditor that are reasonably related to the performance of
the audit or review of the Company’s financial statements. These services include attestation by the principal
auditor that is not required by statute or regulation and consulting on financial accounting/reporting standards.
Tax Fees: These are fees
for professional services performed by the principal auditor with respect to tax compliance, tax planning, tax consultation, returns
preparation and reviews of returns. The review of tax returns includes the Company and its consolidated subsidiaries.
All Other Fees: These are
fees for other permissible work performed by the principal auditor that does not meet the above category descriptions.
These services are actively monitored
(as to both spending level and work content) by the Audit Committee to maintain the appropriate objectivity and independence in
the principal auditor’s core work, which is the audit of the Company’s consolidated financial statements.
Financial Information Systems Design
and Implementation Fees
Swalm & Associates, P.C. did not
render professional services to the Company in 2019 with respect to financial information systems design and implementation.
Under the Sarbanes-Oxley Act of 2002
(the “SO Act”), and the rules of the Securities and Exchange Commission (the “SEC”), the Audit Committee
of the Board of Directors is responsible for the appointment, compensation and oversight of the work of the independent auditor. The
purpose of the provisions of the SO Act and the SEC rules for the Audit Committee’s role in retaining the independent auditor
is two-fold. First, the authority and responsibility for the appointment, compensation and oversight of the auditors
should be with directors who are independent of management. Second, any non-audit work performed by the auditors should
be reviewed and approved by these same independent directors to ensure that any non-audit services performed by the auditor do
not impair the independence of the independent auditor. To implement the provisions of the SO Act, the SEC issued rules
specifying the types of services that an independent auditor may not provide to its audit client, and governing the Audit Committee’s
administration of the engagement of the independent auditor. As part of this responsibility, the Audit Committee is
required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that they do not
impair the auditor’s independence. Accordingly, the Audit Committee has adopted a pre-approval policy of audit
and non-audit services (the “Policy”), which sets forth the procedures and conditions pursuant to which services to
be performed by the independent auditor are to be pre-approved. Consistent with the SEC rules establishing two different
approaches to pre-approving non-prohibited services, the Policy of the Audit Committee covers pre-approval of audit services, audit-related
services, international administration tax services, non-U.S. income tax compliance services, pension and benefit plan consulting
and compliance services, and U.S. tax compliance and planning. At the beginning of each fiscal year, the Audit Committee
will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed
and the proposed fees, and the approve or reject each service, taking into account whether services are permissible under applicable
law and the possible impact of each non-audit service on the independent auditor’s independence from management. Typically,
in addition to the generally pre-approved services, other services would include due diligence for an acquisition that may or may
not have been known at the beginning of the year. The Audit Committee has also delegated to any member of the Audit
Committee designated by the Board or the financial expert member of the Audit Committee responsibilities to pre-approve services
to be performed by the independent auditor not exceeding $25,000 in value or cost per engagement of audit and non-audit services,
and such authority may only be exercised when the Audit Committee is not in session.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
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, 2019
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 $767,000 at December 31,
2019.
The Company’s ability to meet current cash obligations relies on cash received from operations and the
collection of notes receivable, including a $4 million dollar receivable from a related party. Further the Company is reviewing
its potential opportunities to increase its cash reserves during 2020 including the sale of surplus land and fixed assets as well
as issuing additional common stock in a private placement.
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 $20,000, $43,000 and $55,000 for 2019, 2018 and 2017, 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 $61,000, $204,000 and $259,000 in 2019, 2018 and 2017 respectively.
Segments
The Company operates one primary business
segment: oil and gas operations. Segment data is provided in “Note H” 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, 2019 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
K.
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
In December 2019, the FASB issued ASU 2019-12. Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this Update simplify the accounting for income
taxes by removing certain exceptions from ASC 740. Also, the amendments in this Update simplify the accounting for income tax by
requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax, requiring
that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination, and
other targeted changes. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning
after December 15, 2020. The Company is currently evaluating the impact that the adoption of ASU 2019-12 may have on its 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 was paid
directly for such services by the contractual advisor for the three companies. Mr. Bertcher resigned as an officer of American
Realty Investors, Inc. (“ARI”) and Transcontinental Realty Investors, Inc. (“TCI”) on June 30, 2019, but
continued on as an officer of Income Opportunity Realty Investors, Inc. (“IOR”).
Beginning in 2011 Pillar Income Asset
Management (“Pillar”) became the contractual advisor to the three publically 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 2019 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 was an officer of Pillar until June 30, 2019.
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 was an officer of RAI until June 30, 2019.
NOTE D– NOTES RECEIVABLE
Notes Receivable are comprised of the following (in thousands):
|
|
Interest
|
|
|
|
|
|
|
Rate
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
American Realty Investors, Inc. (a related party) payable upon maturity in September 2019
|
|
|
6
|
%
|
|
$
|
4,005
|
|
|
$
|
4,017
|
|
Third Party payable monthly matures in July 2025
|
|
|
6
|
%
|
|
|
255
|
|
|
|
297
|
|
|
|
|
|
|
|
|
4,260
|
|
|
|
4,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less: current portion of notes receivable
|
|
|
|
|
|
|
4,046
|
|
|
|
4,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Receivable
|
|
|
|
|
|
$
|
214
|
|
|
$
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2019 is $255,000 with $41,000 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 December 31, 2019, fixed assets
are as follows:
Oil and Gas Properties
|
|
2019
|
|
2018
|
|
|
|
|
|
Land and improvements
|
|
$
|
432
|
|
|
$
|
432
|
|
Buildings and improvements
|
|
|
341
|
|
|
|
272
|
|
Equipment and furnishings
|
|
|
528
|
|
|
|
565
|
|
Total fixed assets
|
|
|
1,301
|
|
|
|
1,269
|
|
Less: Accumulated depletion
|
|
|
(633
|
)
|
|
|
(651
|
)
|
Net Fixed Assets
|
|
$
|
668
|
|
|
$
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Investment in Oil and gas properties
|
|
$
|
4,805
|
|
|
$
|
6,493
|
|
Less: Accumulated depreciation
|
|
|
(4,038
|
)
|
|
|
(3,976
|
)
|
Net oil and gas properties
|
|
$
|
767
|
|
|
$
|
2,517
|
|
NOTE F – NOTES PAYABLE
Notes payable is comprised of the following (in thousands):
|
|
2019
|
|
2018
|
|
|
|
|
|
Bank Debt
|
|
|
245
|
|
|
|
289
|
|
Deferred Borrowing Costs
|
|
$
|
(24
|
)
|
|
$
|
(29
|
)
|
|
|
$
|
221
|
|
|
$
|
260
|
|
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, 2019 are as follows (in thousands):
|
2019
|
|
|
|
44
|
|
|
2020
|
|
|
|
36
|
|
|
2021
|
|
|
|
32
|
|
|
2022
|
|
|
|
29
|
|
|
2023
|
|
|
|
26
|
|
|
Thereafter
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
245
|
|
|
Deferred borrowing costs
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
221
|
|
– INCOME TAXES
At December 31, 2019, the Company had
net operating loss carry forwards of approximately $10.5 million, which expire between 2019 and 2034.
Forms 1120, U.S, Corporation Income Tax Returns,
for the years ending December 31, 2019, 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.
|
|
2019
|
|
2018
|
|
2017
|
Earned income tax at statutory rate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net operating loss utilization
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Deferred tax asset from NOL carry forwards
|
|
|
2,200
|
|
|
|
2,183
|
|
|
|
2,058
|
|
Valuation allowance
|
|
|
(2,200
|
)
|
|
|
(2,183
|
)
|
|
|
(2,058
|
)
|
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,
|
|
|
2019
|
|
2018
|
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
The Company has been named as a defendant
in 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, 2019
|
|
Oil and Gas Operations
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
590
|
|
|
$
|
—
|
|
|
$
|
590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
599
|
|
|
|
412
|
|
|
|
1,011
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
87
|
|
|
|
—
|
|
|
|
87
|
|
|
|
|
|
Impairment of oil and gas properties
|
|
|
2,285
|
|
|
|
—
|
|
|
|
2,285
|
|
|
|
|
|
Total Operating Expenses
|
|
|
2,971
|
|
|
|
412
|
|
|
|
3,383
|
|
|
|
|
|
Interest income
|
|
|
257
|
|
|
|
—
|
|
|
|
257
|
|
|
|
|
|
Interest expense
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Segment operating income (loss)
|
|
$
|
(2,139
|
)
|
|
$
|
(412
|
)
|
|
$
|
(2,551
|
)
|
|
|
|
|
Assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
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
|
|
|
$
|
—
|
|
NOTE K - QUARTERLY DATA (UNAUDITED)
The table below reflects the Company’s
selected quarterly information for the years ended December 31, 2019, 2017 and 2016. Amounts shown are in thousands
except per share amounts.
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
Year ended December 31, 2019
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
180
|
|
|
$
|
164
|
|
|
$
|
127
|
|
|
$
|
119
|
|
Operating (expense)
|
|
|
(179
|
)
|
|
|
(231
|
)
|
|
|
(176
|
)
|
|
|
(100
|
)
|
Corporate general and administrative expense
|
|
|
(88
|
)
|
|
|
(134
|
)
|
|
|
(92
|
)
|
|
|
(98
|
)
|
Impairment of natural gas and oil properties
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,285
|
)
|
|
|
—
|
|
Other income (expense) net
|
|
|
213
|
|
|
|
60
|
|
|
|
106
|
|
|
|
62
|
|
Income (loss) allocable to common shareholders
|
|
|
126
|
|
|
|
(141
|
)
|
|
|
(2,320
|
)
|
|
|
(17
|
)
|
Income (loss) per common share – basic
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
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.
|
|
2019
|
|
|
|
Gas
(MMCF)
|
|
|
|
Oil
(MBBLS)
|
|
|
|
|
|
|
|
|
|
|
Proved developed and undeveloped reserves - January 1,2019
|
|
|
2,268
|
|
|
|
28
|
|
Purchase of oil and natural gas properties in place
|
|
|
—
|
|
|
|
—
|
|
Discoveries and exclusions
|
|
|
—
|
|
|
|
—
|
|
Revisions
|
|
|
(1,785
|
)
|
|
|
4
|
|
Sales of oil and gas properties in place
|
|
|
—
|
|
|
|
(4
|
)
|
Production
|
|
|
(129
|
)
|
|
|
—
|
|
Proved developed and undeveloped reserves - December 31,2019
|
|
|
354
|
|
|
|
28
|
|
Probable reserves
|
|
|
—
|
|
|
|
—
|
|
Possible reserves
|
|
|
—
|
|
|
|
—
|
|
Total reserves - December 31, 2019
|
|
|
354
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed at beginning of year
|
|
|
180
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Proved developed reserves at end of year
|
|
|
354
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2019 pursuant to the requirements of the “full cost ceiling test”
for oil & gas companies we recorded a non-cash charge to operations of $2.3 million to write down its investment in West Virginia. In September 2019 the Company
unsuccessfully drilled a well which resulted in dry hole. As the well did not prove up the estimated probable and possible reserves, the Company had to deem the applicable
reserve estimates as impaired. In the third quarter the company booked an impairment expense of $2.3 which represents a reduction of both the estimated probable and
possible reserves as well as the cost of drilling the failed well. This charge to earnings was caused by a revaluation of the Company’s non- producing oil and gas reserves.
|
|
|
2018
|
|
|
|
|
Gas
(MMCF)
|
|
|
|
Oil
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
$
|
590
|
|
|
$
|
682
|
|
Operating expenses
|
|
|
(599
|
)
|
|
|
(597
|
)
|
Depreciation, depletion and amortization
|
|
|
(87
|
)
|
|
|
(247
|
)
|
Impairment of oil & gas properties
|
|
|
(2,285
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Results of operations
|
|
$
|
(2,381
|
)
|
|
$
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the standardized measure of future net cash flows related to our proved reserves
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Future oil and gas cash inflows
|
|
$
|
2,526
|
|
|
$
|
8,292
|
|
Future oil & gas operating expenses
|
|
|
(611
|
)
|
|
|
(1,478
|
)
|
Future development costs
|
|
|
0
|
|
|
|
(1,400
|
)
|
Future tax expense
|
|
|
(159
|
)
|
|
|
(590
|
)
|
Future net cash flows
|
|
$
|
1,756
|
|
|
$
|
4,824
|
|
10% discount to reflect timing of cash flows
|
|
|
(806
|
)
|
|
|
(1,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
950
|
|
|
$
|
2,971
|
|
(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.
|
|
|
2019
|
|
2018
|
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
During 2020, a strain of coronavirus
(“COVID – 19”) was reported worldwide, resulting in decreased economic activity and concerns about the pandemic,
which would adversely affect the broader global economy. At this point, the extent to which COVID – 19 may impact the global
economy and our business is uncertain, but pandemics or other significant public health events could have a material adverse effect
on our business and results of operations.
The Company has
evaluated subsequent events through March 25, 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.
|
|